[Federal Register: November 7, 2002 (Volume 67, Number 216)]
[Notices]
[Page 67880-67881]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07no02-89]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-46750; File No. SR-AMEX-2002-19]
Self-Regulatory Organizations; American Stock Exchange LLC; Order
Approving a Proposed Rule Change and Amendment Nos. 1 and 2 Thereto and
Notice of Filing and Order Granting Accelerated Approval to Amendment
Nos. 3, 4, and 5 Thereto Relating to Performance Evaluation Procedures
for Specialists Trading Securities Pursuant to Unlisted Trading
Privileges
October 30, 2002.
I. Introduction and Description of the Proposal
On March 14, 2002, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to adopt Amex Rule 29, Market
Quality Committee, to codify the Exchange's performance evaluation
procedures for specialists trading securities admitted to dealings on
an unlisted trading privileges (``UTP'') basis. On May 6, 2002, Amex
filed Amendment No. 1 to the proposed rule change,\3\ and, on May 28,
2002, Amex filed Amendment No. 2 to the proposed rule change.\4\ The
proposed rule change, as amended by Amendment Nos. 1 and 2, was
published in the Federal Register on July 19, 2002.\5\ The Commission
received no comment letters on the proposal. On July 29, 2002, the Amex
filed Amendment No. 3 to the proposed rule change,\6\ on October 11,
2002, the Amex filed Amendment No. 4 to the proposed rule change,\7\
and, on October 15, 2002, the Amex filed Amendment No. 5 to the
proposed rule change.\8\ This order approves the proposed rule change,
as amended. In addition, the Commission is publishing notice to solicit
comment on and is simultaneously approving, on an accelerated basis,
Amendment Nos. 3, 4, and 5 to the proposal.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See letter from Geraldine Brindisi, Vice President and
Corporate Secretary, Amex, to Nancy J. Sanow, Assistant Director,
Division of Market Regulation (``Division''), Commission (May 3,
2002) (``Amendment No. 1'').
\4\ See letter from Geraldine Brindisi, Vice President and
Corporate Secretary, Amex, to Nancy J. Sanow, Assistant Director,
Division, Commission (May 24, 2002) (``Amendment No. 2'').
\5\ See Securities Exchange Act Release No. 46196 (July 12,
2002), 67 FR 47579.
\6\ See letter from William Floyd-Jones, Assistant General
Counsel, Amex, to Nancy J. Sanow, Assistant Director, Division,
Commission (July 26, 2002) (``Amendment No. 3''). In Amendment No.
3, the Exchange made non-substantive, technical corrections and
changed the composition of the Amex Market Quality Committee to
match that of the Amex UTP Allocations Committee (See Securities
Exchange Act Release No. 45698 (April 5, 2002), 67 FR 18051 (April
12, 2002) (``UTP Allocations Committee Pilot Approval'')).
\7\ See letter from William Floyd-Jones, Assistant General
Counsel, Amex, to Kelly McCormick-Riley, Division, Commission
(October 10, 2002) (``Amendment No. 4''). In Amendment No. 4, the
Exchange made non-substantive, technical corrections, provided the
Exchange's rationale for matching the composition of the Market
Quality Committee with that of the UTP Allocations Committee, and
clarified that the Chief Executive Officer of the Exchange will
designate the members that serve on the Market Quality Committee.
With respect to the rationale for matching the composition of the
Market Quality Committee with that of the UTP Allocations Committee,
the Amex noted that it believes that the two committees serve
closely related functions and that it is desirable for them to have
overlapping memberships. The Exchange also stated that it believes
that the UTP Allocations Committee structure has worked well in
practice and it wishes to ensure that persons serving on the UTP
Allocations Committee are available to serve on the Market Quality
Committee as well.
\8\ See letter from William Floyd-Jones, Assistant General
Counsel, Amex, to Kelly McCormick-Riley, Division, Commission
(October 14, 2002) (``Amendment No. 5''). In Amendment No. 5, the
Exchange specified that only Exchange Officials that do not spend a
substantial portion of their time on the Floor may participate by
telephone in meetings of the Market Quality Committee. These
Exchange Officials that participate in meetings by telephone will be
provided with all materials so that they can fully participate in
Committee activities. See, e.g., Amex Rule 21, Appointment of Floor
Officials. See also Securities Exchange Act Release No. 46061 (June
11, 2002), 67 FR 41547 (June 18, 2002) (permitting Amex Performance
Committee members to attend meetings by telephone).
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The Exchange is proposing a new program to evaluate and regulate
UTP specialist performance. Under the proposal, as amended, a new
committee, the Market Quality Committee, would administer the
Exchange's program to evaluate and enhance UTP specialist performance.
The Committee is proposed to consist of seven persons: the Chief
Executive Officer of the Exchange, three members of the Exchange's
senior management selected by the Chief Executive Officer, and three
members selected by the Chief Executive Officer from among Exchange
Officials, Senior Floor Officials and Floor Governors. The Committee
would regularly evaluate UTP specialists to determine whether they have
fulfilled standards relating to: (1) Quality of markets, (2)
competition with other market centers, (3) administrative matters, and
(4) willingness to promote the Exchange as a marketplace. The Committee
also would review transfers
[[Page 67881]]
of specialist registrations in UTP securities to ensure that the
Exchange's institutional interests are protected. As proposed, the
Market Quality Committee could take certain actions against a UTP
specialist if it finds that a UTP specialist's performance is
inadequate.
II. Discussion
The Commission finds that the proposed rule change, as amended, is
consistent with the Act and the rules and regulations promulgated
thereunder applicable to a national securities exchange, and, in
particular, with the requirements of section 6(b)\9\ of the Act.
Specifically, the Commission finds that approval of the proposed rule
change is consistent with section 6(b)(5)\10\ of the Act because it is
designed to promote just and equitable principles of trade, and, in
general, to protect investors and the public interest by encouraging
good performance and competition among markets and specialists.
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\9\ 15 U.S.C. 78f(b). In approving this proposal, the Commission
has considered the proposed rule's impact on efficiency, competition
and capital formation. 15 U.S.C. 78c(f).
\10\ 15 U.S.C. 78f(b)(5).
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Specialists play a crucial role in providing stability, liquidity,
and continuity to the trading of securities. Among the obligations
imposed upon specialists by the Exchange, and by the Act and the rules
thereunder, is the maintenance of fair and orderly markets in their
designated securities.\11\ To ensure that specialists fulfill these
obligations, it is important that the Exchange develop and maintain
procedures and policies for monitoring the performance of specialists.
Furthermore, it is critical that these procedures and policies
explicitly provide for the actions to be taken against specialists
whose performance proves to be inadequate. The Commission believes that
the proposed rules should provide the Amex with the ability to monitor
specialists trading securities pursuant to UTP and take appropriate
action in the event that such a specialist's performance proves to be
inadequate.
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\11\ See 17 CFR 240.11b-1.
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Because the proposed rule change, as amended, institutes a new
process for evaluating the performance of specialists that trade
securities pursuant to UTP and because the Commission is approving
amendments, which relate to the composition of the Market Quality
Committee, on an accelerated basis, the Commission believes that the
proposal should be approved on a pilot basis through April 5, 2003.\12\
The Commission expects the Amex to report to the Commission about its
experience with the new performance evaluation process in any future
proposal it files to extend the effectiveness of the proposed rule or
approve it on a permanent basis.
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\12\ The Commission notes that this is the date on which the UTP
Allocations Committee Pilot will expire.
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Moreover, the Commission, pursuant to section 19(b)(2)\13\ of the
Act, finds good cause for approving Amendment Nos. 3, 4, and 5 prior to
the thirtieth day after the date of publication of notice thereof in
the Federal Register. The Commission believes that granting accelerated
approval to Amendment Nos. 3, 4, and 5, on a pilot basis, will enhance
immediately the Amex's self-regulatory abilities for the benefit of
investors generally. Enhancing such abilities in a timely fashion is
critical because Amex UTP specialists currently are trading securities
pursuant to UTP and the Amex should be enabled to regulate such
activity effectively.
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\13\ 15 U.S.C. 78s(b)(2).
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III. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning Amendment Nos. 3, 4, and 5, including whether the
amendments are consistent with the Act. Persons making written
submissions should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street, NW., Washington,
DC 20549-0609. 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 in the Commission's Public Reference Room. 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-2002-19 and should be submitted by November 29, 2002.
IV. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\14\ that the proposed rule change (SR-Amex-2002-19), as amended,
is hereby approved on a pilot basis through April 5, 2003.
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\14\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-2(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-28331 Filed 11-6-02; 8:45 am]
BILLING CODE 8010-01-P