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. 34-35344; File No. SR-Amex-95-03]

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

February 8, 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 February

2, 1995, 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 twelve 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.

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

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

February 8, 1995, 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 February

8, 1995, 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 [[Page 8431]] basis,\3\ and subsequently were

extended ten times.\4\

\2\See Securities Exchange Act Release No. 34949 (November 8,

1994), 59 FR 58863 (November 15, 1994) (approving File No. SR-AMEX-

94-47).

\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. 34949 (November 8,

1994), 59 FR 58863 (November 15, 1994) (approving File No. SR-Amex-

94-47); 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 19, 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 provided 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 twelve months. The exchange notes

that, in approving previous extensions to the Rule 205 pilot

procedures, the Commission has expressed interest in the feasibility of

the Exchange utilizing the Intermarket Trading System (``ITS'') best

bid or offer, rather than the Amex bid or offer, for purposes of the

Exchange's odd-lot pricing system. The Exchange has determined to

proceed with system modifications, anticipated to be completed within a

twelve month period, to provide for execution of odd-lot market orders

at the ITS best bid or offer. The Exchange will file appropriate

amendments to Rule 205, prior to expiration of the extended pilot

program, to accommodate the revised odd-lot pricing procedures.

2. 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) 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, 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-95-03 and should be

submitted by March 7, 1995.

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

Proposed Rule Change

For the same rational 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 Section 6(b)\6\ and 11A(a)(1)\7\ of the Act and the rules and

regulations thereunder. The Commission believes that the revised

procedures, under which odd-lot market orders are executed at the

prevailing Amex quote rather than at the price of a subsequent round-

lot transaction, should provide investors with more timely execution of

their orders. The Exchange has implemented enhancements to its PER

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

Based on the data in the Amex's monitoring reports, the Rule 205

amendments have resulted in a superior execution for a significant

percentage of such orders.

\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. 78f (1988).

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

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The Commission, however, is not satisfied that all customers

received the best execution, in terms of time and price, under the

pilot procedures. Specifically, the Commission remains concerned that

some odd-lot orders may not receive the best available price, because

the Exchange's pricing formula does not include quotations from other

markets.\8\ In its previous orders,\9\ the Commission has requested

that the Exchange 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 has encouraged the

Amex to evaluate the feasibility of implementing an odd-lot pricing

system based on the ITS best bid or offer.\10\

\8\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-SYSE-90-

06).

\9\See supra, note 4.

\10\See supra, note 8.

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At this time, the Amex has determined to proceed with the necessary

system modifications to provide for the execution of odd-lot orders at

the ITS best bid or offer. The Exchange anticipates that the system

modifications will be completed within a twelve month period. As noted

above, the Commission has encouraged the Amex to implement a pricing

formula that includes quotations from other markets and believes that

such action would substantially alleviate the Commission's best

execution concerns. In the interim, due to the relatively low

[[Page 8432]] number of odd-lot market orders on the Amex\11\ and the

benefits to customers under the pilot procedures as compared to the

former pricing procedures, which priced odd-lot orders based on

subsequent round-lot transactions and which raised concerns regarding

timeliness of execution, the Commission finds that it is appropriate to

extend the pilot program for an additional twelve months. This will

enable the pilot program to continue without interruption during the

system modifications.

\11\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 substantially

identical to the procedures that were published in the Federal Register

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

\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-95-03) is approved for a

twelve month period ending on February 8, 1996.

\13\15 U.S.C. 78s(b)(2) (1988).

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\14\

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

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95-3617 Filed 2-13-95; 8:45 am]

BILLING CODE 8010-01-M