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Notice

Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the American Stock Exchange LLC Relating to Amex Membership's Duty to Report Fraudulent or Manipulative Conduct

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Information about this document as published in the Federal Register.

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Start Preamble Start Printed Page 708 December 29, 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 November 21, 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 Amex. 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 Amex proposes to amend Rule 3 of the Amex's General and Floor Rules to require Amex members or member organizations to report to the Exchange fraudulent or manipulative conduct in connection with the trading of securities on the Floor.

The text of the proposed rule change appears below. Proposed new language is italicized; proposed deletions are [bracketed].

* * * * *

[Excessive Dealing] General Prohibitions and Duty to Report

Rule 3. (a)-(g) no change

(h) It shall be deemed an act detrimental to the interest or welfare of the Exchange for any member, member organization or employee thereof to fail to report immediately to the Exchange any fraudulent or manipulative conduct in connection with the trading of securities on the Floor (i) of which the member, member organization or employee thereof has knowledge, or (ii) that the member, member organization or employee thereof has been asked to perform. Reports to the Exchange of fraudulent or manipulative conduct shall be made in such form and to such person(s) as the Exchange shall prescribe from time to time in a notice to the membership.

* * * * *

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 rule change. The text of these statements may be examined at the places specified in Item IV below. The Amex has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.

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

1. Purpose

Paragraphs (b) and (c) of Article V, Section 4 of the Amex Constitution grant the Exchange the authority to discipline any member or member organization that engages in fraud and fictitious transactions.[3] Furthermore, Paragraph (j) of Article V, Section 4 of the Amex Constitution grants the Exchange broad authority to discipline members and member organizations for conduct that is detrimental to the interest or welfare of the Exchange. The Exchange deems any fraudulent or manipulative conduct in connection with the trading of securities on the Exchange's Floor to be a violation of the Amex Constitution and detrimental to the interest and welfare of investors and the Exchange.

The Exchange states that, at present, no Amex rule exists requiring members or member organizations to report to the Exchange fraudulent or manipulative acts that occur in connection with transactions on the Floor. Accordingly, the Exchange believes that there is an opportunity to enhance its ability to police such behavior. The Exchange therefore proposes to add paragraph (h) to Amex Rule 3 to require any member and member organization to report immediately to the Exchange fraudulent or manipulative conduct in connection with the trading of securities on the Floor of which the member or member organization has knowledge or has been asked to perform.

In addition to adding paragraph (h), the Exchange proposes to use this opportunity to amend the title of Amex Rule 3. By way of background, Amex Rule 3 (“Excessive Dealings”) contains various prohibitions impacting members and member organizations. For example, among other prohibitions, Amex Rule 3 forbids a member or member organization from: (i) Effecting trades for an account in which the member or member organization has a direct or indirect interest where such trades are excessive in view of that member or member organization's financial resources or in view of the market for the security; (ii) circulating rumors of a sensational character that might affect market conditions; (iii) improperly using or disclosing confidential information entrusted to the member or member organization by customers; and (iv) in the case of a regular or options principal member, effecting a transaction with an associate member or non-member on the Floor of the Exchange unless permitted by rule. In light of the unrelated prohibitions of the rule and the proposed addition of paragraph (h), the Exchange proposes to change the title of Amex Rule 3 from “Excessive Dealings” to “General Prohibitions and Duty to Report.”

2. Statutory Basis

The Amex believes that the proposed rule change is consistent with section 6(b) of the Act [4] in general and furthers the objectives of section 6(b)(5) of the Act [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, and 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 proposed rule change will impose no burden on competition. Start Printed Page 709

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 Exchange 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. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549. Comments may also be submitted electronically at the following e-mail address: rule-comments@sec.gov. All comment letters should refer to File No. SR-Amex-2003-101. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, comments should be sent in hardcopy or by e-mail but not by both methods. 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. Amex-2003-101 and should be submitted by January 27, 2004.

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

Start Signature

Jill M. Peterson,

Assistant Secretary.

End Signature End Preamble

Footnotes

3.  In addition to the prohibitions of Article V, Section 4 of the Amex Constitution, Rule 4 of the Amex's General and Floor Rules prohibits transactions executed “for the purpose of creating or inducing a false, misleading or artificial appearance of activity in [a] security or for the purpose of unduly and improperly influencing the market price of [a] security or for the purpose of making a price which does not reflect the true state of the market in [a] security.”

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[FR Doc. 04-222 Filed 1-5-04; 8:45 am]

BILLING CODE 8010-01-P