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

[Federal Register: July 5, 2002 (Volume 67, Number 129)]

[Notices]

[Page 44900-44902]

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

[DOCID:fr05jy02-118]

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46131; File No. SR-Amex-2002-38]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto by the American Stock Exchange LLC Proposing To Designate the New Trading Floor on the Ground Floor of the Exchange as a ``Separate Trading Area''

June 27, 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 April 23, 2002, the American Stock Exchange LLC (``Amex'' or ``Exchange'') filedwith 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. On June 6, 2002, the Amex submitted Amendment No. 1 to the proposed rule change.\3\ The Commission is publishing this notice, as amended, 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\ See letter from Jeffrey P. Burns, Assistant General Counsel, Amex, to Nancy Sanow, Assistant Director, Division of Market Regulation (``Division''), Commission, dated June 5, 2002 (``Amendment No. 1''). In Amendment No. 1, the Amex confirmed that it currently permits the trading of options on both listed and non- Amex-listed stocks on the ``Harry's'' trading floor.

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

   The Exchange proposes to designate the new trading floor on the ground floor of the Exchange (``Harry's'') as a ``separate trading area.''

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 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 Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.

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

      1. Purpose

         The Exchange filedthis proposed rule change in connection with its proposal to trade Nasdaq securities on an unlisted basis (``Nasdaq UTP Program'').\4\ This proposed rule change would designate Harry's as a ``separate trading area.''

         \4\ See Securities Exchange Act Release Nos. 45365 (January 30, 2002), 67 FR 5626 (February 6, 2002) (proposing to admit trading on the Amex of Nasdaq National Market Securities pursuant to unlisted trading privileges); 45698 (April 5, 2002), 67 FR 18051 (April 12, 2002) (approving proposal to adopt Amex Rule 28 to establish allocation procedures for securities admitted to dealings on an unlisted trading privilege basis).

         In 1988, the Exchange received Commission approval to trade options on Amex-listed stocks.\5\ The approval was based upon, among other things, the Amex's trading floors for equities and options on those equities \6\ being sufficiently separated such that there could be no time and place advantage derived from the physical proximity of the two floors which could be exploited. The Amex currently has five designated trading locations: (1) The main trading floor (``Main Trading Floor'' or ``Designated Stock Area''); (2) the mezzanine trading level, which is located above the Main Trading Floor (``Mezzanine'') (options Amex- listed stocks may not trade on that part of the Mezzanine visible from the Main Trading Floor); (3) a separate room connected by a hallway to the Main Trading Floor (the ``Red Room'' or ``Designated Options Area''); \7\ (4) the back row of the west side of the Main Trading Floor referred to as the west side of the Exchange Posts 12, 13 and 15 (``Back Row''), and (5) ``Harry's''. In addition, the Main Trading Floor, the Red Room, the Mezzanine and the Back Row are considered physically separate for purposes of stocks and related options.\8\

         \5\ Securities Exchange Act Release No. 26147 (October 3, 1988), 53 FR 39556 (October 7, 1988) (``1988 Order'').

         \6\ For purposes of this proposal, the terms stock(s), equity and equities are used interchangeably.

         \7\ Amex-listed stocks, options on non-Amex-listed stocks and options on indices (excluding options on indices where Amex-listed stocks comprise more than ten percent of the index value by weight) trade on the Main Trading Floor. Options on indices where Amex- listed stocks comprise more than ten percent of the index value by weight and options on non-Amex-listed stocks trade on the Mezzanine. Options on Amex-listed stocks, non-Amex-listed stocks and indices where Amex-listed stocks comprise more than ten percent of the index value by weight trade in the Red Room. See Securities Exchange Act Release No. 34359 (July 12, 1994), 59 FR 36799 (July 19, 1994) (``Index Order'').

         \8\ See 1988 Order, supra note 4; Securities Exchange Act Release No. 39631 (February 9, 1998), 63 FR 8229 (February 18, 1998) (``1998 Order'').

         In 2001, the Exchange opened its new trading facility, Harry's, located in a separate area on the ground floor of the Exchange. Harry's is on a separate level of the Amex and may only be accessed from the Exchange's other trading locations by an escalator. Accordingly, Harry's is physically separate from the other trading areas at the Exchange, and therefore, is not visible from the Exchange's other trading locations. The Exchange submits that Harry's is a ``separate trading area.''\9\

         \9\ The Exchange currently permits the trading of options on both listed and non-Amex-listed stocks on Harry's.

         In the 1998 Order, the Commission granted approval to permit options trading on Amex-listed stocks in two locations of the Exchange in addition to the Red Room: (1) The Mezzanine and (2) the Back Row.\10\ Since the 1998 approval was granted, the trading of options on Amex-listed securities has continued to occur on the Exchange at locations that are deemed physically separate from locations where the trading of Amex-listed securities occurs. The Exchange maintains that Harry's is a physically separate trading location, and therefore, trading of options on Amex-listed stocks is permissible based on the 1988 and 1998 Orders. In addition, the absence of a ``line of sight'' with respect to options trading on Harry's and any underlying stock of such option reinforces the Exchange's belief that Harry's is a separate trading area and, therefore, no time or place advantage exists.\11\ The Exchange believes that it is consistent with both the 1988 and 1998 Orders, as well as the Index Order, to permit the trading of options on both Amex-listed and non-Amex-listed stocks on Harry's.\12\ The Exchange believes that the Commission should approve the designation of Harry's as a ``separate trading area.''

         \10\ See 1998 Order, supra note 7.

         \11\ The Exchange represents that it maintains adequate surveillance systems designed to prevent trading abuses and manipulation as well as to ensure compliance with the relevant Exchange rules consistent with the 1988, 1998 and Index Orders. Telephone Conversation between Jeffrey P. Burns, Assistant General Counsel, Amex, and Christopher Solgan, Law Clerk, Division, Commission, on May 17, 2002.

         \12\ The Exchange notes that it has fileda companion proposal to expand designated trading locations to permit the ability to trade an Amex-listed stock and its underlying options on Harry's provided that an intervening post or physical structure sufficient to block a ``line of sight'' between the appropriate trading crowds existed. See File No. SR-Amex-2002-37. Accordingly, if approved, the Exchange may determine to trade Amex-listed stocks on Harry's provided a ``line of sight'' does not exist between the trading crowds of the underlying stock and its related option. Telephone Conversation between Jeffrey P. Burns, Assistant General Counsel, Amex, and, Kelly Riley, Senior Special Counsel, Division, Commission, on June 6, 2002. See also Amendment No. 1, supra note 3.

      2. Statutory Basis

         The Exchange believes the basis for the proposed rule change is the requirement under section 6(b)(5) of the Act \13\ that an exchange have rules that are 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 facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, to protect investors and the public interest and are not designed to permit unfair discrimination between customers, issuers, brokers, or dealers.

         \13\ 15 U.S.C. 78f(b)(5).

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

      The Exchange does not believe that the proposed rule change will impose any 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

   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:

   1. By order approve such proposed rule change; or

   2. Institute proceedings to determine whether the proposed rule change should be disapproved.

4. 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

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   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 filings will also be available for inspection and copying at the principal office of the Exchange. All submissions should refer to File No. SR-Amex-2002-38 and should be submitted by July 26, 2002.

   For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\14\

   \14\ 17 CFR 200.30-3(a)(12).

   Margaret H. McFarland, Deputy Secretary.

   [FR Doc. 02-16771Filed7-3-02; 8:45 am]

   BILLING CODE 8010-01-P