February 6, 2002
The Honorable David M. Walker The Honorable Harvey L. Pitt Mr. Salvatore F. Sodano Dear Messrs. Walker, Pitt, and Sodano: I am writing with reference to two Securities and Exchange Commission’s (SEC) letters of January 31, 2002, concerning the General Accounting Office’s (GAO) report Securities Regulation: Improvements Needed in the Amex Listing Program (GAO-02-18), which was prepared at my request, and following up on an April 1999 Business Week article regarding various alleged regulatory problems at the American Stock Exchange (Amex). The first letter discusses the changes that Amex is making to its listing program to address the findings and recommendations outlined in GAO’s report. "We fully support these enhancements to Amex’s listing program, and we are committed to working with Amex to ensure that these improvements are implemented promptly and effectively to best protect investors," notes Chairman Pitt. By letter dated January 3, 2002, GAO agreed to my request that they do a follow-up report to Reps. LaFalce, Kanjorski, and me, evaluating the steps that have been taken and the need for any additional actions. I appreciate your attention to this important matter and look forward to reviewing the GAO’s report. The second letter reports that, over the last two and a half years, the Amex has finalized enforcement actions imposing sanctions against those identified in the Business Week article as being responsible for engaging, or supervising those that had engaged, in illegal floor trading. Moreover, the letter indicates that, on September 11, 2000, the SEC instituted and simultaneously settled an administrative proceeding against the Amex, the Chicago Board Options Exchange, the Philadelphia Stock Exchange, and the Pacific Exchange finding that the exchanges failed to adequately enforce compliance with their rules, including order handling rules, as well as rules prohibiting anti-competitive conduct, such as harassment, intimidation, refusals to deal, and retaliation directed at market participants who sought to act competitively. In addition, the SEC found that the options exchanges failed to enforce compliance with their trade reporting rules, which promote transparency of the market and facilitate surveillance and enforcement of other exchange rules and the federal securities laws. The letter reports that SEC staff continues to monitor the exchanges’ compliance with the order and notes the Amex’s ongoing efforts to implement changes in response to the order. When this Committee and the Senate Banking Committee wrote the 1975 Act Amendments we affirmed that "the securities markets are an important national asset which must be preserved and strengthened" and that investor confidence in the markets rested on the cornerstones of the protection of investors, the maintenance of fair and orderly markets, and fair competition. Those principles are no less true today. While jurisdiction over these matters was transferred to the Financial Services Committee last year, I still retain an interest in them. I thank you for following up on my earlier inquiries and for you diligent efforts to address these serious problems. I look forward to putting this sorry chapter in Amex’s history behind us and commend the exchange for its efforts to restore its integrity. Sincerely, JOHN D. DINGELL Enclosures (.pdf file) cc: The Honorable W. J. "Billy" Tauzin, Chairman The Honorable Michael G. Oxley, Chairman The Honorable John J. LaFalce, Ranking Member The Honorable Richard H. Baker, Chairman The Honorable Paul E. Kanjorski, Ranking Member
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