Self-Regulatory Organizations; Notice of Filing of, and Order Granting Accelerated Approval to, Proposed Rule Change by the American Stock Exchange, Inc. Relating to a Pilot Program for Execution of Specialists' Liquidating Transactions

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-37704; File No. SR-Amex-96-33]

Self-Regulatory Organizations; Notice of Filing of, and Order

Granting Accelerated Approval to, Proposed Rule Change by the American

Stock Exchange, Inc. Relating to a Pilot Program for Execution of

Specialists' Liquidating Transactions

September 19, 1996.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''),\1\ notice is hereby given that on September 13, 1996, 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 and to grant accelerated approval to the

proposed rule change.

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

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[[Page 50526]]

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

of the Proposed Rule Change

The Amex is proposing an extension, until November 15, 1996, of a

pilot program that amended Exchange Rule 170 to permit a specialist to

effect a liquidating transaction on a zero minus tick,\2\ in the case

of a ``long'' position, or a zero plus tick,\3\ when covering a

``short'' position, without Floor Official approval. The pilot program

also amended Rule 170 to set forth the affirmative action that

specialists are required to take subsequent to effecting various types

of liquidating transactions.

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\2\ A zero minus tick is a price equal to the last sale where

the last preceding transaction at a different price was at a higher

price.

\3\ A zero plus tick is a price equal to the last sale where the

last preceding transaction at a different price was at a lower

price.

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The text of the proposed rule change is available at the Office of

the Secretary, 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

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 July 17, 1996, the Commission approved an extension until

September 23, 1996 of a pilot program that amended 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.\4\ The

amendments also set forth the affirmative action that specialists are

required to take subsequent to effecting various types of liquidating

transactions.

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\4\ Securities Exchange Act Release No. 37448 (July 17, 1996),

61 FR 38487 (``July 1996 Approval Order'') (approving File No. SR-

Amex-96-16).

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

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

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

Amex believes 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.

In order to permit the Exchange and Commission staff to review

certain issues associated with the pilot program, the Exchange is

proposing to extend the pilot program until November 15, 1996.

2. Statutory Basis

The Exchange believes the proposed rule change is consistent with

Section 6(b) of the Act \5\ in general and furthers the objections of

Section 6(b)(5) \6\ 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 Exchange also believes

the proposed rule change is consistent with Section 11(b) of the Act

\7\ which allows exchanges to promulgate rules relating to specialists

in order to maintain fair and orderly markets.

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\5\ 15 U.S.C. 78f(b).

\6\ 15 U.S.C. 78f(b)(5).

\7\ 15 U.S.C. 78k(b).

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B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange believes 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

The Exchange has neither solicited nor received written comments

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. Also, copies of such filing will be available

for inspection and copying at the principal office of the Amex. All

submissions should refer to File No. SR-Amex-96-33 and should be

submitted by [insert date 21 days from date of publication].

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

the Proposed Rule Change

The Commission finds that the Exchange's proposal to extend its

pilot program concerning the execution of specialists' liquidating

transactions until November 15, 1996, is consistent with the

requirements of the Act and the rules and regulations thereunder

applicable to a national securities exchange. Specifically, the

Commission believes the proposal is consistent with the Section 6(b)(5)

\8\ requirements that the rules of an exchange be designed to promote

just and equitable principles of trade, to remove impediments to and

perfect the mechanism of a free and open market, and, in general, to

protect investors and the public interest. The Commission also believes

the proposal is consistent with Section 11(b) of the Act \9\ and Rule

11b-1 \10\ thereunder, which allow exchanges to promulgate rules

relating to specialists in order to maintain fair and orderly markets.

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\8\ 15 U.S.C. 78f(b)(5).

\9\ 15 U.S.C. 78k(b).

\10\ 17 CFR 240.11b-1.

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The Exchange originally proposed to amend Amex Rule 170 in File No.

SR-Amex-92-26.\11\ The proposed rule change, filed as a one-year pilot

program, amended Amex Rule 170 to permit specialists to ``reliquify'' a

dealer position by selling stock on a direct minus tick or by

purchasing stock on a direct plus tick, but only if such transactions

are reasonably necessary for the maintenance of a fair and orderly

[[Page 50527]]

market and only if the specialist has obtained the prior approval of a

Floor Official. Under the pilot program, a specialist also may sell

``long'' on a zero minus tick, or by purchasing on a zero plus tick to

cover a ``short'' position, without Floor Official approval. Although

liquidations on a zero minus or on a zero plus tick can be effected

under the pilot procedures without a Floor Official's prior approval,

such liquidations are still 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.

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\11\ See Securities Exchange Act Release No. 33957 (Apr. 22,

2994), 59 FR 22188 (``1994 Approval Order'') (approving File No. SR-

Amex-92-26). See also Securities Exchange Act Release No. 35635

(Apr. 21, 1995), 60 FR 20780 (``April 1995 Approval Order'')

(approving File No. SR-Amex-95-11); Securities Exchange Act Release

No. 36014 (July 21, 1995), 60 FR 3887 (``July 1995 Approval Order'')

(approving File No. SR-Amex-95-19); July 1996 Approval Order, supra

note 4.

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After the liquidation, the specialist is required to reenter 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

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 or unusual price movements,

re-entry into the market following a series of transactions must

reflect a significant level of dealer participation.

In the 1994 Approval Order, the Commission requested that the Amex

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

determine whether any reliquifications by specialists were necessary

and appropriate in connection with fair and orderly markets.\12\ The

Commission also asked, among other things, that the Exchange provide

information regarding the Exchange's monitoring of liquidation

transactions effected by specialists on any destabilizing tick. In both

of the 1995 approval orders, the Commission requested that the Amex

continue to monitor the pilot and update its report where

appropriate.\13\ In particular, the Commission asked the Amex to report

any noncompliance with the Rule and the action the Amex took as a

result of such noncompliance.

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\12\ See 1994 Approval Order, supra note 11.

\13\ See April 1995 Approval Order and July 1995 Approval Order,

supra note 11.

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The Amex submitted its reports concerning the pilot program to the

Commission in May 1995 and April 1996. As noted above, the Amex

believes the pilot procedures appear to be working well in enabling

specialists to reliquify appropriately to meet the needs of the market.

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

the pilot program generally is working well. In particular, the

Commission believes the report indicates that specialists generally are

entering the aftermarket after effecting liquifying transactions when

appropriate.

The Commission also agrees with the Exchange's assertion that

certain issues concerning the pilot program need to be revisited before

permanent approval can be granted. In this regard, the Exchange should

continue to emphasize the requirements of Amex Rule 170, 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.\14\

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\14\ Failure to obtain the required Floor Official approval when

establishing, increasing, or liquidating a position should be

enforced by the Exchange through its Minor Rule Violation Fine

System unless more serious action is warranted through full

disciplinary proceedings. See Amex Rule 590.

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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. These procedures have been published in the Federal Register

on several occasions for the full comment period,\15\ and no comments

have been received. Furthermore, the Commission approved a similar rule

change for the NYSE also without receiving comments on the

proposal.\16\ For these reasons, the Commission finds that accelerating

approval of the proposed rule change is consistent with Section

19(b)(2) of the Act.\17\ Any requests to modify this pilot program, to

extend its effectiveness, or to seek permanent approval for the pilot

program also should include an update on the disciplinary actions taken

for violations of these procedures.

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\15\ See 1994 Approval Order, supra note 11; April 1995 Approval

Order, supra note 11; July 1995 Approval Order, supra note 11; July

1996 Approval Order, supra note 4.

\16\ See Securities Exchange Act Release No. 31797 (Jan. 29,

1993), 58 FR 7277 (approving File No. SR-NYSE-92-20).

\17\ 15 U.S.C. 78s(b)(2).

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V. Conclusion

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

Act,\18\ that the proposed rule change (SR-Amex-96-33) is approved for

a pilot period ending on November 15, 1996.

\18\ 15 U.S.C. 78s(b)(2).

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For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\19\

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\19\ 17 CFR 200.30-3(a)(12).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96-24702 Filed 9-25-96; 8:45 am]

BILLING CODE 8010-01-M