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Notice

Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto by the American Stock Exchange LLC, Relating to Its After-Hours Trading Facility

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Start Preamble August 13, 2003.

Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),[1] and Rule 19b-4 thereunder,[2] notice is hereby given that on February 24, 2003, the American Stock Exchange LLC, (“Amex” or “Exchange”), filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. On June 11, 2003, the Exchange filed Amendment No. 1 to the proposed rule change.[3] The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Exchange proposes to amend Rules 1300, 1301 and 1302 relating to the operation of its After Hours Trading Facility. Below is the text of the proposed rule change. Proposed new language is italicized. Proposed deletions are in [brackets].

* * * * *

After Hours Trading

Rule 1300 (a) The Rules in this 1300 Series (Rules 1300 through 1306) shall apply to (i) all Exchange contracts made on the Exchange through its “After-Hours Trading Facility” (as this Rule defines that term) and (ii) the handling of orders, and the conduct of accounts and other matters, relating to trading through that facility. [Only specialists registered in Portfolio Depositary Start Printed Page 50201Receipts (“PDRs”), Index Fund Shares or in investment trust securities listed on the Exchange pursuant to Section 118B of the Exchange's Listed Standards, Policies and Requirements may participate in the After-Hours Trading Facility for their dealer account in such securities. Any reference in this 1300 Series to specialist transactions in the After-Hours Trading Facility is limited to transactions by specialists in PDRs, Index Fund Shares or investment trust securities in which they are registered.]

(b) through (d) No change.

(e) As used in this 1300 series of Rules and other Rules in their application to After-Hours Trading, the following terms shall have the meanings specified below:

(i) The term “closing price” means the price established by the last “regular way” sale on the American Stock Exchange in a security prior to the official closing of the 9:30 a.m. to 4:00 p.m. trading session, as determined by the Exchange. In the case of a Portfolio Depositary Receipt, Index Fund Share, or an investment trust security listed pursuant to Section 118B of the Exchange's [Listing Standards, Policies and Requirements] Company Guide, the term “closing price” means the price established by the last “regular way” sale on the American Stock Exchange prior to the official closing of the 9:30 a.m. to 4:15 p.m. trading session, as determined by the Exchange.

(ii) through (iv) No change.

Rule 1301 Securities to be Traded

Only such equity securities as the Exchange may specify shall be dealt in through the After-Hours Trading Facility. Any such security must be listed or admitted to unlisted trading privileges on the Exchange. Orders in Nasdaq securities traded on the Exchange pursuant to unlisted trading privileges are not eligible for entry into the After-Hours Trading Facility.

Rule 1302 (a) Entry of Orders

(i) Closing-Price Orders—Subject to Rule 1306 (Impact of Trading Halts on After-Hours Trading), a member or member organization may enter into the After-Hours Trading Facility a closing-price order at such times as the Exchange may specify. A specialist registered in a stock or other security traded pursuant to the Exchange's equity trading rules (“equity-traded security”), (including, without limitation, Portfolio Depositary Receipts (“PDRssm”), Index Fund Shares, Trust Issued Receipts (“TIRs”), rights, warrants, and securities listed pursuant to Sections 106, 107 or 118B of the Exchange Company Guide [Portfolio Depositary Receipt, Index Fund Share or in an investment trust security listed on the Exchange pursuant to section 118B of the Exchange's Listing Standards, Policies and Requirements] may enter a closing price order for his or her dealer account in such security into the After-Hours Trading Facility if there is an imbalance of either buy or sell orders in the [f]F acility immediately prior to the close of the Facility in order to eliminate all or any part of such order imbalance. In the event that, in any stock or any equity-traded security, other than PDRs, Index Fund Shares, TIRs, or an investment trust security listed under Section 118B of the Exchange Company Guide (“Section 118B security”), an open agency order to buy (sell) on the specialist's book limited to the closing price remains unexecuted after the specialist buys (sells) at its price in the After-Hours Trading Facility, then the specialist shall offer that execution to the open order prior to the opening of trading on the next business day. In the event that there is more than one such open agency order, then the specialist shall offer the execution to each order in time priority until either the execution is accepted or until all such orders have rejected the execution. Such acceptance must be made within a reasonable time of the offer or the offer will be deemed to have been rejected.

(ii) Closing-Price Coupled Orders—Subject to Rule 1306, a member or member organization may enter into the After-Hours Trading Facility a closing-price order to buy coupled with a closing-price order to sell the same quantity of the same security for execution against each other. However, subject to paragraph (ii)(2) of this rule, a member or member organization may not so enter such coupled orders if both such orders are for an account in which any member or member organization has a direct or indirect interest.

1. A specialist registered in a [Portfolio Depositary Receipt] PDR, Index Fund Share , TIR or [in an investment trust security listed on the Exchange pursuant to Section 118B of the Exchange's Listing Standards, Policies and Requirements] section 118B security may agree prior to 4:15 p.m. to take the contra side of an order in such security represented in the crowd by entering a coupled order in the After-Hours Trading Facility.

2. A specialist registered in any stock or any equity-traded security other than a PDR, Index Fund Share, TIR or section 118B security may agree prior to the close of the Facility to take the buy (sell) side of a coupled order in such security only after determining no buy (sell) orders in the After-Hours Trading Facility will remain unexecuted. In addition, a member or member organization may enter a closing-price order to buy (sell) any stock or any equity-traded security other than a PDR, Index Fund Share, TIR or Section 118B security for the account of the specialist registered in such security coupled with a closing price order to sell (buy) for the account of any member or member organization which has agreed to offset all or part of any market-on-close imbalance that existed in the security prior to the official closing of the trading session in such security. However, in the event that an open agency order in any stock or any equity-traded security other than a PDR, Index Fund Share, TIR or section 118B security to buy (sell) on the specialist's book limited to the closing price remains unexecuted after the specialist buys (sells) at its price in the After-Hours Trading Facility, then the specialist shall offer that execution to the open order prior to the opening of trading on the next business day. In the event that there is more than one such open agency order, then the specialist shall offer the execution to each order in time priority until either the execution is accepted or until all such orders have rejected the execution. Such acceptance must be made within a reasonable time of the offer or the offer will be deemed to have been rejected.

(iii) No change.

(b) Migration of Orders—Subject to Rule 1306, a “regular way” good 'til cancelled order that is designated as After-Hours eligible, that is on the specialist's limit order book and that is executable at the closing price or better shall migrate from the specialist's limit order book to the After-Hours Trading Program, except that any order for an account in which the specialist member organization or any associated party has a direct or indirect interest shall not so migrate, and provided further that any order for a [Portfolio Depositary Receipt] PDR, Index Fund Share, TIR or [an investment trust security listed on the Exchange pursuant to Section 118B of the Exchange's Listing Standards, Policies and Requirements] section 118B security shall not so migrate.

(c) through (g) No change.

* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the Amex included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed Start Printed Page 50202rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

1. Purpose

Rule 1300(a), which relates to operation of the Exchange After-Hours Trading Facility (“AHT Facility” or “Facility”) (governed by Rules 1300 through 1306), currently provides that only specialists registered in specified securities—Portfolio Depositary Receipts, Index Fund Shares or unit investment trusts listed pursuant to section 118B of the Amex Company Guide—may participate in the AHT Facility for their dealer account in these securities. In order to help reduce volatility on the close, and to afford Amex specialists flexibility comparable to that of New York Stock Exchange (“NYSE”) specialists who participate in NYSE's after-hours crossing session, while maintaining the protection of customer orders, the Exchange believes that specialists should be permitted to participate for their dealer accounts in stocks or in securities traded as equity securities on the Exchange (“equity-traded securities”). These “equity-traded securities” include, without limitation, rights; warrants; securities listed under Sections 106 (Currency and Index Warrants), 107 (Other Securities) and 118B (Investment Trusts) of the Company Guide; Portfolio Depositary Receipts ( PDRsTM); Index Fund Shares; and Trust Issued Receipts ( TIRs ). Rule 1302(a)(i), therefore, would provide that a specialist in a stock or other equity-traded security may enter a closing price order in the AHT Facility for the specialist's dealer account to offset an imbalance of buy or sell orders in the Facility immediately prior to the 5 p.m. after hours trading session.

Rule 1300(e) (Definitions) would be amended to add Index Fund Shares to the securities for which the “closing price” is the last regular way sale on the Exchange prior to the official closing of the 9:30 a.m. to 4:15 p.m. trading session. This is because Index Fund Shares may also trade until 4:15 p.m. Rule 1301 (Securities to be Traded) would be amended to state that orders in Nasdaq stocks traded on the Exchange pursuant to unlisted trading privileges are not eligible for entry in the AHT Facility.

Under proposed amendments to Rule 1302(a)(i), if an open agency order to buy (sell) on the specialist's book limited to the closing price remains unexecuted after the specialist buys (sells) the security at its price in the AHT Facility, then the specialist would have to offer that execution to the open order before the opening of trading the next business day. This restriction would not apply to PDRs, Index Fund Shares, TIRs and securities listed under sections 106, 107 or 118B of the Company Guide. If there are multiple open agency orders, the specialist will have to offer the execution to each order in time priority until either the execution is accepted or until all such orders have rejected the execution. This restriction protects the interest of investors in having their orders on the book executed, if the investor so wishes, if the specialist has previously bought or sold the security in the AHT Facility for his or her own account.

PDRs, Index Fund Shares, TIRs and other derivatively-priced equity-traded securities would not be subject to this restriction in so far as PDRs, Index Fund Shares and section 118B securities are not currently subject to these restrictions in connection with AHT transactions. Moreover, because such securities are derivatively-priced, they may change in value based on price changes in the underlying index or portfolio securities. The Exchange believes it would be inappropriate to subject the specialist to risk of a market move from the AHT session until the opening of trading the next trading day at 9:30 a.m. for unexecuted customer orders remaining on the specialist's book.

Under current Rule 1302(a)(ii), a member or member organization may enter into the AHT Facility a closing-price order to buy coupled with a closing-price order to sell the same amount of the same security for execution against each other. However, both such orders cannot be for the accounts of members or member organizations. The provision in Rule 1302(a)(ii) that the specialist in PDRs, Index Fund Shares and section 118B securities may agree before 4:15 p.m. to take the contra side on a crowd order by entering a coupled order in the AHT Facility would be amended to add TIRs to the securities eligible for such treatment, and to separate this provision as paragraph (ii)(1) of Rule 1302(a). New paragraph (ii)(2) would be added to provide that a specialist in an Amex-listed stock or equity traded security could also take one side of a coupled order transaction after determining that no buy or sell orders in the Facility will remain unexecuted. In order to further an important purpose of the proposed rule to help reduce volatility at the close, both sides of a coupled order could be for the accounts of members or member organizations, including the specialist. However, for any unexecuted open agency order on the specialist's book in any stock or equity traded security other than a PDR, Index Fund Share, TIR or section 118B security, after the specialist buys or sells the security at its price in the AHT Facility, the specialist must offer that execution to the open order before the opening of trading on the next business day. If there is more than one open agency order, then the specialist must offer the execution to each order in time priority either until the execution is accepted or until all such orders have rejected the execution. Acceptance must be made within a reasonable time of the offer or the offer will be deemed rejected. These procedures are comparable to those proposed for closing price orders and are intended to provide comparable investor protections. PDRs, Index Fund Shares, TIRs and section 118B securities would be exempted from this restriction for the reasons described above for closing price orders.

In addition, Rule 1302(b) would be amended to add TIRs to the securities for which specialist proprietary orders are not permitted to migrate from the specialist's book to the AHT Facility. Securities currently so restricted include PDRs, Index Fund Shares and section 118B securities.

2. Statutory Basis

The proposed rule change is consistent with section 6(b) [4] of the Act in general and furthers the objectives of section 6(b)(5) [5] in particular in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, to protect investors and the public interest and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange does not believe that the proposed rule change will impose any burden on competition. Start Printed Page 50203

C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others

No written comments were solicited or received with respect to the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will:

(A) By order approve such proposed rule change, or

(B) Institute proceedings to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of the Amex. All submissions should refer to File No. SR-Amex-2003-10 and should be submitted by September 10, 2003.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[6]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  See letter from Geraldine Brindisi, Vice President and Corporate Secretary, Amex, to Nancy J. Sanow, Assistant Director, Division of Market Regulation, Commission, dated June 10, 2003.

Back to Citation

[FR Doc. 03-21254 Filed 8-19-03; 8:45 am]

BILLING CODE 8010-01-P