Self-Regulatory Organizations; Filing and Order Granting Partial Accelerated Approval of Proposed Rule Change by the American Stock Exchange, Inc. Relating to an Extension of Its Pilot After-Hours Trading Facility

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-33561; File No. SR-Amex-93-15]

Self-Regulatory Organizations; Filing and Order Granting Partial

Accelerated Approval of Proposed Rule Change by the American Stock

Exchange, Inc. Relating to an Extension of Its Pilot After-Hours

Trading Facility

February 1, 1994.

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 April 21, 1993, the American Stock Exchange, Inc. (``Amex'' or

``Exchange'') filed with the Securities and Exchange Commission

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

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

organization. On January 4, 1994, the Amex amended the filing to

request that the pilot program for its After-Hours Trading facility be

extended for a three-month period, until April 30, 1994, while the

Commission considers the Exchange's request for permanent approval of

the pilot program.\3\ The Commission is publishing this notice to

solicit comments on the proposed rule change from interested persons.

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

\2\17 CFR 240.19b-4 (1991).

\3\As originally filed, File No. SR-Amex-93-15 requested

permanent approval of Amex's pilot After-Hours Trading facility. On

January 4, 1994, the Amex amended the filing with an additional

request for a three-month extension of the pilot in order to give

the Commission adequate time to consider the request for permanent

approval and requested that the extension be granted accelerated

approval. See letter from William Floyd-Jones, Jr., Amex, to Sandra

Sciole, Special Counsel, Commission, dated December 23, 1993.

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

of the Proposed Rule Change

The Exchange proposes to extend its pilot After-Hours Trading

(``AHT'') facility through April 30, 1994. The current pilot program

was scheduled to expire on January 31, 1994.

The Exchange requests accelerated approval of the proposed rule

change. The Exchange believes that accelerated effectiveness is

appropriate since it would permit the Exchange's existing AHT facility

to continue operating while the Commission considers permanent approval

of the facility. The proposal to extend the AHT pilot, therefore, does

not raise any new questions for the commission's consideration.

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

In August 1991, the Commission partially approved the Exchange's

AHT facility on a temporary basis.\4\ This facility permits the

execution of coupled and single-sided closing price orders after the

close of the 9:30 a.m. to 4 p.m. trading session. Commencing at 4:15

p.m., single-sided round lot orders for equity securities can be

entered through the Exchange's PER system or left with the specialist

or the specialist's authorized representative for matching and

execution at 5 p.m. at the Exchange's last closing regular way price.

Coupled buy and sell round lot, odd lot and partial round lot orders

also can be entered through the PER system, or left with the specialist

for execution at 5 p.m. against each other at the Exchange's last

regular way price. Members are permitted to designate good `til

cancelled (``GTC'') limit orders entered during the regular trading

session as eligible for execution in the AHT session. Such orders are

marked ``GTX'' and migrate to the AHT facility for possible

execution.\5\

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\4\See Securities Exchange Act Release No. 29515 (August 2,

1991), 56 FR 37736 (August 8, 1991) (order approving File No. SR-

Amex-91-15) (Amex AHT Approval Order).

\5\The Commission notes that the Amex's AHT facility enables

members, not including specialists, to enter both proprietary and

agency orders in any Exchange traded equity security, including

stocks, rights, warrants, primes and scores, ADRs, and non-option

equity derivative products, for execution at the Exchange's last

closing regular way price.

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The Commission stated in its order approving the AHT facility that

it would review the operation of the facility during the temporary

approval period. In this regard, the Commission asked the Exchange to

assemble data on the operation of the facility which the Exchange

submitted under separate cover. It is the Exchange's opinion that the

system has functioned well during the temporary approval period and

that the operation of the system has not had any adverse effects upon

the development of the national market system. The Exchange, therefore,

seeks a three month extension for its AHT facility.\6\

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\6\File No. SR-Amex-93-15 also requested Commission approval for

specialist participation in the AHT facility for investment trust

securities listed pursuant to Section 118B of the Exchange's Listing

Guidelines. This order approves on an accelerated basis until April

30, 1994, only that portion of File No. SR-Amex-93-15 which

establishes the AHT facility and which allows members, not including

specialists, to enter proprietary and agency orders in Exchange-

traded equities. The Commission is not approving the portion of the

proposed rule change which allows specialists to participate in any

way for their own accounts in the AHT facility. See File No. SR-

Amex-93-15. See also letter amendment dated December 23, 1993, supra

note 3.

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2. Statutory Basis

The proposed rule change is consistent with section 6(b) of the Act

in general and furthers the objectives of section 6(b)(5) in particular

in that it is designed to prevent fraudulent and manipulative acts and

practices, promote just and equitable principles of trade, remove

impediments to and perfect the mechanism of a free and open market and

a national market system, and, in general, protect investors and the

public interest.

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 Statement on Comments on the Proposed

Rule Change Received From Members, Participants or Others

No written comments were solicited or received with respect of 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, NW., Washington, DC 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. 552, will be available for inspection and copying at the

Commission's Public Reference Room, 450 Fifth Street, NW., Washington,

DC 20549. Copies of the 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-93-15 and should be submitted by March 1,

1994.

IV. Commission's Findings and Order Granting Accelerated Approval of

Proposed Rule Change

For the reasons set forth below, the Commission finds that approval

of the Exchange's proposed rule change, for a temporary period ending

on April 30, 1994, is consistent with the Act and the rules and

regulations thereunder applicable to a national securities exchange,

and, in particular, with the requirements of sections 6 and 11A of the

Act.\7\ The Commission believes that the Amex proposal is reasonably

designed to promote just and equitable principles of trade, perfect the

mechanism of a free and open market and a national market system, and,

in general, further investor protection and the public interest in fair

and orderly markets on national securities exchanges, as well as

facilitate the linking of qualified markets through appropriate

communications systems and execution of investors' orders in the best

market.

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\7\ 14 U.S.C. Secs. 78f and 78k-1 (1988). See Amex AHT Approval

Order, supra note 4, for a complete description of the AHT

procedures and the Commission's rationale for approving the proposal

on a pilot basis. The discussion in that order is incorporated by

reference into this order.

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In the Commission's release approving the New York Stock Exchange's

(``NYSE'') Off-Hours Trading (``OHT'') facility, the Commission noted

the benefits that would accrue to investors through the development of

an after-hours trading session.\8\ By allowing Amex members to enter

single-sided and coupled orders into an after-hours facility, as well

as permitting the migration of certain limit orders (GTX orders) from

the regular 9:30 a.m. to 4 p.m. trading session for possible execution

in the AHT facility, the Amex is providing a mechanism for maintaining

its own individual marketplace on a competitive level with the NYSE and

the regional exchanges.\9\ Accordingly, the Commission believes that

the proposed rule change which enables members to enter both

proprietary and agency orders in Exchange-traded equity securities,

including stocks, rights, warrants, primes and scores, ADRs, and non-

option equity derivative products, for execution at the Exchange's last

closing regular way price should be extended until April 30, 1994.

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\8\ See Securities Exchange Act Release No. 29237 (May 24,

1991), 56 FR 24853 (May 31, 1991) (approving File Nos. SR-NYSE-90-52

and SR-NYSE-90-53).

\9\ Concurrently with this order, the Commission is also

approving proposals submitted by the NYSE, the Boston Stock

Exchange, Inc. (``BSE''), the Chicago Stock Exchange, Inc.

(``CHX''), the Philadelphia Stock Exchange, Inc. (``Phlx'') and the

Pacific Stock Exchange, Inc. (``PSE''), to extend, through April 30,

1994, the respective pilot programs in place on those exchanges

which provide for executions of securities during after-hours

trading sessions. See Securities Exchange Act Release Nos. 32362

(May 25, 1993) (order approving File No. SR-NYSE-93-23); 32365 (May

25, 1993) (order approving File No. SR-BSE-93-10); 32368 (May 25,

1993) (order approving File No. SR-MSE-93-06); 32364 (May 25, 1993)

(order approving File No. SR-Phlx-93-16); and 32367 (May 25, 1993)

(order approving File No. SR-PSE-93-6).

In 1991, the Commission approved proposals submitted by the BSE,

CHX, Phlx, and PSE which require their specialists to provide

primary market protection to limit orders, designated as executable

after the close of the regular trading session, based on volume that

prints in the primary market's after-hours session. See Securities

Exchange Act Release Nos. 29301 (June 13, 1991) 56 FR 28182

(granting temporary accelerated approval to File No. SR-BSE-91-04;

29297 (June 13, 1991), 56 FR 28191 (granting temporary accelerated

approval to File No. MSE-91-11); 29300 (June 13, 1991), 56 FR 28212

(granting temporary partial approval to File No. SR-Phlx-91-26) and

29749 (September 27, 1991), 56 FR 50405 (order granting temporary

accelerated approval to File No. SR-Phlx-91-32); 29305 June 13,

1991), 56 FR 28208 (granting partial temporary accelerated approval

to File No. SR-PSE-91-21); and 29543 (August 9, 1991), 56 FR 40929

(order granting accelerated approval to File No. SR-PSE-28). On May

25, 1993, the Commission approved extensions of the Amex, NYSE, CHX,

BSE, PSE, and Phlx pilots until January 31, 1994. See Securities

Exchange Act Release No. 32365 (May 25, 1993), 58 FR 31560 (June 3,

1993) (order granting accelerated approval to File No. SR-BSE-93-

10); Securities Exchange Act Release No. 32363 (May 25, 1993), 58 FR

31558 (June 3, 1993) (order granting accelerated approval to File

No. SR-Amex-93-19); Securities Exchange Act Release No. 32368 (May

25, 1993), 58 FR 31563 (June 3, 1993) (order granting accelerated

approval to File No. SR-MSE-93-6); Securities Exchange Act Release

No. 32367 (May 25, 1993), 58 FR 31570 (June 3, 1993) (order granting

accelerated approval to File No. SR-PSE-93-6); Securities Exchange

Act Release No. 32364 (May 25, 1993), 58 FR 31574 (June 3, 1993)

(order granting accelerated approval to File No. SR-Phlx-93-16) and

Securities Exchange Act Release No. 32362 (May 25, 1993), 58 FR

31565 (June 3, 1993) (order granting accelerated approval to File

No. SR-NYSE-93-23). All of the after-hours pilot programs were

scheduled to expire January 31, 1994.

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In its orders approving and extending the Amex AHT pilot program,

the Commission requested that the Amex provide the Commission with

specific data and a report regarding the operation of the Amex's AHT

pilot.\10\

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\10\ Among other things,the Commission requested that the Amex

monitor and report on GTX, single-sided and coupled order executions

in its trading floor to ensure that Amex specialists are not taking

unfair advantage of information derived regarding which orders on

their books are designated GTX and the priority among those orders.

In addition, the Commission requested that the following information

(broken down by month) be included in the Amex report: trading

volume (trades and number of shares) in after-hours session; the

number, if any, of (1) single-sided orders; (2) coupled buy and sell

orders; and (3) GTX orders executed in the after-hours session; the

number, if any, of single-sided and coupled orders comprised of

primes and scores or comprised of equity derivative products that

are executed in the after-hours session; the number, if any, of (1)

single-sided orders; and (2) single-sided GTX orders that remained

unexecuted at the end of the after-hours session; the number and

percentage of GTC orders on the book that were designated ``GTX'';

the number of member firms participating in the after-hours session;

whether the Amex marketplace has experienced any increased

volatility during the last hour of the 9:30 a.m. to 4 p.m. trading

session after the initiation of the after-hours session; whether

there were greater (wider) quote spreads during the last hour of the

9:30 a.m. to 4 p.m. trading session after the initiation of the

after-hours session; whether there was a diminution in the number of

block transactions during the last hour after the initiation of the

after-hours session; and the degree to which transactions were

entered in the after-hours session to avoid the restrictions of the

short sale rule in the 9:30 a.m. to 4 p.m. trading session.

Furthermore, the Amex's report should also indicate: (1) How its

after-hours facility could link with the NYSE's OHT facility and any

other systems approved during the 16-month period; (2) how orders

entered on the other marketplaces could interact with orders in the

Amex's after-hours facility; and (3) how the intermarket issues

discussed in the Commission's order approving the AHT pilot would be

addressed. In this connection, however, the Commission underscored

its strong belief that resolution of intermarket issues would not be

solely a responsibility of the Amex, but would fall equally upon all

self-regulatory organizations proposing after-hours sessions.

In addition, the Commission stated that it expects the Amex,

through use of its surveillance procedures, to monitor for, and

report to the Commission any patterns of manipulation or trading

abuses or unusual trading activity resulting from the new rule.

Specifically, the Commission requested that the Amex monitor closely

the trading of primes and scores and equity derivative products in

the AHT facility to ensure that trading in these issues is not

subject to any patterns of manipulation or trading abuses or unusual

trading activity. Finally, the Commission requested that the Amex

keep the Commission apprised of any technical problems which may

arise regarding the operation of the pilot program, such as

difficulties in order execution or order cancellation.

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The Amex has reported to the Commission, on a monthly basis, the

number of trade and share volume of orders executed after the close

pursuant to the pilot procedures. In addition, on May 21, 1993, and

September 30, 1993, the Exchange filed with the Commission reports

which address the Exchange's experience with the AHT pilot through

September 1, 1993.\11\ The Commission expects the Exchange to submit to

the Commission by March 15, 1994, an updated report concerning pilot

activity through February 28, 1994.\12\

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\11\See letter from William Floyd-Jones, Jr., Assistant General

Counsel, Amex, to Diana Luka-Hopson, Esq., Branch Chief, Commission,

dated May 21, 1993, and letter from William Floyd-Jones, Jr.,

Assistant General Counsel, Legal & Regulatory Policy Division, Amex,

to Diana-Luka-Hopson, Branch Chief, Commission, dated September 30,

1993.

\12\See supra note 10 for the information required to be

provided in the updated reports.

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The Commission believes that it is reasonable to extend the pilot

program in order to provide the Amex and Commission with additional

time to review the pilot program. The pilot extension also will provide

the Commission with an opportunity to study the reports supplied by the

Amex. During the pilot extension, the Commission expects that the Amex

will continue to monitor the operation of the AHT pilot program. In

addition, the Commission continues to request that the Exchange keep

the Commission apprised of any technical problems or patterns of

manipulation or trading abuses which may arise regarding the operation

of the new rule.

The Commission finds good cause for approving the proposed rule

change prior to the thirtieth day after the date of publication of

notice of filing thereof in the Federal Register. The Commission

believes that accelerated approval of the proposal is appropriate in

order to allow the Amex procedures to remain in place on an

uninterrupted basis. This will permit the Amex to continue to compete

with the NYSE's OHT facility, which in turn should benefit investors

and promote competition among markets.

It is therefore ordered, pursuant to Section 19(b)(2) of the

Act\13\ that a portion of the proposed rule change (Amex-93-15), as

discussed above, is hereby approved on a pilot basis through April 30,

1994.

\13\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.\14\

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\14\17 CFR 200.30-3(a)(12) (1991).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-2771 Filed 2-7-94; 8:45 am]

BILLING CODE 8010-01-M