regulatory organizations; proposed rule changes: American Stock Exchange LLC,

[Federal Register: June 18, 2002 (Volume 67, Number 117)]

[Notices]

[Page 41547-41550]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr18jn02-127]

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46061; File No. SR-Amex-2002-54]

Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the American Stock Exchange LLC To Amend Amex Rules 26 and 27 To Allow Upstairs Member Firm Representatives To Participate in Meetings of the Performance Committee by Telephone, and To Reduce the Number of Specialists on the List From Which Listed Companies May Select Their Specialist

June 11, 2002.

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 June 5, 2002, the American Stock Exchange LLC (``Amex'' or ``Exchange'') filedwith 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 Exchange. The Exchange filedthe proposal pursuant to Section 19(b)(3)(A) of the Act,\3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal effective upon filing with the Commission.\5\ 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.

\3\ 15 U.S.C. 78s(b)(3)(A).

\4\ 17 CFR 240.19b-4(f)(6).

\5\ The Exchange provided the Commission with notice of its intention to file the proposed rule change by letter dated May 29, 2002 from Bill Floyd-Jones, Assistant General Counsel, Amex, to Katherine England, Assistant Director, Division of Market Regulation, Commission. Rule 19b-4(f)(6) under the Act requires five business days notice, however. The Commission has decided to waive the 5-day pre-filing notice requirement. The Amex asked the Commission to waive the 30-day operative delay. See Rule 19b- 4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).

1. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

   The Amex proposes to amend Amex Rule 26 to allow upstairs member firm representatives to participate in meetings of the Performance Committee (``Committee'') by telephone, and to amend Amex Rule 27 to reduce to five the number of specialists on the list from which listed companies may select their specialist. The text of the proposed rule change is below. Proposed additions are in italics; proposed deletions are in brackets.

   [[Page 41548]]

   Performance Committee

   Rule 26. (a) The Committee on Floor Member Performance (the ``Performance Committee'') shall consist of 16 persons comprised as follows: four representatives of upstairs member firms and twelve Floor members divided as equally as possible among specialists, registered traders and brokers. The Performance Committee shall be drawn from a roster of not less than 32 persons representing upstairs member firms, specialists, registered traders and brokers. The minimum quorum for the transaction of business by the Performance Committee shall be nine persons including at least one representative of an upstairs member firm. The Performance Committee shall be chaired by a Floor Governor who may not vote except to make or break a tie. In the event that no Floor Governor is able to chair the Committee, a Senior Floor Official may chair the Committee. Upstairs member firm representatives may attend meetings by telephone.

   The Performance Committee may delegate any or all of its responsibilities to one or more subcommittees consisting of six persons including at least one representative of an upstairs member firm, provided, however, that a subcommittee only may take the following actions: (1) Send admonitory letters, (2) refer matters to the Minor Floor Violation Disciplinary Committee for possible action pursuant to Exchange Rule 590, (3) assign performance ratings, (4) refer matters to the full Performance Committee with or without a recommendation, (5) prohibit registered option traders from effecting opening transactions for specific periods of time for failing to meet zone requirements, or (6) counsel members on how to improve their performance. The minimum quorum for the transaction of business by a subcommittee shall be four persons including one representative of an upstairs member firm. Upstairs member firm representatives may attend meetings by telephone.

   (b) through end. No change.

   Allocations Committee

   Rule 27. (a) through (d). No change.

   (e) If the issuer of a listed equity security chooses to participate in the allocation process, the Allocations Committee shall prepare a list of qualified specialists based on the criteria set forth in paragraph (b). In the case of an equity security, the list shall consist of five [six] specialists. In the case of an Exchange Traded Fund or Structured Product, the list shall consist of five specialists. The issuer may request that one or more specialists be placed on the list of eligible specialists. The Allocations Committee, however, is not obligated to honor such requests. Specialists that are subject to a preclusion on new allocations as a result of a disciplinary proceeding or action by the Performance Committee only are eligible for allocations of ``related securities'' as described in Commentary .05 of this Rule. The issuer may ask to meet with representatives of the specialists units on the list.

   The issuer shall select its specialist from the list within five business days of receiving the list by providing the Exchange with a letter signed by person of Secretary rank or higher indicating the issuer's choice of specialist. In the case of an Exchange Traded Fund or Structured Product, the selection may be made by a senior officer of the sponsor or issuer who has been authorized to make such selection. If the issuer does not make its selection in a timely manner, the Allocation Committee may select the specialist as provided in paragraph (b) of this Rule.

   The security shall remain with its initial specialist for at least 120 days. After that time, but during the first 12 months after listing, the issuer or sponsor may request that the security be reallocated should it become dissatisfied with its specialist. This is the case whether or not the issuer or sponsor has participated in the selection process. The issuer or sponsor is expected to furnish an explanation for the basis for its dissatisfaction, and if after counseling the issuer or sponsor and the specialist such change is still desired, the Exchange shall reallocate the security within 30 days. In any such reallocation, the Exchange shall follow the allocation procedures described in this paragraph (e) unless the issuer or sponsor requests the Allocations Committee to select the specialist without any issuer or sponsor input under the procedures described in paragraph (b) of this Rule.

   (f) through (i). No change.

   Commentary

   .01 No change.

   .02Contacts with Unlisted Companies. Specialists and other members must submit a ``Notice of Marketing Interest'' (``NOMI'') (1) prior to contacting an unlisted company, or (2) within five business days of any unanticipated contact with an unlisted company where discussions regarding listing occur or are contemplated by the specialist or other member. The NOMI must identify the company that the specialist or other member would like to contact and is valid for no more than 12 months after Amex staff has given written approval to the request (the ``contact period''). Amex staff may decline to approve a specialist's or other member's request to contact an unlisted company where it is felt that such activity could hinder the Exchange's overall listing efforts. For example, a request to contact an unlisted company generally will not be granted where Amex staff have begun discussions with the company.

   A specialist or other member may request one extension of the contact period. The request must be in writing and must describe the specific activities that the specialist or other member has undertaken which it believes will result in a favorable listing decision. If the request is deemed sufficient by Amex staff, the contact period may be extended up to an additional six months. After the expiration of the contact period and any extension, a specialist or other member may not request permission to again contact the company until six months have elapsed from the expiration of the contact period or extension as applicable. Amex staff may contact an unlisted company as to which there is an approved NOMI provided the staff notify the subject specialist or other member prior to contacting the company.

   Only one NOMI can be on file for any company. A designated senior officer of the Exchange, however, may approve a second NOMI with respect to a particular company when (1) sufficient evidence warrants a determination that the second NOMI would assist the Exchange's listing program, and (2) the second NOMI includes the written consent of the first specialist or other member to the approval of the second NOMI.

   Once an unlisted company has requested a listing qualification review, specialists and other members are prohibited from making any direct or indirect contact with the company for the purpose of influencing its decision in the choice of a specialist. This prohibition includes the company's investment bankers or other advisors, or any other person in a position to influence the company's management.

   The Allocations Committee only will be advised of a company's preference for a particular specialist where a specialist's or member's efforts actually have been instrumental in securing the listing as evidenced by the company filing a written preference with the Exchange for the specialist within two weeks of the Exchange initiating a listing qualification review. The Allocations Committee, however, is not obligated to honor such requests.

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   Once the Allocations Committee has prepared the list of five [six] specialists to be submitted to the new listing candidate, specialists and other members may not initiate any direct or indirect communications with management, the company's investment banker or other advisors, or any person in a position to influence the company. If the company wishes to interview individual specialists, the Exchange will arrange for such interviews. The Chief Executive Officer of the Exchange or his or her designee may require a member of the Exchange staff to attend such interviews to ensure that any statements by specialists and their representatives are consistent with the Exchange's policies on communications with unlisted companies. Inappropriate communications include, but are not limited to, apparent misrepresentations as to market making capabilities or promises unrelated to the specialist's role in making a market in the issuer's stock. Specialists and their representatives also may not supply information concerning another specialist either orally or in writing, except they may refer to overall floor-wide statistics.

   .03 to end. No change * * * * *

2. 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 its proposal and discussed any comments it received regarding the proposal. 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.

   1. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

      1. Purpose

         The Committee on Floor Member Performance (``Committee'') reviews specialist performance and may take remedial action up to terminating a specialist's registration as such or reallocating securities when it identifies inadequate performance. The Committee protects both the interests of investors (by taking remedial actions to correct poor performance) and the institutional interests of the Exchange (by ensuring that the Amex is as competitive as possible with other markets).

         The Exchange recently amended its rules to include representatives of upstairs member firms on the Committee. Amex staff, however, has encountered reluctance among potential upstairs member firm representatives to travel to downtown Manhattan to participate in Committee meetings. Management, therefore, is proposing to allow upstairs member firm representatives to participate by telephone at Committee meetings. This would conform Committee procedures to those of the Amex Board, the Committee on Programs and Policies, the Allocations Committee and other Amex Committees that generally allow participation by telephone.\6\ Representatives of upstairs member firms that participate in meetings of the Committee by telephone would receive all materials that are provided to other Committee members so that they can fully participate in Committee activities.

         \6\ See, Article II, Section 5(d) of the Amex Constitution, ``Committee Procedures.''

         Since the late 1980s, the Exchange has had two procedures for allocating equity securities: the ``issuer choice'' program under which the company selects its specialist from a list of the most qualified units prepared by the Allocations Committee, and the traditional allocation procedure under which the Allocations Committee, exercising its professional judgment, selects the specialist unit for the company.

         When the Exchange first implemented the issuer choice program, there were more than 20 equity specialist units on the Amex, and the issuer received a list of seven units. In recognition of the fact that there has been a reduction in the number of equity specialist firms on the Exchange since the initiation of the issuer choice program, the Exchange is proposing to reduce to five the number of eligible specialists on the list given to newly listed companies.\7\

         \7\ The Exchange notes that New York Stock Exchange ``issuer choice'' procedures call for a list of three to five specialists to be given to a newly listed company. See, NYSE Information Memo 00-18 (July 17, 2000).

      2. Statutory Basis

         The Exchange believes that the proposal is consistent with Section 6(b) of the Act \8\ in general, and furthers the objectives of Section 6(b)(5) \9\ in particular in that it is designed to promote just and equitable principles of trade, and to protect investors and the public interest by encouraging good performance and competition among specialists.

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

         \9\ 15 U.S.C. 78f(b)(5).

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

      The Exchange believes that the proposed rule change will impose no burden on competition.

   3. 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.

3. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

   Because the foregoing proposed rule change does not:

   (i) significantly affect the protection of investors or the public interest;

   (ii) impose any significant burden on competition; and

   (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) thereunder.\11\ At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.

   \10\ 15 U.S.C. 78s(b)(3)(A).

   \11\ 17 CFR 240.19b-4(f)(6).

   The Amex has requested that the Commission waive the 30-day operative delay. The Commission believes waiving the 30-day operative delay is consistent with the protection of investors and the public interest. Acceleration of the operative date will permit Committee members to participate by telephone immediately. For these reasons, the Commission designates the proposal to be effective and operative upon filing with the Commission.\12\

   \12\ For purposes only of accelerating the operative date of this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

4. Solicitation of Comments

   Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposal is consistent with the Act. Persons making written submissions should file six

   [[Page 41550]]

   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 filedwith 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 number SR-Amex-2002-54 and should be submitted by July 9, 2002.

   For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\13\

   \13\ 17 CFR 200.30-3(a)(12).

   Margaret H. McFarland, Deputy Secretary.

   [FR Doc. 02-15254Filed6-17-02; 8:45 am]

   BILLING CODE 8010-01-P