[Federal Register: November 28, 2003 (Volume 68, Number 229)]
[Notices]
[Page 66898-66906]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28no03-126]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48813; File No. SR-Amex-2003-21]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendments 1, 2, and 3 thereto by the American Stock
Exchange LLC Relating to At-the-Close Orders and Auxiliary Opening
Procedures
November 20, 2003.
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 March 27, 2003, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II
and III below, which Items have been prepared by the Amex. On September
10, 2003, the Amex amended the proposed rule change.\3\ On October 20,
2003, the Amex amended the proposed rule change.\4\ On November 14,
2003, the Amex amended the proposed rule change.\5\ The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See letter from Claire P. McGrath, Senior Vice President and
Deputy General Counsel, Amex, to Nancy Sanow, Assistant Director,
Division of Market Regulation (``Division''), Commission, dated
September 9, 2003 (``Amendment No. 1''). In Amendment No. 1, the
Amex restated the proposed rule change in its entirety.
\4\ See letter from Claire P. McGrath, Senior Vice President and
Deputy General Counsel, Amex, to Nancy Sanow, Assistant Director,
Division, Commission, dated October 17, 2003 (``Amendment No. 2'').
In Amendment No. 2, the Amex restated the proposed rule change in
its entirety.
\5\ See letter from Claire P. McGrath, Senior Vice President and
Deputy General Counsel, Amex, to Nancy Sanow, Assistant Director,
Division, Commission, dated November 13, 2003 (``Amendment No. 3'').
In Amendment No. 3, the Amex restated the proposed rule change in
its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Amex proposes (1) to adopt new Rule 131A to set forth Exchange
rules and procedures regarding ``at the close'' orders; (2) to amend
Amex Rules 131 and 156 relating to on-close orders (also known as ``at-
the-close'' orders); (3) to implement additional procedures, relating
to daily on-close procedures and expiration day auxiliary opening
procedures; and (4) to adopt new Rule 118(m) to reflect procedures
applicable to ``at the close'' orders in Nasdaq securities traded on
the Exchange pursuant to unlisted trading privileges (``UTP''). The
text of the proposed rule change is set forth below. Proposed new
language is in italics; proposed deletions are in [brackets].
* * * * *
Types of Orders
Rule 131
(a) through (d) No change.
(e) [An at the close order is a market order which is to be
executed at or as near to the close as practicable. The term ``at the
close order'' shall also include a limit order that is entered for
execution at the closing price, on the Exchange, of the stock named in
the order pursuant to such procedures as the Exchange may from time to
time establish.] A market at the close (MOC) order is an order to buy
or sell a stated amount of a security at the Exchange's closing price.
If the MOC order cannot be so executed in its entirety at the Exchange
closing price it will be cancelled. A limit at the close (LOC) order is
an order to buy or sell a stated amount of a security at the Exchange's
closing price if that closing price is at the order's limit price, or
better. If the LOC order can not be so executed, in whole or in part,
the amount of the order not so executed is to be cancelled.
Cancellation of MOC and LOC orders will only occur in certain
circumstances such as (1) when trading has been halted in the security
and does not reopen prior to the close of the market; (2) for tick
sensitive orders whose execution will violate customer instructions
(i.e., to buy only on a minus or zero minus tick or to sell only on a
plus or zero plus tick) or Exchange Rule 7; (3) for LOC orders, when
the Amex closing price is not at the limit price or better, or (4) for
tick sensitive MOC/LOC orders and LOC orders, all of which are limited
to the closing price, the limited quantity of shares to be traded and
the rules of priority as to which orders would trade first left these
orders unexecuted in whole or in part.
(f) through (t) No change.
* * * * *
Market on Close Policy and Expiration Procedures
Rule 131A. The following procedures apply to stocks and do not
apply to options or to any security the pricing of which is based on
another security or an index (e.g., Exchange Traded Funds or Trust
Issued Receipts, securities listed under Section 107 of the Exchange
Company Guide, warrants and convertible securities).
(a) In an attempt to minimize price volatility on the close, all
market-on-close (MOC) and limit-on-close (LOC)
[[Page 66899]]
orders should be entered as early in the day as possible to provide
market participants an opportunity to better ascertain possible order
imbalances that might exist at the close.
Between 3:00 and 3:40 p.m. (Eastern Time), imbalances of any size
may be published with Floor Official approval. These are informational
only and do not limit MOC/LOC order entry before 3:40 p.m.
At 3:40 p.m. or as close to this time as possible, MOC order
imbalances of 25,000 shares or more must be published on the
consolidated tape. In addition, an order imbalance below 25,000 shares
may also be published by a specialist, with the concurrence of a Floor
Official, if the specialist (i) anticipates that the execution of the
MOC orders will result in a closing price which exceeds the price
change parameters of Rule 154, Commentary .08 (the $2, $1, $.50 Rule),
or (ii) believes that an order imbalance should otherwise be published
in an attempt to minimize price volatility on the close. A ``No
Imbalance'' notice will only be published for any stock at 3:40 p.m. if
there had been a prior informational imbalance publication.
(1) MOC Imbalance Calculation Policy (3:40 p.m. calculation):
Marketable LOC orders to buy (that is, LOC buy orders with limit prices
above the last sale at 3:40 p.m.) are added to MOC orders to buy.
Marketable LOC orders to sell (that is, LOC orders with limit prices
below the last sale at 3:40 p.m.) are added to MOC orders to sell. The
buy orders are then matched against sell orders. If there is a buy
imbalance, it is offset and reduced by any tick-sensitive MOC orders to
sell and tick-sensitive, marketable LOC orders to sell (including
orders to sell short). If there is a sell imbalance it is offset and
reduced by any tick-sensitive MOC orders to buy and tick-sensitive,
marketable LOC orders to buy.
At 3:50 p.m. or as close to this time as possible, MOC order
imbalances of 25,000 shares or more must be published on the
consolidated tape. In addition, an order imbalance below 25,000 shares
may also be published by a specialist, with the concurrence of a Floor
Official, if the specialist (i) anticipates that the execution of the
MOC orders will result in a closing price which exceeds the price
change parameters of Rule 154, Commentary .08 (the $2, $1, $.50 Rule),
or (ii) believes that an order imbalance should otherwise be published
in an attempt to minimize price volatility on the close. If there had
been an imbalance publication at 3:40 p.m. and the imbalance at 3:50
p.m. is less than 25,000 shares, either a ``No Imbalance'' notice will
be published, or the size and side of the imbalance may be published
with Floor Official approval.
MOC Imbalance Calculation Policy (3:50 p.m. calculation):
Procedures for the 3:50 p.m. calculation are the same as the 3:40 p.m.
calculation, except that the Exchange last sale at 3:50 p.m. would be
used to determine whether or not a LOC order is marketable.
(2) Between 3:40 p.m. and 3:50 p.m., no MOC or LOC orders may be
entered except to offset a published MOC imbalance at 3:40 p.m. A
broker may represent an MOC or LOC order in the crowd, but must state
irrevocable MOC interest by 3:40:00 p.m. After 3:40:00 p.m., an MOC
order may not be taken from the book to be represented by a broker in
the crowd.
Between 3:40 p.m. and 3:50 p.m., MOC and LOC orders are
irrevocable, except to correct an error (e.g., incorrect stock, side,
size, or price, or a duplication of a previously entered order).
Properly cancelled MOC and LOC orders may not be replaced after 3:40
p.m. unless the replacement order offsets a published MOC imbalance.
After 3:50 p.m., no MOC or LOC orders may be entered except to
offset a published MOC imbalance at 3:50 p.m.
Cancellation or reduction in size of MOC and/or LOC orders after
3:50 p.m. will not be permitted for any reason, including in case of
legitimate error.
(3) Publication of Imbalances Following Trading Halt of Any Type:
MOC order imbalances of 25,000 shares or more are required to be
published by the specialist, if practicable, in the event a stock
reopens after 3:50 p.m. following a trading halt of any type. An
imbalance of less than 25,000 shares may be published with the
concurrence of a Floor Official. Trading will not resume in the event a
trading halt in a stock occurs after 3:55 p.m., and MOC/LOC orders in
that stock will not be executed.
(4) Entry of MOC/LOC Orders During a Regulatory Halt. If a
regulatory halt is in effect at 3:40 p.m. or occurs after that time,
the entry of MOC/LOC orders is permitted until 3:50 p.m. or until the
security reopens, whichever occurs first. If an order imbalance is
published following a regulatory halt and reopening after 3:40 p.m.,
the entry of MOC/LOC orders is permitted only to offset the published
imbalance.
(5) Cancellation of MOC/LOC Orders During a Regulatory Halt. When a
regulatory halt (news pending or news dissemination) is in effect at
3:40 p.m. or occurs after that time, cancellation of MOC/LOC orders is
permitted until 3:50 p.m. or the reopening of the security, whichever
occurs first. This policy does not apply to non-regulatory (e.g., order
imbalance or equipment changeover) halts, and cancellation of orders in
such cases is prohibited after 3:40 p.m. except to correct an error.
Cancellation or reduction in size of MOC and/or LOC orders after 3:50
p.m. will not be permitted for any reason, including in case of
legitimate error.
(b) Printing the Close: In accordance with Rule 109(d), the
imbalance of MOC and marketable LOC orders are printed against the bid
or the offer as the case may be.
Following the printing of the imbalance, and in accordance with
Rule 109, the specialist shall stop the remaining buy and sell orders
against each other and pair them off at the price of the immediately
preceding sale described above. The ``pair off'' transaction shall be
reported to the tape as ``stopped stock''. Where the aggregate size of
the MOC (and marketable LOC, i.e., orders with limits above the closing
price) orders to buy equals the aggregate size of the MOC (and
marketable LOC, i.e., orders with limits below the closing price)
orders to sell, the buy orders and sell orders shall be stopped against
each other and paired-off at the price of the last sale regular-way on
the Exchange prior to the close of trading in that stock on that day.
The transaction shall be reported to the consolidated last sale
reporting system as ``stopped stock''. Any stop orders and percentage
orders that would be elected and become executable as a result of the
closing transaction should also be included in the close.
(c) Order of Execution of MOC and LOC Orders.
On the close orders are to be executed in the following order.
1. MOC orders (including ``G'');
2. Tick-sensitive, marketable (as defined in Rule 131A(b) above)
MOC orders (not including sell short ``G'');
3. Tick-sensitive, marketable (as defined in Rule 131A(b) above)
market orders and marketable (as defined in Rule 131A(b) above) limit
orders;
4. Marketable (as defined in Rule 131A(b) above) LOC orders
(including ``G'');
5. Tick-sensitive, marketable (as defined in Rule 131A(b) above)
LOC orders (not including sell short ``G'');
6. Limit orders on the book and in the crowd limited to the closing
price;
7. LOC orders limited to the closing price;
8. Tick-sensitive MOC orders limited to the closing price (not
including sell short ``G'');
[[Page 66900]]
9. Tick-sensitive LOC orders limited to the closing price (not
including sell short ``G'');
10. All other ``G'' orders on book and in the crowd.
Item numbers 1-5 above (Order of Execution of MOC Orders) are
treated like MOC orders. Accordingly, the buy side is matched against
the sell side to determine the imbalance. That imbalance will be
executed against the prevailing bid or offer, as appropriate. (An
imbalance of buy orders would be executed against the offer. An
imbalance of sell orders would be executed against the bid.) The order
of execution of the orders limited to that bid or offer (i.e., the
orders that the imbalance will trade against) is set forth above in
item numbers 6 through 10. The specialist then stops the remaining buy
and sell ``MOC'' orders (i.e., those not part of the imbalance) against
each other and pairs them off at the price of the imbalance trade. The
``pair off'' transaction is to be reported as a ``stopped stock''
transaction.
(d) Auxiliary Opening Procedures.
For each expiration settlement value day on which derivative,
index-related products (e.g., options, futures, options on futures)
settle against opening prices, several auxiliary procedures are
necessary to integrate stock orders relating to expiring contracts into
Amex's opening procedures in a manner that assures an efficient market
opening in each stock as close to 9:30 a.m. as possible. An expiration
settlement value day is a trading day prior to the expiration of index-
related derivative products whose settlement value is based upon
opening prices on the Exchange, as identified by a qualified clearing
corporation (e.g., the Options Clearing Corporation). The twelve
expiration days are ``Expiration Fridays'' which generally fall on the
third Fridays in every month. If that Friday is an Exchange holiday,
there will be an expiration Thursday in such a month.
Order Entry
Stock orders relating to index-related derivative contracts whose
settlement pricing is based upon opening prices must be received by the
Amex Order File (AOF) or by the specialist by 9 a.m. These orders may
be cancelled or reduced in size. (Firms canceling these orders or
reducing them in size shall prepare contemporaneously a written record
describing the rationale for the change and shall preserve it as Rule
153 provides.) All other orders may be entered before or after 9 a.m.
To facilitate early order entry, AOF will begin accepting orders at
7:30 a.m. and will accept market orders of 99,900 shares or less.
``Limit-at-the-opening'' (``limit OPG'') orders are permitted,
including delivery through Exchange systems. Ordinary limit and market
orders may also be entered.
Order Identification
Stock orders relating to expiring derivatives whose settlement
pricing is based on opening prices must be identified ``OPG''.
Firms entering these orders through AOF, but unable to use ``OPG''
in the order instructions, may use a unique AOF branch code or a
separate AOF subscription mnemonic to identify these orders. The Amex
Market Surveillance Department must be advised in writing of the branch
code or subscription mnemonics by the business day following the
expiration trade date.
Firms unable to identify these orders in any of the above three
ways, and firms not using AOF, must submit a list of all these orders
and related details to the Amex Market Surveillance Department by the
business day following the expiration trade date.
Dissemination of Order Imbalances
As soon as practicable after 9:00 a.m. on expiration days, the
Exchange will publish market order imbalances of 25,000 shares or more
in all stocks. In addition, imbalances of less than 25,000 shares may
be published at that time with Floor Official approval. A ``no
imbalance'' status will not be published for any stock.
* * * * *
Representation of Orders
Rule 156 (a) through (b) No change.
(c) The acceptance of a market [an] at the close (MOC) order by a
broker [does not make him] makes the broker responsible for an
execution at the Exchange's closing price, and if the order can not be
so executed, it is to be cancelled. A broker handling a limit at the
close (LOC) order is to use due diligence to execute the order at the
Exchange's closing price if that closing price is at the order's limit
price, or better, and if the order can not be so executed, in whole or
in part, the amount of the order not so executed is to be cancelled.
[Bids or offers qualified as at the close cannot be publicly made in
the Trading Crowd.] Cancellation of MOC and LOC orders will only occur
in certain circumstances such as (1) when trading has been halted in
the security and does not reopen prior to the close of the market; (2)
for tick sensitive orders whose execution will violate customer
instructions (i.e., to buy only on a minus or zero minus tick or to
sell only on a plus or zero plus tick) or Exchange Rule 7; (3) for LOC
orders, when the Amex closing price is not at the limit price or
better, or (4) for tick sensitive MOC/LOC orders and LOC orders, all of
which are limited to the closing price, the limited quantity of shares
to be traded and the rules of priority as to which orders would trade
first left these orders unexecuted in whole or in part.
(d) through (e) No change.
* * * * *
Trading in Nasdaq National Market Securities
Rule 118
(a) through (k) No change.
(l) Reserved.
(m) Market-on-Close and Limit-on-Close Orders `` The following
procedures apply to market-on-close (MOC) and limit-on-close (LOC)
orders in Nasdaq National Market securities
(i) A market at the close (MOC) order is an order to buy or sell a
stated amount of a security at the Exchange's closing price. If the MOC
order cannot be so executed in its entirety at the Exchange closing
price it will be cancelled. A limit at the close (LOC) order is an
order to buy or sell a stated amount of a security at the Exchange's
closing price if that closing price is at the order's limit price, or
better. If the LOC order can not be so executed, in whole or in part,
the amount of the order not so executed is to be cancelled.
Cancellation of MOC and LOC orders will only occur in certain
circumstances such as (1) When trading has been halted in the security
and does not reopen prior to the close of the market; (2) for tick
sensitive orders whose execution will violate customer instructions
(i.e., to buy only on a minus or zero minus tick or to sell only on a
plus or zero plus tick) or Exchange Rule 7; (3) for LOC orders, when
the Amex closing price is not at the limit price or better, or (4) for
tick sensitive MOC/LOC orders and LOC orders, all of which are limited
to the closing price, the limited quantity of shares to be traded and
the rules of priority as to which orders would trade first left these
orders unexecuted in whole or in part.
(ii) In an attempt to minimize price volatility on the close, all
market-on-close (MOC) and limit-on-close (LOC) orders should be entered
as early in the day as possible to provide market participants an
opportunity to better ascertain possible order imbalances that might
exist at the close.
Between 3:00 and 3:40 p.m. (Eastern Time), imbalances of any size
may be
[[Page 66901]]
published with Floor Official approval. These are informational only
and do not limit MOC/LOC order entry before 3:40 p.m.
(a) At 3:40 p.m. or as close to this time as possible, MOC order
imbalances of 25,000 shares or more must be published in a manner
specified by the Exchange. In addition, an order imbalance below 25,000
shares may also be published by a specialist, with the concurrence of a
Floor Official, if the specialist (i) anticipates that the execution of
the MOC orders will result in a closing price which exceeds the price
change parameters of Rule 154, Commentary .08 (the $2, $1, $.50 Rule),
or (ii) believes that an order imbalance should otherwise be published
in an attempt to minimize price volatility on the close. A ``No
Imbalance'' notice will only be published for any stock at 3:40 p.m. if
there had been a prior informational imbalance publication.
(1) MOC Imbalance Calculation Policy (3:40 p.m. calculation):
Marketable LOC orders to buy (that is, LOC buy orders with limit prices
above the consolidated last sale at 3:40 p.m.) are added to MOC orders
to buy. Marketable LOC orders to sell, (that is, LOC orders with limit
prices below the last sale at 3:40 p.m.) are added to MOC orders to
sell. The buy orders are then matched against sell orders to calculate
the imbalance.
At 3:50 p.m. or as close to this time as possible, MOC order
imbalances of 25,000 shares or more must be published in a manner
specified by the Exchange. In addition, an order imbalance below 25,000
shares may also be published by a specialist, with the concurrence of a
Floor Official, if the specialist (i) anticipates that the execution of
the MOC orders will result in a closing price which exceeds the price
change parameters of Rule 154, Commentary .08 (the $2, $1, $.50 Rule),
or (ii) believes that an order imbalance should otherwise be published
in an attempt to minimize price volatility on the close. If there had
been an imbalance publication at 3:40 p.m. and the imbalance at 3:50
p.m. is less than 25,000 shares, either a ``No Imbalance'' notice will
be published, or the size and side of the imbalance may be published
with Floor Official approval.
MOC Imbalance Calculation Policy (3:50 p.m. calculation):
Procedures for the 3:50 p.m. calculation are the same as the 3:40 p.m.
calculation, except that the consolidated last sale at 3:50 p.m. would
be used to determine whether or not a LOC order is marketable.
(2) Between 3:40 p.m. and 3:50 p.m., no MOC or LOC orders may be
entered except to offset a published MOC imbalance at 3:40 p.m. A
broker may represent an MOC or LOC order in the crowd, but must state
irrevocable MOC interest by 3:40 p.m. After 3:40 p.m., an MOC order may
not be taken from the book to be represented by a broker in the crowd.
Between 3:40 p.m. and 3:50 p.m., MOC and LOC orders are
irrevocable, except to correct an error (e.g., incorrect stock, side,
size, or price, or a duplication of a previously entered order).
Properly cancelled MOC and LOC orders may not be replaced after 3:40
p.m. unless the replacement order offsets a published MOC imbalance.
After 3:50 p.m., no MOC or LOC orders may be entered except to
offset a published MOC imbalance at 3:50 p.m.
Cancellation or reduction in size of MOC and/or LOC orders after
3:50 p.m. will not be permitted for any reason, including in case of
legitimate error.
(b) Prohibition of Tick-Sensitive Orders--Tick-sensitive MOC and
LOC orders (e.g., buy ``minus'' or sell ``plus'') shall not be entered.
(Sell short MOC and LOC orders in Nasdaq securities are exempt from
tick restrictions on the Amex and may be entered.)
(c) Publication of Imbalances Following Trading Halt of Any Type:
MOC order imbalances of 25,000 shares or more are required to be
published by the specialist, if practicable, in the event a stock
reopens after 3:50 p.m. following a trading halt of any type. An
imbalance of less than 25,000 shares may be published with the
concurrence of a Floor Official. Trading will not resume in the event a
trading halt in a stock occurs after 3:55 p.m., and MOC/LOC orders in
that stock will not be executed.
(d) Entry of MOC/LOC Orders During a Regulatory Halt. If a
regulatory halt is in effect at 3:40 p.m. or occurs after that time,
the entry of MOC/LOC orders is permitted until 3:50 p.m. or until the
security reopens, whichever occurs first. If an order imbalance is
published following a regulatory halt and reopening after 3:40 p.m.,
the entry of MOC/LOC orders is permitted only to offset the published
imbalance.
(e) Cancellation of MOC/LOC Orders During a Regulatory Halt. When a
regulatory halt (news pending or news dissemination) is in effect at
3:40 p.m. or occurs after that time, cancellation of MOC/LOC orders is
permitted until 3:50 p.m. or the reopening of the security, whichever
occurs first. This policy does not apply to non-regulatory (e.g., order
imbalance or equipment changeover) halts, and cancellation of orders in
such cases is prohibited after 3:40 p.m. except to correct an error.
Cancellation or reduction in size of MOC and/or LOC orders after 3:50
p.m. will not be permitted for any reason, including in case of
legitimate error.
(iii) Printing the Close: In accordance with Rule 109(d), the
imbalance of MOC and marketable LOC orders are printed against the
Exchange bid or the Exchange offer as the case may be. Following the
printing of the imbalance, and in accordance with Rule 109, the
specialist shall stop the remaining buy and sell orders against each
other and pair them off at the price of the immediately preceding sale
described above. The ``pair off'' transaction shall be reported as
stopped stock in accordance with Exchange Rule 109, Commentary .02.
Where the aggregate size of the MOC (and marketable LOC, i.e., orders
with limits above the closing price) orders to buy equals the aggregate
size of the MOC (and marketable LOC, i.e., orders with limits below the
closing price) orders to sell, the buy orders and sell orders shall be
stopped against each other and paired-off at the price of the last
regular-way consolidated sale prior to the close of trading in that
stock on that day. The transaction shall be reported as stopped stock
in accordance with Exchange Rule 109, Commentary .02. Stop orders and
percentage orders elected by the execution of the MOC imbalance should
be included in the close.
(iv) Order of Execution of MOC and LOC Orders.
On the close orders are to be executed in the following order.
1. MOC orders (including ``G'');
2. Marketable (as defined in Rule 118(m)(iii) above) LOC orders
(including ``G'');
3. Limit orders on the book and in the crowd limited to the closing
price;
4. LOC orders limited to the closing price;
5. All other ``G'' orders on book and in the crowd.
Item numbers 1 and 2 above (Order of Execution of MOC Orders) are
treated like MOC orders. Accordingly, the buy side is matched against
the sell side to determine the imbalance. That imbalance will be
executed against the prevailing bid or offer, as appropriate. (An
imbalance of buy orders would be executed against the offer. An
imbalance of sell orders would be executed against the bid.) The order
of execution of the orders limited to that bid or offer (i.e., the
orders that the imbalance will trade against) is set forth above in
item numbers 3 through 5. The specialist then stops the remaining buy
and sell ``MOC'' orders (i.e., those not part of the imbalance) against
each other and pairs them off at the price of the imbalance trade. The
``pair off'' transaction is to be reported as stopped
[[Page 66902]]
stock in accordance with Exchange Rule 109, Commentary .02.
(v) See Rule 156(c), which sets forth the responsibilities of a
broker accepting MOC and LOC orders.
Specialist's Reports of MOC and LOC Orders
(vi) A Nasdaq UTP specialist is required to notify an Amex Floor
Supervisor between 4:00 p.m. and 4:15 p.m. whenever the specialist (1)
reports a trade at or after 4:00 p.m. that does not involve the
execution of an MOC or LOC order, or (2), after reporting an MOC or LOC
transaction(s) at or after 4:00 p.m., reports a trade after 4:00 p.m.
(e.g., report of a ``sold'' sale) that is not, of course, a transaction
involving the execution of MOC or LOC orders. This notification will be
on an Exchange-approved form, with a duplicate copy for the
specialist's records.
* * * * *
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 Amex included statements
concerning the purpose of and basis for the proposed rule change, as
amended, 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 IV below. The Amex 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 previously approved rules and procedures
governing market on close (``MOC'') and limit on close (``LOC'') orders
entered on the Exchange.\6\ The Exchange proposes to amend these rules
and procedures as described below. The amended rules and procedures set
forth in this proposal would supersede the procedures previously
approved by the Commission as described in the releases cited above,
with the exception of Rule 109 which would continue to apply. Further,
the Exchange proposes to consolidate current Exchange procedures
relating to MOC and LOC orders, other than orders in Nasdaq securities
traded pursuant to unlisted trading privileges, in new Rule 131A, which
would include procedures previously approved by the Commission as well
as the proposed procedures set forth herein. In addition, the Exchange
proposes to adopt Rule 118(m) to establish MOC and LOC procedures for
Nasdaq securities, which procedures would be substantially similar to
those in proposed Rule 131A.\7\
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\6\ See, e.g., Securities Exchange Act Release Nos. 41877
(September 14, 1999), 64 FR 51566 (September 23, 1999) (SR-Amex-99-
32); 40123 (June 24, 1998), 63 FR 36280) (July 2, 1998) (SR-Amex-98-
10); 35660 (May 2, 1995), 60 FR 22592 (May 8, 1995) (SR-Amex-95-09);
29312 (June 14, 1991), 56 FR 28583 (June 21, 1991) (SR-Amex-95-09).
\7\ The Commission approved certain procedures for ``at the
close'' orders in Nasdaq securities in Securities Exchange Act
Release 47658 (April 10, 2003), 68 FR 19041 (April 17, 2003) (SR-
Amex-2003-18). The procedures and rules proposed herein are in
addition to, and do not supersede, those approved in Release No. 34-
47658. Auxiliary opening procedures for Nasdaq securities were filed
and became effective in Securities Exchange Act Release No. 48000
(June 6, 2003), 68 FR 35469 (June 13, 2003) (SR-Amex-2003-55).
---------------------------------------------------------------------------
Proposed Rule 131A (Market on Close Policy and Expiration Procedures)
In an attempt to minimize price volatility on the close, Amex
procedures currently provide that all MOC and LOC orders in stocks
should be entered as early in the day as possible to provide market
participants an opportunity to better ascertain possible order
imbalances that might exist at the close. Under these procedures, Amex
represents that, at 3:40 p.m. (Eastern Time) or as close to this time
as possible, MOC order imbalances of 25,000 shares or more must be
published on the tape. In addition, an order imbalance below 25,000
shares may also be published by a specialist, with the concurrence of a
Floor Official, if the specialist (i) anticipates that the execution of
the MOC orders on the book will result in a closing price which exceeds
the price change parameters of Rule 154, Commentary .08 (the $2, $1,
$.50 rule),\8\ or (ii) believes that an order imbalance should
otherwise be published in an attempt to minimize price volatility on
the close. After 3:40 p.m., no MOC or LOC orders in stocks may be
entered except to offset a published MOC imbalance.
---------------------------------------------------------------------------
\8\ Amex Rule 154, Commentary .08 provides that no transaction
in a stock at a price of $20 or more, $10 or more (but less than
$20) or less than $10 per share may be at $2, $1, or $.50 or more,
respectively, away from the last previous sale, without the prior
approval of a Floor Official.
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New Rule 131A would incorporate existing Amex MOC/LOC procedures
for stocks during the regular trading session as well as proposed new
procedures, as described herein. These procedures would not be
applicable to options or any security the pricing of which is based on
another security or an index, such as Exchange-Traded Funds, Trust
Issued Receipts, structured products, warrants and convertible
securities. These procedures, however, would be applicable to closed-
end funds.
The Exchange proposes to implement a MOC Imbalance Calculation
Policy, and to adopt changes to the MOC Imbalance Publication Policy
similar to those approved for the New York Stock Exchange (``NYSE'') in
Release No. 34-40094,\9\ and stated in NYSE Rule 123C(5). The most
salient feature of these revised policies is the additional imbalance
dissemination at 3:50 p.m. The Exchange believes additional
dissemination at 3:50 p.m. would provide useful information to market
participants, who would be able to determine to enter offsetting buy or
sell interest based on the latest imbalance information. Amex believes
that this would enhance the value of imbalance publications in
tempering market volatility at or near the close. In addition, the
Exchange believes that implementing MOC/LOC procedures that are more
similar to NYSE procedures in this area would enhance their utility for
member organizations.
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 40094 (June 15,
1998), 63 FR 33975 (June 22, 1998) (SR-NYSE-97-36).
---------------------------------------------------------------------------
The Exchange proposes to require a 3:50 p.m. MOC imbalance
calculation in addition to the current 3:40 p.m. calculation. For the
3:40 p.m. calculation, marketable buy LOCs (that is, LOCs with limit
prices above the Exchange last sale at 3:40 p.m.) would be added to buy
MOCs. Marketable sell LOCs (LOCs with limit prices below the Exchange
last sale at 3:40 p.m.) would be added to sell MOCs. The buys would
then be matched against the sells. If there were to be a buy imbalance,
it would be offset and reduced by any tick-sensitive sell MOCs and
tick-sensitive, marketable sell LOCs (including orders to sell short).
If there were to be a sell imbalance, it would be offset and reduced by
any tick-sensitive buy MOCs and tick-sensitive, marketable buy LOCs. A
``no imbalance'' notice would only be published for any stock at 3:40
p.m. if there had been a prior informational imbalance publication.
Between 3 p.m. and 3:40 p.m., MOC/LOC imbalances of any size would be
permitted to be published with Floor Official approval. These
publications would be informational only and would not limit MOC/LOC
order entry before 3:40 p.m. Amex represents that these proposed
changes are similar to procedures currently in place at the NYSE and
included in NYSE Rule 123C except as
[[Page 66903]]
follows. In view of the generally lower trading volume and different
trading characteristics of Amex stocks compared to NYSE issues, the
Exchange believes it would be appropriate to continue to require
dissemination of imbalances of 25,000 shares or more rather than 50,000
shares or more, as is required by NYSE Rule 123C.
At 3:50 p.m., or as close to this time as possible, any MOC order
imbalances of 25,000 shares or more would be required by the Exchange
to be published on the consolidated tape (Tape B). In addition, as with
current 3:40 p.m. imbalance procedures, an order imbalance below 25,000
shares would also be permitted to be published by a specialist, with
the concurrence of a Floor Official, if the specialist (i) anticipates
that the execution of the MOC orders on the book would result in a
closing price which exceeds the price change parameters of Rule 154,
Commentary .08 (the $2, $1, $.50 rule),\10\ or (ii) believes that an
order imbalance should otherwise be published in an attempt to minimize
price volatility on the close. If there was an imbalance publication at
3:40 p.m. and the imbalance at 3:50 p.m. were to be less than 25,000
shares, either a ``no imbalance'' notice would be published, or the
size and side of the imbalance would be permitted to be published with
Floor Official approval. The 3:50 p.m. calculation policy would be the
same as that applicable to the 3:40 p.m. calculation, except the
Exchange last sale at 3:50 p.m. would be used to determine whether or
not a LOC order is marketable.
---------------------------------------------------------------------------
\10\ See supra note 8 for a discussion of Amex Rule 154.
---------------------------------------------------------------------------
The Exchange proposes that after 3:50 p.m., no MOC or LOC orders in
stocks would be permitted to be entered except to offset a published
MOC imbalance in effect after 3:50 p.m. Amex represents that this is
comparable to current procedures, whereby, after 3:40 p.m., no MOC or
LOC orders in stocks may be entered except to offset a published MOC
imbalance in effect after 3:40 p.m. Amex states that this restriction
is intended to alleviate increased pricing pressure that may occur
following an imbalance dissemination of buy or sell interest. Amex
represents that this restriction is also the same as that imposed by
the NYSE under NYSE Rule 123C.
A broker would be permitted to represent an MOC or LOC order in the
trading crowd of a stock, but would be required to state irrevocable
MOC interest by 3:40 p.m. Amex represents that this requirement is the
same as that imposed by the NYSE under NYSE Rule 123C. After 3:40 p.m.,
no MOC or LOC order in a stock would be permitted to be taken from the
book to be represented by a broker in the crowd. Amex states that these
restrictions are intended to apply procedures for crowd orders
consistent with MOC/LOC procedures generally. Policy regarding
cancellation or reduction in size of MOC and/or LOC orders after 3:40
p.m. would remain the same (i.e., between 3:40 p.m. and 3:50 p.m., MOC
and LOC orders would be irrevocable, except to correct an error) except
cancellation or reduction in size of MOC and/or LOC orders after 3:50
p.m. would not be permitted for any reason, including in case of
legitimate error. Amex represents that this restriction is the same as
that imposed by the NYSE under NYSE Rule 123C.
Proposed Rule 131A(a)(3) would require that the specialist publish
an MOC order imbalance of 25,000 shares or more, if practicable, if a
stock reopens after 3:50 p.m. following any type of trading halt.
Paragraphs (a)(4) and (a)(5) propose procedures applicable to entry or
cancellation of MOC/LOC orders during a regulatory halt in effect at or
after 3:40 p.m. Amex represents that this rule text reflects procedures
filed and made effective in Release No. 34-41877.\11\ Amex states that
this proposed rule change would supersede that filing and approval.
---------------------------------------------------------------------------
\11\ See Release No. 34-41877, supra note 6.
---------------------------------------------------------------------------
Procedures regarding printing the close would be amended to provide
that stop orders and percentage orders elected by the execution of the
MOC imbalance should be included in the close. Amex represents that
this requirement is the same as that imposed by the NYSE under NYSE
Rule 123C.
In the interest of providing for an orderly and consistent
execution of various MOC and LOC order types at the close, proposed
Rule 131A(c), would specify that on the close orders would be executed
in the following order: (1) MOC orders (including ``G'');\12\ (2) tick-
sensitive (e.g., buy minus, sell plus, and sell short, for securities
subject to the ``tick test'' in Exchange Rule 7), MOC orders (not
including sell short ``G''); (3) tick-sensitive, marketable market
orders and marketable limit orders; (4) marketable LOC orders
(including ``G''); (5) tick-sensitive, marketable LOC orders (not
including sell short ``G''); (6) limit orders on the specialist's book
and in the crowd limited to the closing price; (7) LOC orders limited
to the closing price; (8) tick-sensitive MOC orders limited to the
closing price; (9) tick-sensitive LOC orders limited to the closing
price; (10) all other ``G'' orders on the specialist's book and in the
crowd. Amex represents that the requirement for sell short ``G'' orders
to yield is the same as that imposed by the NYSE under NYSE Rule 123C.
---------------------------------------------------------------------------
\12\ ``G'' orders are entered for an account of either a member
or member organization, or an associated person of a member or
member organization, or for an account over which a member or member
organization or associated person exercises investment discretion.
Section 11(a) of the Act prohibits all orders for these accounts
from being executed on the floor without an exemption. 15 U.S.C.
78k(a). The exemptions are contained in subparagraphs (1)(A) through
(1)(I) of Section 11(a) of the Act. 15 U.S.C. 78k(a)(1)(A)--
78k(a)(1)(I). The exemption in ``G'' requires that the member or
member organization be primarily engaged in underwriting and/or
brokerage (as opposed to effecting proprietary trades on the Floor)
and that the ``exempt'' transaction yield priority, parity, and
precedence to orders for those who are not members or associated
with members.
---------------------------------------------------------------------------
The first five categories above would be treated like MOC orders.
Accordingly, the buy side would be matched against the sell side to
determine the imbalance. That imbalance would be executed against the
prevailing bid or offer, as appropriate. (An imbalance of buy orders
would be executed against the offer. An imbalance of sell orders would
be executed against the bid.) The order of execution of the orders
limited to that bid or offer (i.e., the orders that the imbalance would
trade against) would be as set forth in numbers 6 through 10. The
specialist then would stop the remaining buy and sell ``MOC'' orders
(i.e., those not part of the imbalance) against each other and pair
them off at the price of the imbalance trade. The ``pair off''
transaction would be reported as ``stopped stock'' so that those who
entered orders limited to the closing price which were not executed
would know that they were not entitled to participate on the ``stopped
stock'' trade. Amex represents that the execution of the imbalance
against the prevailing bid or offer followed by the printing of the
``paired off'' quantity as ``stopped stock'' is the Exchange's current
procedure for executing and printing on-close orders as described in
Amex Rule 109(d).
Rules 131(e) and 156(c)
Rule 131(e), which defines ``at the close order,'' would be amended
to specify that a MOC order is to be executed in its entirety at the
Amex closing price or cancelled. Rule 131(e) would also be amended to
specify that a limit at the close (LOC) order--an order to buy or sell
a stated amount of a security at the Amex closing price if at the limit
price or better `` would have to be cancelled if not executed in whole
or in part. Amex represents that these amendments are similar to NYSE
Rule
[[Page 66904]]
123C procedures, and believes that they set forth more specifically
members' responsibilities in executing or canceling MOC/LOC orders.
Rule 156(c), which relates to broker representation of an ``at the
close order,'' currently provides that a broker is not responsible for
executing at the closing price an ``at the close order'' that the
broker accepts. The Exchange believes that it is appropriate for the
broker to be responsible for execution at the Amex closing price of a
MOC order he or she accepts, and amended Rule 156(c) would so state.
Rule 156(c) would further specify that a broker handling a LOC would
have to use due diligence to execute the order at the Amex closing
price if at the limit price or better, and to cancel the portion of the
order that cannot be so executed.
Aside from the customer ordering the cancellation of an MOC or LOC
order before 3:40 p.m. or for a legitimate error between 3:40 and 3:50
p.m., it should be noted with respect to both MOC and LOC orders that
are to be cancelled if not executed in whole or in part, that such
cancellations would occur only in the following circumstances and not
at the discretion of either the specialist or floor broker.
Cancellation of MOC and LOC orders would occur when (1) trading has
been halted in the security and does not reopen prior to the close of
the market; (2) tick sensitive orders, as described above, whose
execution will violate customer instructions (i.e., to buy only on a
minus or zero minus tick or to sell only on a plus or zero plus tick)
or Amex Rule 7; (3) for LOC orders, the Amex closing price is not at
the limit price or better, or (4) for tick sensitive MOC/LOC orders and
LOC orders all of which are limited to the closing price, the limited
quantity of shares to be traded and the rules of priority as to which
orders would trade first left these orders unexecuted in whole or in
part.
Auxiliary Opening Procedures
The Exchange proposes to adopt Rule 131A(d) implementing the
following auxiliary opening procedures for index options/futures
expiration settlement value days.\13\ Amex represents that these
procedures are similar to NYSE Expiration Friday auxiliary opening
procedures contained in NYSE Rule 123C(6). Amex represents that for
each expiration day on which derivative, index--related products expire
against opening prices, several auxiliary procedures are necessary to
integrate stock orders relating to expiring contracts into Amex's
opening procedures in a manner that assures an efficient market opening
in each stock as close to 9:30 a.m. as possible. The index products
include, but are not limited to the following: S&P 500 Index options
and futures, Nasdaq 100 Index options, S&P MidCap 400 Index options and
futures, Russell 1000 Index options and futures and Russell 2000 Index
options and futures.
---------------------------------------------------------------------------
\13\ The term ``expiration settlement value day'' refers to the
days on which certain expiring index options and/or futures (see
list below for examples) have settlement values determined. These
index options and futures have settlement values based on the
opening prices of their component securities on the trading day
preceding their expiration. Index options and futures expire on the
Saturday following the third Friday of each expiration month. The
expiration settlement value day is the last trading day preceding
expiration, which is normally a Friday.
---------------------------------------------------------------------------
Amex represents that stock orders relating to index contracts whose
settlement pricing is based upon opening prices would have to be
received by the Amex Order File (AOF) or by the specialist by 9:00 a.m.
These orders would be permitted to be cancelled or reduced in size.
(Firms canceling these orders or reducing them in size would be
required to prepare contemporaneously a written record describing the
rationale for the change and would be required to preserve it as Rule
153 provides.) All other orders would be permitted to be entered before
or after 9 a.m.
To facilitate early order entry, AOF would begin accepting orders
at 7:30 a.m. and would accept market orders of 99,900 shares or less.
``Limit-at-the-opening'' (``limit OPG'') orders would be permitted,
including delivery through Exchange systems. Ordinary limit and market
orders also would be permitted to be entered. Stock orders relating to
expiring derivatives whose settlement pricing is based on opening
prices would be required to be identified ``OPG.''
As soon as practicable after 9:00 a.m. on expiration days, the
Exchange would publish market order imbalances of 25,000 shares or more
in all listed stocks. In addition, imbalances of less than 25,000
shares would be permitted to be published at that time with Floor
Official approval. A ``no imbalance'' status would not be published for
any stock. Amex represents that these proposed changes are similar to
procedures currently in place at the NYSE and included in NYSE Rule
123C except as follows. In view of the generally lower trading volume
and different trading characteristics of Amex stocks compared to NYSE
issues, the Exchange believes it is appropriate to continue to require
dissemination of imbalances of 25,000 shares or more rather than 50,000
shares or more, as is required by NYSE Rule 123C. In addition, Amex
systems accept market orders of 99,900 shares or less rather than
orders of 500,000 shares or less accepted by the NYSE.
MOC/LOC Procedures for Nasdaq UTP Trading
In Release No. 34-47658,\14\ the Commission approved rules relating
to execution of MOC and LOC orders in Nasdaq securities traded on the
Amex pursuant to unlisted trading privileges. These procedures, with
certain exceptions described in Release No. 34-47658,\15\ continue to
apply previously approved rules and procedures governing MOC and LOC
orders entered on the Exchange.\16\ The procedures include publication
of order imbalances beginning at 3:40 p.m. (or as close to this time as
possible) in Nasdaq securities of 25,000 shares or more, and a
prohibition on entry of MOC and LOC orders after 3:40 p.m. except to
offset an at the close order imbalance. After 3:40 p.m., MOC and LOC
orders are irrevocable except to correct an error.
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\14\ See Release No. 34-47658, supra note 7.
\15\ In Release No. 34-47658, the Commission approved amendments
to Amex Rule 109 (Stopping Stock), Amex Rule 118 (Trading in Nasdaq
National Market Securities), Amex Rule 131 (Types of Orders) and
Amex Rule 156 (Representation of Orders), relating to ``at the
close'' orders (1) to specify that these rules apply to Amex trading
in Nasdaq securities; (2) to provide for dissemination of order
imbalance information to major news vendors by means of a structured
communication process; and (3) to temporarily exempt from Amex Rule
109(d) information relating to ``pair off'' transactions under such
rule, pending implementation of systems changes by the Nasdaq
Unlisted Trading Privileges Plan Processor to accommodate printing
of such transactions as ``stopped stock.'' It should be noted,
however, with respect to point number (3), that, effective September
15, 2003, the Nasdaq UTP Plan Processor was able to accommodate
printing of pair-off transactions as ``stopped stock.'' Thus,
effective October 8, 2003, the temporary exemption from Amex Rule
109(d) was eliminated.
\16\ See supra, note 6.
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The Exchange is proposing to incorporate into new Rule 118(m)
current procedures relating to the 3:40 p.m. calculation and
dissemination of order imbalances and entry of MOC and LOC orders in
Nasdaq securities. The Exchange also proposes to modify current MOC and
LOC procedures by adding an additional publication of MOC/LOC order
imbalances of 25,000 shares or more at 3:50 p.m. These modifications
would also be included in Rule 118(m). Once again, Amex represents that
the amended rule and procedures would supersede the rules and
procedures previously approved by the Commission as described in the
releases referenced above with the
[[Page 66905]]
exception of Release No. 34-47658,\17\ and Release No. 34-48000.\18\
---------------------------------------------------------------------------
\17\ See supra note 7.
\18\ Id.
---------------------------------------------------------------------------
The Exchange believes an additional publication is necessary at
3:50 p.m. in light of the price volatility in Nasdaq stocks,
particularly near the close of trading. An additional imbalance
publication at 3:50 p.m. would reflect any offsetting interest as well
as any legitimate cancellations entered after the 3:40 p.m. publication
and would reflect any shift in the imbalance from a buy to sell
imbalance or vice versa. The 3:50 p.m. publication would provide
additional, more timely market information to market participants,
which Amex states is intended to encourage possible buy or sell
interest offsetting the imbalance after 3:50 p.m., thereby promoting
greater pricing stability at the close.
Proposed Rule 118(m) provides that at 3:40 p.m. and at 3:50 p.m.,
or as close to these times as possible, MOC order imbalances of 25,000
shares or more would be published in a manner specified by the
Exchange. That is, the Exchange would utilize a structured
communication process established with major news vendors (e.g.,
Bloomberg and Dow Jones), utilizing, among other things, e-mail and
file transfer protocol technology to permit public dissemination of
order imbalance information at 3:50 p.m., or as soon thereafter as
practicable.\19\
---------------------------------------------------------------------------
\19\ Id.
---------------------------------------------------------------------------
The imbalance calculation policy for the 3:40 p.m. calculation
would be as follows: marketable LOC orders to buy (that is, LOC buy
orders with limit prices above the consolidated last sale at 3:40 p.m.)
would be added to MOC orders to buy. Marketable LOC orders to sell
(that is, LOC sell orders including those to sell short, with limit
prices below the consolidated last sale at 3:40 p.m.) would be added to
MOC orders to sell. The buy orders are then matched against sell orders
to calculate the imbalance and side. Procedures for the 3:50 p.m.
imbalance calculation would be the same as those for the 3:40 p.m.
calculation, except that the consolidated last sale at 3:50 p.m. would
be used to determine whether or not a LOC order is marketable. After
3:50 p.m., no MOC or LOC orders would be permitted to be entered except
to offset the latest published MOC imbalance. Between 3:40 p.m. and
3:50 p.m., MOC and LOC orders would be irrevocable, except to correct
an error. Cancellation or reduction in size of MOC and/or LOC orders
after 3:50 p.m. would not be permitted for any reason, including in
case of legitimate error.
The Exchange proposes to prohibit entry of tick-sensitive MOC or
LOC orders (e.g., buy ``minus'' or sell ``plus'') in Nasdaq stocks.
(Sell short orders in Nasdaq securities, which are exempt from ``tick''
restrictions on the Amex, would be accepted.) Such orders, (e.g., buy
``minus'' or sell ``plus'') which account for less than one percent of
``at the close'' orders entered in Nasdaq stocks, may impede the
specialist in providing an orderly and timely close, in so far as they
are processed manually, which makes such orders more difficult to
process in a timely manner.
An order imbalance at 3:40 p.m. or 3:50 p.m. below 25,000 shares
also would be permitted to be published by a specialist, with the
concurrence of a Floor Official, if the specialist (i) anticipates that
the execution of the MOC orders on the book would result in a closing
price which exceeds the price change parameters of Rule 154, Commentary
.08 (the $2, $1, $.50 Rule), or (ii) believes that an order imbalance
should otherwise be published in an attempt to minimize price
volatility on the close. For 3:40 p.m. imbalance disseminations, a ``No
Imbalance'' notice would only be published at 3:40 p.m. if there had
been a prior informational imbalance publication between 3:00 p.m. and
3:40 p.m. For 3:50 p.m. imbalance disseminations, if there was an
imbalance publication at 3:40 p.m. and the imbalance at 3:50 p.m. were
to be less than 25,000 shares, either a ``No Imbalance'' notice will be
published, or the size and side of the imbalance may be published with
Floor Official approval.
Rule 118(m)(i), like Rule 131(e) as it is proposed to be amended,
provides that a MOC order must be executed in its entirety at the
Exchange closing price or is to be cancelled. Rule 118(m)(v) would
reference Rule 156(c) as it is proposed to be amended, and would make
the broker representing a MOC order in the Trading Crowd responsible
for an execution at the Exchange's closing price. Aside from the
customer ordering the cancellation of an MOC or LOC order before 3:40
p.m. or for a legitimate error between 3:40 and 3:50 p.m., it should be
noted with respect to both MOC and LOC orders that are to be cancelled
if not executed in whole or in part, that such cancellations would
occur only in the following circumstances and not at the discretion of
either the specialist or floor broker. Cancellation of MOC and LOC
orders would occur when (1) trading has been halted in the Nasdaq UTP
stock on the Amex and does not reopen prior to the close of the market;
(2) for LOC orders, the Amex closing price is not at the limit price or
better, or (3) for LOC orders which are limited to the closing price,
the limited quantity of shares to be traded and the rules of priority
as to which orders would trade first left these orders unexecuted in
whole or in part.
Proposed Rule 118(m)(ii)(c) provides for identical MOC/LOC
procedures to those in Rule 131A(a)(3) in the context of trading halts,
discussed above. Rule 118(m)(iii), which references procedures in Rule
109(d) applicable to printing the close, would provide that stop orders
and percentage orders elected by the execution of the MOC imbalance
should be included in the close.
Procedures set forth in proposed Rule 118(m)(iv) (Order of
Execution of MOC and LOC Orders) would be the same as those set forth
in proposed Rule 131A(c), except that tick-sensitive orders would not
be referenced in so far as entry of such orders would be prohibited for
Nasdaq UTP securities.
Procedures for Reporting the Amex Official Closing Price and ``M''
Modifier
The Amex has received Commission approval for use of the ``M'' sale
condition modifier on the UTP Trade Data Feed (``UTDF'') to identify
the Amex's Official Closing Price (``AOCP'') in a Nasdaq security.\20\
Amex represents that, as described in File No. SR-Amex-2003-18, at the
close orders are subject to ``pair off'' procedures in Amex Rule
109(d)(1), which requires a member holding both buy and sell MOC orders
to pair them off against each other and execute any imbalance against
the prevailing Amex bid or offer at the close. Any imbalance at the
close is executed at the current bid or offer, or as close as
practicable to 4:00 p.m., and remaining buy and sell orders are stopped
against each other and paired off at that same bid or offer price. Amex
reports the first trade (execution of the imbalance) and second pair
off trade separately at the same price, and then sends a third report
with only the price of those transactions with an ``M'' identifier via
UTDF as the Official Closing Price for the stock on the Amex.
---------------------------------------------------------------------------
\20\ Id.
---------------------------------------------------------------------------
The Exchange would disseminate an AOCP for a security only when the
closing price for that security on the Amex has been determined as the
result of the execution of MOC or LOC orders entered on the Exchange.
If no MOC/LOC orders were to be executed, Amex would not disseminate an
AOCP using the ``M'' modifier. The Exchange believes this is necessary
in establishing an ``official'' close because MOC and
[[Page 66906]]
LOC orders are the only order types that must be executed at the
Exchange closing price or not at all. Amex believes that restricting
the use of the ``M'' modifier to executions of MOC and LOC orders would
ensure that the closing price in the Exchange auction market accurately
reflects buy and sell interest at the close.
In connection with dissemination of the ``M'' modifier, between
4:15 p.m. and 4:25 p.m. each trading day, an Exchange Floor Supervisor
would review each Nasdaq transaction appearing on the tape at or after
4:00 p.m. to determine if that trade involved the execution of MOC/LOC
orders. As the Exchange's systems are programmed to capture as ``M''
all Nasdaq transactions which appeared on the tape at or after 4:00
p.m. the Exchange Floor Supervisor would correct the list by removing
all such trades not involving the execution of MOC/LOC orders to ensure
that an ``M'' is disseminated only when the Amex closing price is the
result of execution of MOC or LOC orders. By 4:25 p.m., Amex would
finalize and complete dissemination of AOCP prices with the ``M''
modifier to the Nasdaq UTP Processor. At 4:30 p.m., the Processor would
disseminate a closing trade recap message with the final AOCP prices.
The 4:30 p.m. dissemination would be implemented as part of an
enhancement to the Processor implemented on September 15, 2003.
In order to ensure that transactions reported by specialists at or
after 4:00 p.m. that are not the result of executions of MOC or LOC
orders are not reported as the AOCP with the ``M'' modifier, the
Exchange would require Nasdaq UTP specialists to notify an Amex Floor
Supervisor between 4:00 p.m. and 4:15 p.m. whenever the specialist (1)
reports a trade at or after 4:00 p.m. that does not involve the
execution of MOC/LOC orders, or (2), after reporting an MOC/LOC
transaction(s) at or after 4:00 p.m., reports a trade after 4:00 p.m.
(e.g., report of a ``sold'' sale) that is, of course, not a transaction
involving the execution of MOC or LOC orders. This notification would
be on an Exchange-approved form, with a duplicate copy for the
specialist's records.
2. Statutory Basis
The Amex believes that the proposed rule change is consistent with
Section 6(b) of the Act,\21\ in general, and Section 6(b)(5),\22\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system and, in general, to
protect investors and the public interest.
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\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change, as
amended, will impose any burden on competition.
C. Self-Regulatory Organization's Statement 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, as amended.
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 self-regulatory organization consents, the Commission will:
A. by order approve such proposed rule change, as amended, or
B. institute proceedings to determine whether the proposed rule
change, as amended, 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, as amended, is 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-2003-21 and should be submitted by December 19, 2003.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-29659 Filed 11-26-03; 8:45 am]
BILLING CODE 8010-01-P