Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change by the American Stock Exchange, Inc. Relating to a One-Year Extension of the Pilot Program for Specialist Participation in the After-Hours Trading Facility in Portfolio Depositary Receipts and Investment Trust Securities Based on Stock Indexes

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-36123; File No. SR-Amex-95-33]

Self-Regulatory Organizations; Notice of Filing and Order

Granting Accelerated Approval of Proposed Rule Change by the American

Stock Exchange, Inc. Relating to a One-Year Extension of the Pilot

Program for Specialist Participation in the After-Hours Trading

Facility in Portfolio Depositary Receipts and Investment Trust

Securities Based on Stock Indexes

August 18, 1995.

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 July 31,

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, II, and III 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 Exchange requests permanent approval of its pilot program for

specialist participation in the after-hours trading facility in

portfolio depositary receipts and investment trust securities based on

stock indexes. In the alternative, the Exchange is proposing a one-year

extension of the pilot program. The text of the proposed rule change is

available at the Amex and at the Commission.

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

[[Page 44520]]

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 21, 1993, the Exchange submitted to the Commission,

pursuant to section 19(b)(1) of the Act, and Rule 19b-4 thereunder, a

proposed rule change concerning its After-Hours Trading (``AHT'')

facility.\1\ As originally filed, the proposed rule change requested

permanent approval of Amex's pilot After-Hours Trading facility, and

approval on a pilot basis for specialists in investment trust

securities based on stock indexes to participate in the AHT facility.

On January 4, 1994, the Amex amended the filing to request a three-

month extension of the AHT pilot unitl April 30, 1994.\2\ On February

1, 1994, the Commission approved the three-month extension without

approving the portion of the proposed rule change that would allow

specialists in investment trust securities to participate for their own

accounts in the AHT facility.\3\ On May 2, 1994, the Commission granted

permanent approval to that portion of the rule proposal concerning the

Amex's After-Hours Trading facility, not including the specialist

participation request.\4\

\1\ File No. SR-Amex-93-15.

\2\ See letter from William Floyd-Jones, Jr., Assistant General

Counsel, Amex, to Sandra Sciole, Special Counsel, SEC, dated

December 23, 1993.

\3\ See Securities Exchange Act Release No. 33561 (Feb. 1,

1994), 59 FR 5789 (Feb. 8, 1994).

\4\ See Securities Exchange Act Release No. 33993 (May 2, 1994),

59 FR 23902 (May 9, 1994).

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On August 3, 1993, the Exchange amended the filing to request that

specialists in Portfolio Depositary Receipts (``PDRs'') also be

permitted to participate in the AHT facility.\5\ On July 5, 1994, the

Exchange amended the proposed rule change to eliminate the migration of

limit orders for PDRs and investment trust securities from the

specialist's limit order book to the AHT facility.\6\

\5\ See letter from William Floyd-Jones, Jr., Assistant General

Counsel, Amex, to Diana Luka-Hopson, SEC, dated August 3, 1993.

\6\ See letter from William Floyd-Jones, Jr., Assistant General

Counsel, Amex, to Sandra Sciole, Special Counsel, SEC, dated July 1,

1994.

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The proposed rule change to permit specialist participation in the

AHT facility in PDRs and investment trust securities was published for

comment in Securities Exchange Act Release No. 34316 (July 5, 1994), 59

FR 35547 (July 12, 1994). No comments were received on the proposal.

The proposed rule change was approved as a pilot program in Securities

Exchange Act Release No. 34611 (Aug. 29, 1994), 59 FR 45739 (Sept. 2,

1994). The pilot is scheduled to expire on August 29, 1995.

The Exchange now seeks permanent approval for amendments to Rules

1300 (Applicability of 1300 Series) and 1302 (After-Hours Trading

Orders) to permit specialists in PDRs and investment trust securities

listed pursuant to Section 118B of the Exchange's Company guide \7\ to

participate in the AHT facility to ``clean-up'' order imbalances by

entering an order for the specialist's account. For example, if there

were single sided orders to buy 10,000 and sell 20,000 SPDRs

immediately prior to the 5:00 p.m. close of the AHT facility, the

specialist is permitted under the Exchange's pilot program to enter an

order for its account to buy up to 10,000 SPDRs in order to eliminate

the sell side order imbalance.

\7\ The Exchange currently lists two Portfolio Depositary

Receipts, viz., Standard and Poor's Depositary Receipts on the S&P

500 and MidCap Indexes (``SPDRs''); and two investment trust

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

Guidelines: LOR Index Trust SuperUnits and LOR Money Market

SuperUnits.

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The Exchange also seeks permanent approval for amendments to Rule

1302(b) to eliminate the migration of limit orders for PDRs and

investment trust securities from the specialist's limit order book to

the AHT facility. (Amex Rule 1302(b) would provide, with respect to

equity securities other than PDRs and investment trust securities, that

a regular way good 'til canceled order that is designated as After-

Hours eligible, that is on the specialist's limit order book, and that

is executable at the closing price or better, shall migrate from the

specialist's limit order book to the AHT program.)

The Exchange also seeks permanent approval for amendments to Rule

1302 to permit specialists in PDRs and investment trust securities to

participate in a coupled closing price order so long as the other side

of the order is not for an account in which a member or member

organization has a direct or indirect interest.\8\ For example, under

the pilot program, the specialist in SPDRs is permitted to agree prior

to the 4:15 close of the regular trading session for such securities to

take the other side of a customer order to buy or sell SPDRs for

execution in the AHT facility as a closing price coupled order. The

Exchange believes that such capability tends to conform the trading of

PDRs and investment trust securities to the practices of the ``basket''

market for equities where it is customary for a dealer to agree prior

to the close of the regular trading session to take the contra side of

a customer basket order at the closing index value.

\8\ As amended, Amex Rule 1300(e)(i) defines, ``closing price''

as the price established by the last regular way sale on the

Exchange prior to the official closing of the 9:30 a.m. to 4:15 p.m.

trading session, as determined by the Exchange.

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The Exchange believes that permanent approval of the Exchange's

pilot program that permits specialists in PDRs and investment trust

securities to participate in the AHT facility in order to ``clean-up''

order imbalances and effect closing price coupled orders would benefit

investors by providing additional liquidity to the listed cash market

for derivative securities based upon well known market indexes. The

market price of these securities is based upon transactions largely

effected in markets other than the Amex. The Exchange states that the

specialist in the Amex listed derivatives has no unique access to

market sensitive information regarding the market for the underlying

securities or closing index values. The Exchange, therefore, believes

that specialist participation in the AHT facility in PDRs and

investment trust securities in the manner described above does not

raise any market integrity issues. In addition, should a customer not

care for an execution at the closing price, the rules of the Exchange's

AHT facility permit cancellation of an order up to the close of the AHT

session at 5:00 p.m.\9\ (Orders in the AHT facility are not executed

until the 5:00 p.m. close of the After-Hours session.) A customer,

therefore, has approximately 40 minutes to determine if an execution at

the closing price suits its needs, and may cancel its order if it

believes that the closing price does not suit its objectives.

\9\ See Amex Rule 1302(d).

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As an alternative to permanent approval of the rule changes

described above, the Exchange requests that the Commission extend the

pilot for an additional one year term. Although the specialists on the

Exchange made little or no use of the pilot program, the Exchange

believes that the Commission should extend the pilot for an additional

one year term because specialists have expressed interest in using the

AHT for SPDRs and have indicated that the ability to participate in the

AHT facility provides them with additional ability to meet customer

demand that comes into the market late in the trading session.\10\

\10\ See letter from William Floyd-Jones, Jr., Assistant General

Counsel, Amex, to Jennifer Choi, SEC, dated August 14, 1995.

[[Page 44521]]

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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 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 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. 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 Exchange. All

submissions should refer to File No. SR-Amex-95-33 and should be

submitted by September 18, 1995.

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 August 29, 1996, is consistent with the Act and the rules and

regulations thereunder applicable to a national securities exchange,

and, in particular, with the requirements of Section 6(b) \11\ and

Section 11A \12\ of the Act. The Commission believes that the proposed

rule change is consistent with 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 a national market system, and, in general,

further investor protection 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,\13\ which allow exchanges to promulgate

rules relating to specialists to maintain fair and orderly markets.

\11\ 15 U.S.C. 78(f) (1988 & Supp.V. 1993).

\12\ 15 U.S.C. 78(k) (1988).

\13\ 17 CFR 240.11b-1 (1994).

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Under the pilot program, specialists in PDRs and investment trust

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

Guidelines may participate in the AHT facility to clean up order

imbalance by entering an order for their own account. The pilot program

also allows specialists in PDRs and investment trust securities to

participate in a coupled closing price order as long as the other side

of the order is not for an account in which a member or member

organization has a direct or indirect interest. Moreover, the pilot

program eliminates the migration of limit orders for PDRs and

investment securities from the specialist's limit order book to the AHT

facility to prevent the potential for manipulation or misuse of

specialists' information regarding which limit orders are eligible for

execution in the AHT facility.

In the pilot approval order, the Commission believed that the rule

change permitting specialists in PDRs and investment trust securities

to participate in the AHT facility by entering an order for the

specialist's account to eliminate order imbalances should assist

specialists in their obligation to minimize temporary disparity between

supply and demand.\14\ Moreover, the Commission agreed with the

Exchange that permitting specialists in PDRs and investment trust

securities to participate in the AHT facility to ``clean-up'' order

imbalances and effect closing price coupled orders would benefit

investors by providing additional liquidity to the listed cash market

for derivative securities based upon well known market indexes. The

Commission also believed that the Amex's rule change strikes a

reasonable balance between the Exchange's need to accommodate the needs

of investors by increasing liquidity in the listed cash market for

derivative securities based on market indexes and the need to prevent

the potential for manipulation or misuses of information. Therefore,

although Amex specialists will know which limit orders are eligible for

execution in the AHT facility, they will not be able to use this

information to their advantage because Rule 1302(b) is being amended to

eliminate the migration of limit orders for PDRs and investment trust

securities from the specialist's limit order book to the AHT facility.

\14\ See Securities Exchange Act Release No. 34611 (Aug. 29,

1994), 59 FR 45739 (Sept. 2, 1994).

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The Commission initially approved the Amex rule change for a one-

year pilot period to provide the Commission and the Exchange an

opportunity to monitor the operation of the amendments to Rules 1300

and 1302. In this regard, the Commission requested that the Exchange

submit a report and analysis regarding the operation of the pilot

program. The Exchange, however, did not submit a report to the

Commission because specialists on the Exchange made little or no use of

the pilot program.

Therefore, the Commission believes that it would be appropriate to

allow the Exchange to continue the pilot program for an additional one-

year period to afford the Exchange and the Commission an opportunity to

evaluate the operation of the pilot program and evaluate whether there

are additional issues that need to be addressed. The Exchange should

monitor the operation of the amendments to Rules 1300 and 1302 and

assure the Commission that the specialists are properly executing their

responsibilities.

The Commission, therefore, requests that the Exchange submit a

report to the Commission by May 1, 1996, describing its experience with

the pilot program. At a minimum, this report should contain the

following information (broken down by month): (1) Trading volume

(trades and number of shares of PDRs and investment trust securities)

in the after-hours session; (2) the number of trades, if any, of (a)

single-sided orders, and (b) coupled buy and sell orders which

specialists executed in the after-hours session; (3) the number of

shares, if any, of (a) single-sided orders, and (b) coupled buy and

sell orders which specialists executed in the after-hours session; and

(4) the number, if any, of single-sided orders that remained unexecuted

at the end of the after-hours session. In addition, the Commission

expects the Exchange to monitor closely the trading of PDRs and

investment trust securities in the AHT facility to ensure that trading

in these

[[Page 44522]]

issues is not subject to any patterns of manipulation or trading abuses

or unusual trading activity. Finally, the Commission requests that the

Amex keep the Commission apprised of any technical problems that may

arise regarding the operation of the pilot program.

At the conclusion of the pilot period, if there continues to be no

specialist activity or interest in the program, the Exchange should

reevaluate whether this program should be continued. Any requests to

modify this pilot program, to extend its effectiveness, or to seek

permanent approval for the pilot program also should be submitted to

the Commission by May 1, 1996, as a proposed rule change pursuant to

Section 19(b) of the Act.

The Commission finds good cause for approving the proposed rule

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

notice thereof in the Federal Register. This will permit the pilot

program to continue on an uniterrupted basis. Moreover, the Exchange

proposes to continue using the identical procedures contained in the

pilot program as originally approved. In addition, the rule change that

implemented the pilot program was published in the Federal Register for

the full comment period, and no comments were received. Accordingly,

the Commission believes that it is consistent with the Act to

accelerate approval of the proposed rule change.

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

Act,\15\ that the proposed rule change (SR-Amex-95-33) is approved on a

pilot basis until August 29, 1996.

\15\ 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.\16\

\16\ 17 CFR 200.30-3(a)(12) (1994).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95-21229 Filed 8-25-95; 8:45 am]

BILLING CODE 8010-01-M