Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Temporary Approval of Proposed Rule Change by the American Stock Exchange, Inc. Relating to Amendments to Rule 170 Pertaining to Specialists' Liquidating Transactions

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-36014; File No. SR-Amex-95-19]

Self-Regulatory Organizations; Notice of Filing and Order

Granting Accelerated Temporary Approval of Proposed Rule Change by the

American Stock Exchange, Inc. Relating to Amendments to Rule 170

Pertaining to Specialists' Liquidating Transactions

July 21, 1995.

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 May 24, 1995, 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. The Commission is publishing this notice to solicit

comments on the proposed rule change from interested persons.

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

\2\ 17 CFR 240.19b-4 (1994).

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

of the Proposed Rule Change

The Amex requests permanent approval of a pilot program that amends

Exchange Rule 170 to permit a specialist to effect a liquidating

transaction on a zero minus tick, in the case of a ``long'' positions,

or zero plus tick, when covering a ``short'' position, without Floor

Official approval. The pilot program also amends Rule 170 to set forth

the affirmative action that specialists are required to take subsequent

to effecting various types of liquidating transactions. In the

alternative, the Exchange is proposing a one year extension of the

pilot program.

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

On April 22, 1994, the Commission approved, on a one year pilot

basis, amendments to Exchange Rule 170 to permit a specialist to effect

a liquidating transaction on a zero minus tick, in the case of a

``long'' position, or a zero plus tick, when covering a ``short''

position, without Floor Official approval.\3\ The amendments also set

forth the affirmative action that specialists are required to take

subsequent to effecting various types of liquidating transactions.

\3\ The Commission approved the pilot program in Securities

Exchange Act Release No. 33957 (April 22, 1994), 59 FR 22188 (April

29, 1994) (``1994 Approval Order''). On April 21, 1995, the

Commission granted a three month extension to the pilot program,

ending on July 21, 1995. Securities Exchange Release No. 35635

(April 21, 1995), 60 FR 20780 (April 27, 1995).

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During the course of the pilot program, the Exchange has monitored

compliance with the requirements of the Rule, and our findings in this

regard have been forwarded to the Commission under separate cover. We

believe that the amendments have provided specialists with flexibility

in liquidating specialty stock positions in order to facilitate their

ability to maintain fair and orderly markets, particularly during

unusual market conditions. In addition, the specialist's concomitant

obligation to participate as dealer on the opposite side of the market

after a liquidating transaction has been strengthened.

The Exchange is therefore proposing approval of the amendments to

Rule 170. In the alternative, the Exchange is requesting an extension

of the pilot program for an additional one year period, if the

Commission feels that further study and monitoring of the effects of

the pilot program are necessary.

[[Page 38871]]

2. Statutory Basis

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

in general and further the objectives of Section 6(b)(5) in particular

in that it is designed to promote just and equitable principles of

trade, remove impediments to and perfect the mechanism of a free and

open market, and, in general, protect investors and the public

interest. The proposed rule change is also consistent with Section

11(b) of the Act which allows exchanges to promulgate rules relating to

specialists in order to maintain fair and orderly markets.

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 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-95-19 and should be

submitted by August 18, 1995.

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

Proposed Rule Change

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 Sections 6(b)(5) and 11 of the Act.\4\ 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, remove impediments to and perfect

the mechanism of a free and open market, and, in general, protect

investors and the public interest. The Commission also believes that

the proposal is consistent with Section 11(b) of the Act and Rule 11b-1

thereunder,\5\ which allow exchanges to promulgate rules relating to

specialists in order to maintain fair and orderly markets.

\4\ 15 U.S.C. 78f and 78k (1988).

\5\ 17 CFR 240.11b-1 (1994).

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Under the pilot program, a specialist may liquidate a position by

selling stock on a direct minus tick or by purchasing stock on a direct

plus tick only if such transactions are reasonably necessary for the

maintenance of a fair and orderly market and only if the specialist has

obtained the prior approval of a Floor Official. Liquidations on a zero

minus or a zero plus tick, which previously required Floor Official

approval, can be effected under the pilot procedures without a Floor

Official's approval, but continue to be subject to the restriction that

they be effected only when reasonably necessary to maintain a fair and

orderly market. In addition, the specialist must maintain a fair and

orderly market during the liquidation.

After the liquidation, a specialist is required to re-enter the

market on the opposite side of the market from the liquidating

transaction to offset any imbalances between supply and demand. During

any period of volatile or unusual market conditions resulting in a

significant price movement in a specialist's specialty stock, the

specialist's re-entry into the market must reflect, at a minimum, his

or her usual level of dealer participation in the specialty stock. In

addition, during such periods of volatile market conditions or unusual

price movements, re-entry into the market following a series of

transactions must reflect a significant level of dealer participation.

In our 1994 Approval Order,\6\ the Commission asked the Amex to

submit a report setting forth the criteria developed by the Exchange to

determine whether liquidating transactions effected by specialists

pursuant to the pilot were necessary and appropriate in connection with

fair and orderly markets. The Commission also asked the Amex to provide

information regarding the Exchange's monitoring of liquidating

transactions effected by specialists on any destabilizing tick. In

addition, the Commission asked the Amex to provide the following

information in its report: (1) a review of all liquidating transactions

effected by specialists on any destabilizing ticks; (2) a review of

liquidating transactions by specialists to determine that the required

Floor Official approval was obtained where necessary; and (3) a review

of liquidating transactions in light of dealer participation levels and

re-entry into the market in terms of timing and support.

\6\ See supra note 3.

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In April 1995, the Commission extended the pilot program for three

months to give the Exchange additional time to prepare the report

discussed above and submit the data to the Commission for its

consideration of whether the pilot program should be granted permanent

approval.\7\ The Exchange submitted the report in May 1995. After

reviewing the data, the Commission agrees with the Exchange that the

pilot generally is working well. In particular, the Commission believes

the report indicates that specialist generally are entering the

aftermarket after effecting liquifying transactions when appropriate

and that the Exchange has developed surveillance procedures that enable

it to monitor specialists' reliquifying activity.

\7\ See supra note 3.

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The Commission believes, however, that further monitoring of the

pilot is necessary before permanent approval can be granted. In this

regard, the Exchange should continue to emphasize the requirements of

the rule, including the necessity for floor official approval of

specialists' purchases and sales on direct plus or minus ticks, and

that such transactions can only be effected if reasonably necessary for

the maintenance of fair and orderly markets. In addition, where proper

procedures are not followed, the Amex should take appropriate

disciplinary action.

The Commission has therefore decided to extend the pilot program

for one year. During the one year extension, the Commission expects the

Amex to continue to monitor compliance with the pilot program

procedures and report any non-compliance with the rule and the action

the Amex has taken as a result of such non-compliance. The Amex should

prepare an additional report as described above and submit the data to

the Commission for its consideration of whether the pilot

[[Page 38872]]

program should be granted permanent approval.\8\

\8\ The Commission requests that this report be submitted by

April 1996, along with any requests for extension or permanent

approval of the pilot.

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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. This will permit the pilot program to

continue on an uninterrupted basis. In addition, the Exchange proposes

to continue using the identical procedures contained in the pilot

program. The rule change that implemented the pilot program was

published in the Federal Register for the full comment period,\9\ and

no comments were received. Furthermore, the Commission approved a

similar rule change for the NYSE also without receiving comments on the

proposal.\10\

\9\ See Securities Exchange Act Release No. (August 25, 1993),

58 FR 45926 (August 31, 1993).

\10\ See Securities Exchange Act Release No. 31797 (January 29,

1993), 58 FR 7277 (February 5, 1993).

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

Act,\11\ that the proposed rule change is approved on an accelerated

basis for a one year period ending on July 21, 1996.

\11\ 15 U.S.C. 78s(b)(2) (1988).

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95-18600 Filed 7-27-95; 8:45 am]

BILLING CODE 8010-01-M