[Federal Register: October 22, 1999 (Volume 64, Number 204)] [Notices] [Page 57167-57168] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr22oc99-105] [[Page 57167]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-42010; File No. SR-Amex-99-35] Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the American Stock Exchange LLC to Rescind Exchange Rule 106 October 14, 1999. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on September 1, 1999, the American Stock Exchange LLC (``Amex'' or `'Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1) \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to rescind Exchange Rule 106, ``Substitute Principal,'' in its entirety. The Exchange believes that Rule 106 no longer serves any purpose and may allow parties to Exchange contracts to break trades without appropriate justification. The text of the proposed rule change is available at the Exchange 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 Exchange 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 Items IV below. The Exchange 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 the Statutory Basis for, the Proposed Rule Change 1. Purpose Exchange Rule 106 currently provides that: ``No party to a contract shall be compelled to accept a substitute principal unless the name proposed to be substituted was declared in, and as part of, the bid or offer giving rise to the contract.'' Although the Exchange traces Rule 106 back to the 1921 Constitution of the New York Curb Market,\3\ a predecessor of the Exchange, the Exchange could not determine the original purposes of Rule 106. While the original rationale underlying Rule 106 is unknown, an exchange member recently invoked Rule 106 to attempt to renege on a contract when the member's counterparty initially provided an incorrect give-up, and later sought to correct the error by substituting the name of the correct clearing member. --------------------------------------------------------------------------- \3\ Section 7 of Article XXIV of the 1921 Constitution of the New York Curb Market stated: ``No party to a contract shall be compelled to accept a substitute principal, unless the name proposed to be substituted shall be declared in making the offer and as a party thereof.'' --------------------------------------------------------------------------- The Exchange believes that Rule 106 is an artifact of another era and no longer serves any useful purpose in view of modern comparison and settlement facilities. The Exchange further believes that the substitution of the National Securities Clearing Corporation as the contraside to every compared trade and the clearing corporation guarantee obviate any former need that Exchange members may have had to maintain control overtrading counterparties. Because Rule 106 may have the pernicious effect of permitting parties to Exchange contracts to break trades without appropriate justification, the Exchange believes that Rule 106 should be deleted in its entirety. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,\4\ in general, and furthers the objectives of Section 6(b)(5),\5\ in particular, in that it is designed to prevent fraudulent and manipulative acts and practices; promote just and equitable principles of trade; foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities; remove impediments to and perfect the mechanism of a free and open market and a national market system; protect investors and the public interest; and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \4\ 15 U.S.C. 78f(b). \5\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange believes that the proposed rule change will not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. 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 on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission will: (A) by order approve such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. 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- 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 Section, 450 Fifth Street, N.W., Washington, D.C. 20549-0609. 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-Annex-99-35 and should be submitted by November 12, 1999. [[Page 57168]] For the Commission by the Division of Market Regulation, pursuant to delegated authority.\6\ --------------------------------------------------------------------------- \6\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Jonathan G. Katz, Secretary. [FR Doc. 99-27603 Filed 10-21-99 8:45 am] BILLING CODE 8010-01-M