Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval to Proposed Rule Change by American Stock Exchange, Inc. Relating to a Pilot Program for Execution of Odd-Lot Market Orders

SECURITIES AND EXCHANGE COMMISSION

(Release No. 34-34496; Filed No. SR-Amex-94-28)

Self-Regulatory Organizations; Notice of Filing and Order

Granting Accelerated Approval to Proposed Rule Change by American Stock

Exchange, Inc. Relating to a Pilot Program for Execution of Odd-Lot

Market Orders

August 8, 1994.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on August

5, 1994, the American Stock Exchange, Inc. (``Amex'' or ``Exchange'')

filed with the Securities and Exchange Commission (``SEC'' or

``Commission'') the proposed rule change as described in Items I and II

below, which Items have been prepared by the self-regulatory

organization. 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 that the Commission extend for three months the

Exchange's existing pilot program under Rule 205 requiring execution of

odd-lot market orders at the prevailing Amex quote with no differential

charged.\1\ The text of the proposed rule change is available at the

Office of the Secretary, Amex, and at the Commission.

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\1\The Exchange seeks accelerated approval of the proposed rule

change in order to allow the pilot program, which expires on August

8, 1994, to continue without interruption.

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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 self-regulatory organization

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 III below. The self-regulatory

organization 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

Statutory Basis for the Proposed Rule Change

1. Purpose

The Commission has approved, on a pilot basis extending to August

8, 1994, amendments to Exchange Rule 205 to require the execution of

odd-lot market orders at the prevailing Amex quote with no odd-lot

differential.\2\ The Exchange also has proposed to implement on a

permanent basis its existing pilot procedures under Amex Rule 205.\3\

These procedures initially were approved by the Commission on a pilot

basis,\4\ and subsequently were extended eight times.\5\

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\2\See Securities Exchange Act Release No. 33584 (February 7,

1994), 59 FR 6983 (February 14, 1994) (approving Filed No. SR-Amex-

93-45).

\3\Id.

\4\See Securities Exchange Act Release No. 26445 (January 10,

1989), 54 FR 2248 (January 19, 1989) (approving File No. SR-Amex-88-

23).

\5\See Securities Exchange Act Release Nos. 33584 (February 7,

1994), 59 FR 6983 (February 14, 1994) (approving File No. SR-Amex-

93-45); 32726 (August 9, 1993), 58 FR 43394 (August 16, 1993)

(approving File No. SR-Amex-93-24); 31828 (February 5, 1993) 58 FR

8434 (February 12, 1993) (approving File No. SR-Amex-93-06); 30305

(January 30, 1992), 57 FR 4653 (February 6, 1992) (approving File

No. SR-Amex-92-04); 29922 (November 8, 1991), 56 FR 58409 (November

19, 1991) (approving File No. SR-Amex-91-30); 29186 (May 9, 1991),

56 FR 22488 (May 15, 1991) (approving File No. SR-Amex-91-09); 28758

(January 10, 1991), 56 FR 1656 (January 16, 1991) (approving File

No. SR-Amex-90-39); and 27590 (January 5, 1990), 55 FR 1123 (January

11, 1990) (approving File No. SR-Amex-89-31).

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Under the pilot procedures, odd-lot market orders with no

qualifying notations are executed at the Amex quotation at the time the

order is represented in the market, either by being received at the

trading post or through the Exchange's Post Execution Reporting

(``PER'') system. Enhancements to the PER system have been implemented

to provide for the automatic execution of odd-lot market orders entered

through PER. For purposes of the pilot program, odd-lot limit orders

that are immediately executable based on the Amex quote at the time the

order is received, at the trading post or through PER, are executed in

the same manner as odd-lot market orders.

The Exchange proposes that the pilot program applicable to odd-lot

execution procedures be extended for three months. This would provide

the Commission with an additional period of time to assess procedures

under the pilot program and would permit the Exchange to provide

additional data and information regarding its experience under the

pilot program.

2. Basis

The proposed rule change is consistent with Sections 6(b) and

11A(a)(1) of the Act in general and furthers the objectives of Section

6(b)(5) in particular in that its facilitates the economically

efficient execution of odd-lot transactions, and is intended to result

in improved execution of customer orders.

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

The proposed rule change will impose no burden on competition.

C. Self-Regulatory Organization's Statements 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. 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, N.W., Washington, D.C. 20549.

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. Sec. 552, will be available for inspection and copying at

the Commission's Public Reference Section, 450 Fifth Street, N.W.,

Washington, D.C. 20549. 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-94-28 and should be

submitted by September 6, 1994.

IV. Commission's Findings and Order Granting Accelerated Approval

of Proposed Rule Change

In regard to the three month extension of the Amex's odd-lot

execution pilot program, the Commission, for the same rationale

discussed in its previous orders regarding these procedures,\6\ 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 Sections 6(b)\7\ and 11A(a)(1)\8\ of the Act and the rules and

regulations thereunder. The Commission believes that the revised

procedures, which provide for pricing of odd-lot market orders at the

prevailing Amex quote rather than at the execution price of a

subsequent transaction, should provide investors with more timely

execution of these orders. Moreover, these orders should receive less

costly executions than under the former procedures because no

differential will be charged. In addition, the Exchange has implemented

enhancements to its PER system for the automatic execution of odd-lot

market orders, as set forth in the Commission's order approving the use

of the pilot program procedures.\9\

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\6\See supra, note. 5.

\7\15 U.S.C. Sec. 78f (1988).

\8\15 U.S.C. Sec. 78k-1(a)(1) (1988).

\9\See Securities Exchange Act Release No. 26445, supra note 4,

for a description of the Exchange's odd-lot procedures and the

Commission's rationale for approving those procedures on a pilot

basis. The discussion in the aforementioned order is incorporated by

reference into this order.

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In its previous orders,\10\ the Commission asked the Amex to

analyze the difference in executions between using the Intermarket

Trading System (``ITS'') consolidated best bid or offer as compared

with the Amex quote without the differential. Specifically, the

Commission expressed interest in whether customers are receiving the

best execution, both in terms of price and time, using the new Amex

system. The Commission was also interested in the feasibility of

implementing an odd-lot pricing system using the ITS best bid or offer

and no differential.\11\

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\10\See supra, note 5.

\11\The Commission has approved amendments to the New York Stock

Exchange's (``NYSE'') rules which incorporate the ITS quote into the

NYSE odd-lot pricing procedures through the use of the best Pricing

quote (``BPQ''). See Securities Exchange Act Release No. 27981 (May

2, 1990), 55 FR 19409 (May 9, 1990) (File No. SR-NYSE-90-06).

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In response, the Amex submitted the requested information with

respect to the difference in executions between the ITS best bid or

offer and the Amex quote to the Commission on January 9, 1991, April

22, 1991, October 25, 1991, February 4, 1993, August 3, 1993, November

16, 1993, April 14, 1994 and July 11, 1994.\12\ The Amex data indicated

that the pilot procedures provide a superior execution for a

substantial majority of odd-lot executions.

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\12\See letters from Michael Cavalier, Assistant General

Counsel--Regulatory, Legal & Regulatory Policy Division, Amex, to

Beth Stekler, Attorney, Division of Market Regulation, SEC, dated

April 4, 1994 and July 7, 1994; letters from Arne G. Michelson,

Senior Vice President, Total Quality--Floor Members, Amex, to Beth

Stekler, Attorney, Division of Market Regulation, SEC, dated

November 16, 1993, and to Sharon M. Lawson, Assistant Director,

Division of Market Regulation, SEC, dated August 3, 1993; letter

from Michael Cavalier, Assistant General Counsel, Regulatory, Legal

& Regulatory Policy Division, Amex, to Diana Luka-Hopson, Branch

Chief, Division of Market Regulation, SEC, dated February 3, 1993;

and letters from Jules L. Winters, Executive Vice President,

Operations, Amex, to Howard L. Kramer, Assistant Director, Division

of Market Regulation, SEC, dated January 8, 1991, April 19, 1991 and

October 23, 1991.

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Accordingly, the Commission believes that it is reasonable to

extend the pilot for an additional three months to enable the

Commission to review fully the Amex reports and to enable the pilot to

continue without interruption during the Commission's review. The

Commission, however, remains concerned that some odd-lot orders could

receive executions at less than the best available price since the

Exchange's pricing formula does not include quotations from other

markets.\13\ Nevertheless, due to the relatively low number of odd-lot

market orders on the Amex,\14\ the percentage of Amex quotes that are

worse than the ITS best bid or offer, and the benefits to customers

under the pilot program procedures as compared to the former pricing

procedures, the Commission believes that it is acceptable to continue

the pilot's current pricing procedures for an additional three months.

During that period, the Commission requests that the Exchange continue

to monitor the pilot and provide data on the number of Amex quotes

executed that are worse than the ITS consolidated best bid and offer

and on the number of odd-lots as a percentage of total Exchange share

volume and of the total number of trades. Moreover, the Commission

remains interested in the feasibility of implementing an odd-lot

pricing system using the ITS best bid and offer and no differential.

Accordingly, the Commission requests that the Amex evaluate the

feasibility and cost of developing such a plan, along with a projected

time frame for potential implementation.

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\13\See supra, note 11.

\14\See footnote 9 of Securities Exchange Act Release No. 29922

(November 8, 1991), 56 FR 58409.

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The Commission finds good cause for granting approval of the

proposed rule change prior to the thirtieth day after the date of

publication of notice of filing thereof. This will permit the pilot

program to continue on an uninterrupted basis. In addition, the

procedures the Exchange proposes to continue using are the identical

procedures that were published in the Federal Register for the full

comment period and were approved by the Commission.\15\

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\15\No comments were received in connection with the proposed

rule change which implemented these procedures. See supra note 4.

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It Is Therefore Ordered, pursuant to Section 19(b)(2)\16\ of the

Act, that the proposed rule change (SR-Amex-94-28) is approved for a

three month period ending on November 8, 1994.

\16\15 U.S.C. Sec. 78s(b)(2) (1988).

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For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\17\

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\17\17 CFR 200.30-3(a)(12) (1991).

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Maraget H. McFarland,

Deputy Secretary.

[FR Doc. 94-19825 Filed 8-12-94; 8:45 am]

BILLING CODE 8010-01-M