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Self-Regulatory Organizations; Order Granting Approval to Proposed Rule Change and Amendment Nos. 1, 2, 3, 4, and 5 Thereto by the American Stock Exchange LLC To Amend Rules 128A, 1000, and 1000A With Respect to the Participation in Exchange Traded Fund Trades Executed on the Exchange by Registered Traders and Specialists and the Allocation of Those Trades to the Appropriate Party

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Start Preamble March 11, 2004.

On April 22, 2002, the American Stock Exchange LLC (“Amex”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) [1] and Rule 19b-4 thereunder,[2] a proposed rule change to amend Amex Rules 128A, 1000, and 1000A regarding the participation in Exchange Traded Fund (“ETF”) trades executed on the Exchange by registered traders and specialists and the allocation by the specialist of those trades to the appropriate party. On February 13, 2003, September 8, 2003, November 3, 2003, and December 10, 2003, respectively, the Amex filed Amendment Nos. 1, 2, 3, and 4 to the proposed rule change.[3] The proposed rule change, as amended, was published for comment in the Federal Register on January 20, 2004.[4] The Commission received no comments on the proposal. On January 12, 2004, the Exchange filed Amendment No. 5 to the proposed rule change.[5]

After careful review, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.[6] In particular, the Commission believes that the proposal is consistent with Section 6(b)(5) of the Act,[7] which requires, among other things, that the Amex's rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest.

The proposed rule change provides that when participation in ETF trades is being allocated, the specialist will receive a greater than equal share when on parity with registered traders. Under the proposed rule change, an ETF Start Printed Page 12720Trading Committee created by the Exchange will determine the percentage of the specialist's participation for each ETF on a case-by-case basis, depending on the liquidity of the product, the type of orders sent to the Exchange and its competitors, and the type of order flow the Exchange seeks to attract.[8] The Commission believes that the proposed rule change should provide for a reasonable participation allocation in ETFs between specialists and registered traders based on their respective responsibilities and obligations. The Commission notes that the proposed rule change sets forth a method to be used by the specialist in allocating shares to registered traders and provides an articulated sequence for allocating an ETF trade in a situation where a customer order is on parity with the specialist and registered traders. The Commission also notes that these methods are similar to the methods that the Commission has approved for the allocation of contracts among registered traders in options trading on the Exchange.[9]

It is therefore ordered, pursuant to section 19(b)(2) of the Act,[10] that the proposed rule change, as amended, (File No. SR-Amex-2002-35) be, and it hereby is, approved.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[11]

J. Lynn Taylor,

Assistant Secretary.

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3.  See letters from Claire P. McGrath, Senior Vice President and Deputy General Counsel, Amex, to Nancy Sanow, Assistant Director, Division of Market Regulation (“Division”), Commission, dated February 12, 2003 (“Amendment No. 1”); September 5, 2003 (“Amendment No. 2”); October 30, 2003 (“Amendment No. 3”); and December 9, 2003 (“Amendment No. 4”).

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4.  See Securities Exchange Act Release No. 49058 (January 12, 2004), 69 FR 2754 (“Notice”).

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5.  See letter from Claire P. McGrath, Senior Vice President and Deputy General Counsel, Amex, to Nancy Sanow, Assistant Director, Division, Commission, dated January 9, 2004 (“Amendment No. 5”). Amendment No. 5 made technical corrections that were already included in the Notice and that the Exchange had committed to formally submit by filing an amendment.

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6.  In approving this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

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8.  Under the proposal, the ETF Trading Committee will also determine the specialist participation in trades executed by the Exchange's automatic execution (“Auto-Ex”) system, in lieu of the table of percentages set forth in the current rule.

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9.  See Securities Exchange Act Release No. 47729 (April 24, 2003), 68 FR 23344 (May 1, 2003).

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[FR Doc. 04-5986 Filed 3-16-04; 8:45 am]