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. 34-34949; File No. SR-Amex-94-47]

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.

November 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 October

31, 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

November 8, 1994, to continue without interruption. The Commission

notes that, under current Rule 205, no differential may be charged

on odd-lot order transactions, except for non-regular way trades.

See infra, note 5.

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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 November

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\ These procedures initially were approved by the

Commission on a pilot basis,\3\ and subsequently were extended nine

times.\4\

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\2\See Securities Exchange Act Release No. 34496 (August 8,

1994), 59 FR 41807 (August 15, 1994) (approving File No. SR-Amex-94-

28).

\3\See Securities Exchange Act Release No. 26445 (January 10,

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

23).

\4\See Securities Exchange Act Release Nos. 34496 (August 8,

1994), 59 FR 41807 (August 15, 1994) (approving File No. SR-Amex-94-

28); 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 though 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 Section 6(b) of the Act

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

11A(a)(1) in particular in that it 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, NW., 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-94-47 and should be

submitted by December 6, 1994.

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

Proposed Rule Change

For the same rationale discussed in its previous orders regarding

the Amex's odd-lot execution pilot program,\5\ 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 Sections 6(b)\6\ and 11A(a)(1)\7\ 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 their orders. The Exchange has implemented enhancements to

its PER system for the automatic execution of odd-lot market orders.

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\5\See e.g., Securities Exchange Act Release No. 26445, supra

note 3, for a description of the Commission's rationale for

approving the Amex's odd-lot procedures on a pilot basis. The

discussion in the aforementioned order is incorporated by reference

into this order. Since initial approval of the pilot program,

however, the Exchange has amended Rule 205 to provide that no

differential may be charged on odd-lot order transactions, except

for non-regular way trades. See Securities Exchange Act release No.

34591 (August 24, 1994), 59 FR 44783 (August 30, 1994) (approving

File No. SR-AMEX-94-15).

\6\15 U.S.C. Sec. 78f (1988).

\7\15 U.S.C. Sec. 78k-1(a)(1) (1988).

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In its previous orders,\8\ however, the Commission expressed

concern about whether customers receive the best execution, both in

terms of price and time, under the Amex's pilot procedures.

Specifically, the Commission asked the Exchange to analyze the

difference in odd-lot executions between using the Intermarket Trading

System (``ITS'') consolidated best bid or offer and using the Amex

quote. The Commission also was interested in the feasibility of

implementing an odd-lot pricing system based on the ITS best bid or

offer.\9\

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\8\See supra, note 4.

\9\The Commission has approved amendments to the New York Stock

Exchange's (``NYSE'') rules which incorporate the ITS quotation 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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The Amex has submitted to the Commission several monitoring reports

regarding the operation of its odd-lot execution pilot program,

including the requested information about the difference in executions

between the ITS best bid or offer and the Amex quote. As discussed in

more detail below, 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.

Based on the Amex data, the pilot procedures provide a superior

execution for a substantial majority of odd-lot orders. The Commission,

however, remains concerned that some odd-lot orders cold receive

executions at less than the best available price, because the

Exchange's pricing formula does not include quotations from other

markets.\10\ Nevertheless, due to the relatively low number of odd-lot

market orders on the Amex,\11\ the percentage of Amex quotes that are

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

under the pilot procedures as compared to the former pricing

procedures, the Commission believes that it is acceptable to extend the

pilot program under Rule 205 for an additional three months.

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\10\See supra, note 9.

\11\See footnote 9 of Securities Exchange Act Release No. 29922

(November 8, 1991), 56 FR 58409.

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During that period, the Commission requests that the Exchange

continue to monitor its pilot program and provide data on (1) the

percentage of odd-lot orders executed when the Amex quote is worse than

the ITS consolidated best bid or offer and (2) the number of odd-lot

orders 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 or offer. 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.

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 substantially

identical to the procedures that were published in the Federal Register

for the full comment period and were approved by the Commission.\12\

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\12\No comments were received in connection with the proposed

rule changes that implemented these procedures. See supra, notes 3-

4.

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It is therefore ordered, pursuant to Section 19(b)(2)\13\ of the

Act, that the proposed rule change (SR-Amex-94-47), is approved for a

three month period ending on February 8, 1995.

\13\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.\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. 94-28138 Filed 11-14-94; 8:45 am]

BILLING CODE 8010-01-M