Self-Regulatory Organizations; American Stock Exchange, Inc.; Order Granting Approval to Proposed Rule Change Relating to Rescission of Rules 560 and 570, and Amendment of Rule 550, Commentary .02

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34299; File No. SR-Amex-94-02]

Self-Regulatory Organizations; American Stock Exchange, Inc.;

Order Granting Approval to Proposed Rule Change Relating to Rescission

of Rules 560 and 570, and Amendment of Rule 550, Commentary .02

July 1, 1994.

On February 16, 1994, the American Stock Exchange, Inc. (``Amex''

or ``Exchange'') submitted to the Securities and Exchange Commission

(``SEC'' or ``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 rescind Rules 560 and 570, and

to amend Commentary .02 to Rule 550 to delete its reference to Rules

560 and 570.

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\1\15 U.S.C. 78s(b)(1) (1988).

\2\17 CFR 240.19b-4 (1993).

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The proposed rule change was published for comment in Securities

Exchange Act Release No. 33750 (March 10, 1994), 59 FR 12386 (March 16,

1994). No comments were received on the proposal.

In light of the Commission's rescission of Rule 10b-2, promulgated

under the Act,\3\ the Exchange is rescinding its Rules 560 and 570.

Rule 10b-2, adopted by the Commission in 1937, was part of a

comprehensive package of antifraud provisions.\4\ Its purpose was to

prevent persons participating in the distribution of a security from

stimulating the purchase on an exchange of such security by paying

compensation to any person for soliciting such purchases.

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\3\See Securities Exchange Act Release No. 32100 (April 2,

1993), 58 FR 18145 (April 8, 1993).

\4\See Securities Exchange Act Release No. 1330 (August 4,

1937).

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In 1942, the Commission amended Rule 10b-2 to permit an exemption

for special offerings under a plan filed with the Commission by an

exchange.\5\ The Amex's plan, contained in Rule 560, permits special

offerings, at a fixed price and for a fixed period of time, on the

Exchange where the quantity of stock involved cannot be absorbed in the

regular auction market within a reasonable time and at a reasonable

price. Rule 560 permits a person making a special offering to pay a

special commission to a broker for a purchasing customer.\6\

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\5\See Securities Exchange Act Release No. 3146 (February 6,

1942).

\6\Rule 560 specifies a minimum share size of 1,000 shares, with

a value of $25,000. By today's standards, 1,000 shares of stock with

a value of $25,000 is not a quantity of stock that cannot readily be

absorbed in the regular auction market. Rule 560 predates special

Amex block trading rules, such as Rule 24, which defines a block of

stock as 10,000 shares or more.

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In 1953, the Commission amended Rule 10b-2 to expand the scope of

its exemption by eliminating the requirements that the compensation

paid be a ``special commission.''\7\ Amex Rule 570, which permits

distributions of stock of the type addressed under Exchange Act Rule

10b-2, requires that compensation be paid in accordance with the terms

of a Commission approved plan for an exchange distribution, and that

the payer not know or have reasonable grounds to believe that

transactions violating the terms of an approved plan are taking place.

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\7\See Securities Exchange Act Release No. 4922 (August 20,

1953).

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In proposing the rescission of Rule 10b-2, the Commission stated

that the significant changes that have taken place in the securities

markets since Rule 10b-2's adoption, and the coverage of other

antifraud and antimanipulation provisions of the federal securities

laws, such as Rule 10b-5 and Rule 10b-6, made it appropriate to rescind

Rule 10b-2.\8\ The Exchange is rescinding Rules 560 and 570, its plans

adopted in response to Rule 10b-2, because they are obsolete. The

Exchange also is amending Rule 550 (which pertains to secondary

distributions) to delete a reference to the Special Offering and

Exchange Distribution rules.\9\

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\8\The Commission recently issued a concept release to solicit

comments on a broad range of issues relating to antimanipulation

regulation of securities offerings under the Act, including Rule

10b-6. See Securities Act Release No. 7057, Securities Exchange Act

Release No. 33924, International Series Release No. 657 (April 19,

1994), 59 FR 21681 (April 26, 1994).

\9\The Commission approved the rescission of analogous New York

Stock Exchange rules. See Securities Exchange Act Release No. 32822

(August 31, 1993), 58 FR 47484 (September 9, 1993).

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The Commission finds that the proposed rule change is consistent

with the requirements of the Act and the rules and regulations

thereunder applicable to a national securities exchange, and, in

particular, with the requirements of Section 6(b).\10\ In particular,

the Commission believes the proposal is consistent with the Section

6(b)(5) requirements that the rules of an exchange be designed to

promote just and equitable principles of trade, to prevent fraudulent

and manipulative acts, and, in general, to protect investors and the

public interest.\11\

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\10\15 U.S.C. 78(f) (1988).

\11\15 U.S.C. 78f(b)(5) (1988).

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The Commission believes that the rescission of Exchange Rules 560

and 570, and the amendment to Exchange Rule 550 (which deletes any

reference to the substance of Exchange Rules 560 and 570), is

appropriate because these Exchange Rules were adopted in response to

recently rescinded Rule 10b-2 under the Act. The Commission believes

that the activities with which these Exchange rules are concerned are

sufficiently addressed by the general antifraud and antimanipulation

provisions of the federal securities laws as discussed in the

Commission's release rescinding Rule 10b-2 of the Act. Furthermore, the

Commission believes that it is consistent with the Act to allow the

Exchange to delete obsolete and redundant rules.

It Is Therefore Ordered, pursuant to Section 19(b)(2) of the

Act,\12\ that the proposed rule change (SR-Amex-94-02) is approved.

\12\15 U.S.C. 78s(b)(2) (1988).

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For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\13\

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\13\17 CFR 200.30-3(a)(12) (1993).

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Jonathan G. Katz,

Secretary.

[FR Doc. 94-16568 Filed 7-7-94; 8:45 am]

BILLING CODE 8010-01-M