Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934, and Rule 19b-4 thereunder, notice is hereby given that on August 7, 2000, the American Stock Exchange LLC “Amex” or “Exchange”) filed with the Securities and Exchange Commission (“Commission” or “SEC”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Amex. The Amex filed the proposal pursuant to Section 19(b)(3)(A) of the Act, and Rule 19b-4(f)(6) thereunder, which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
17 CFR 240.19b-4.
17 CFR 240.19b-4(f)(6).
The Commission agreed to waive the 5-day pre-filing notice requirement because the proposal implements decimal pricing pursuant to the “Decimal Implementation Plan for the Equities and Options Markets” (“Plan”) submitted to the Commission on July 24, 2000.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to revise various Exchange equities and options rules to provide for decimal pricing pursuant to the Plan. The Exchange also proposes to amend Amex Rule 232 to conform it to a proposed amendment to the Intermarket Trading System (“ITS”) Plan. The Amex has designated this proposal as non-controversial, and requests that the Commission waive the 30-day operative waiting period contained in Rule 19b-4(f)(6)(iii) under the Act. The text of the proposal is available at the Amex and at the Commission.
II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Amex 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 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
On June 8, 2000, the Commission ordered the exchanges and the NASD (“Participants”) to submit a phase-in plan to the Commission by July 24, 2000 providing for decimal pricing in exchange-listed securities and options by September 5, 2000, and for phasing in of decimal pricing for at least some Nasdaq securities by March 12, 2001, with decimalization extended to all exchange-listed securities, options and Nasdaq securities by April 9, 2001. The June 8th Order also requires the Participants to file by August 7, 2000 any rule changes necessary to implement the Plan.
Securities Exchange Act Release No. 42914 (June 8, 2000), 65 FR 38010 (June 19, 2000) (“June 8th Order”).
The Participants have developed recommendations for a Phase-In Period for conversion to decimal pricing. These recommendations are contained in the Plan, which was presented to the Commission on July 24, 2000. This Phase-In Period, which consists of four phases, will begin on August 28, 2000, and end with full implementation of decimal pricing for all equities and options on or before April 9, 2001.
The Participants have recommended that a specified Minimum Price Variation (“MPV”) schedule be implemented during phase-in by all markets. The recommended MPVs are as follows: for equity issues, $.01 MPV; for options issues quoted under $3 a contract, $.05 MPV; for options issues quoted at $3 a contract and greater, $.10 MPV. These MPVs will apply through the last day the Plan is in effect or until any other date identified by the Commission.
Phase I will begin on August 28, 2000 with quotations in decimals in seven New York Stock Exchange (“NYSE”) listed stocks and six Amex listed stocks. Three of the NYSE listed stocks also have options. These options have also been priced in decimals. Amex has announced that it will begin decimal pricing in the following six stocks on August 28th: Regal Beloit Corp.; Media General Inc.; ON2.com Inc.; eMagin Corp.; Psychemedics Corp.; and Global Light Telecommunications Inc. In addition, Amex will also begin decimal pricing of options on FedEx Corporation and Gateway Inc. on August 28, 2000.
In Phase IIA, beginning on September 25, 2000, an additional 50-100 equities will be added industry wide, together with associated options. The Participants will continue to evaluate the transition to decimal pricing, especially as relating to capacity, liquidity and trading patterns. Under Phase IIB, the Participants along with other interested parties (i.e. National Securities Clearing Corporation, Depository Trust Company, Options Clearing Corporation, Options Price Reporting Authority, Securities Industry Automation Corporation, Consolidated Tape Association, and ITS Operating Committee), will evaluate Phases I and IIA and, if the Participants believe they are technically prepared for full implementation and there would be no adverse impact on the investing public, may choose to convert all equities and/or all options issues (both exchange-listed and Nasdaq-listed options) to decimal quoting. The Participants could also elect to implement a penny pilot in selected option issues pursuant to the Plan. Any decisions under Phase IIB will be made during the period between November, 2000 and April, 2001.
In Phase III a limited number of Nasdaq issues (approximately 10 to 15) will begin decimal pricing on or before March 12, 2001, under the recommended MPV schedule. In Phase IV, Participants will evaluate results of previous phases, and after consultation with the SEC and other industry participants, could recommend full implementation of decimal quoting for all equities and options under the recommended MPV schedule on or before April 9, 2001 through the last day the Plan is in effect.
The Amex also proposes to amend Exchange Rule 232 to conform it to a proposed amendment to the ITS Plan.
A. Amendments to Amex Equity Rules
The Exchange proposes to amend its rules relating to equities trading to accommodate implementation of decimal pricing in accordance with the Plan. Equities rules that currently reference quoting in fractions are amended to reflect the transition to decimals. References to fractions have been converted to two decimal places. When this is not possible (e.g., 1/8), the fraction generally has been rounded down to the nearest five cent increment (e.g., $.10 for 1/8). Conforming changes have been made to Exchange Rules 103, 111, 127, 132, 134, 154, 175 (Guidelines) and 205.
Rule 103 (General Floor Prohibitions). The Exchange proposes to amend Commentary .03 to provide examples stated in decimals for equities subject to decimal pricing, in addition to current fractional references for equities quoting in fractions.
Rule 109 (“Stopping” Stock). The Exchange proposes to amend Amex Rule 109 such that references to “minimum fractional change” are charged to “minimum price variation.” In addition, reference is made to Amex Rule 127 for different MPVs applicable to equities quoting in fractions and those subject to decimal pricing.
Rule 111 (Restrictions on Registered Traders). The reference to “one-eighth of a point” in paragraph (e)(2) of Amex Rule 111 is pr0posed to be changed to the “minimum price variation.”
Rule 127 (Minimum Price Variations). Amex Rule 127 would be amended to subject current minimum fractional change parameters to Commentary .01 of the same rule relating to decimal pricing. Commentary .01 states that, notwithstanding the provisions of Amex Rule 127 for equity securities that are priced in decimals pursuant to the Plan, the MPV shall be one cent ($.01). In addition, Commentary .01 makes clear that equities not subject to decimal pricing pursuant to the Plan will continue to be subject to the minimum fractional change set forth in the Rule. Existing Commentaries .01, .02 and .03 are re-numbered to .02, .03 and .04, respectively, and provide that the minimum fractional changes provided there (e.g. 1/64 for SPDRs), are subject to Commentary .01, thus providing for prospective decimal pricing under the Plan.
Rule 132 (Price Adjustment of Open Orders on “Ex-Date”). The examples in Commentaries .01 and .03 of Amex Rule 132, which refer to rounding to a higher 1/8 point variation, are proposed to be eliminated. Commentary .01 of Amex Rule 132 proposes to state that orders would be reduced by the next higher “minimum price variation” (instead of “variation”), with reference to Amex Rule 127. The Exchange also proposes in Commentary .03 of Amex Rule 132 that orders be rounded to the next lower “minimum price variation” instead of “variation,” and also reference to Amex Rule 127.
Rule 134 (Cash, Next Day and Seller's Option Transactions). Amex Rule 134(b) would provide that publication of a cash or next day transaction will not be expected if the transaction can be effected at a price not greater than 1/8 point away from the regular way market. The rule clarifies that reference to 1/8 point in paragraph (b) applies to equities quoting in fractions. For equities subject to decimal pricing, the applicable increment would be $.10.
Rule 154 (Orders Left with Specialist). References to “point” or “points” are proposed to be changed to “cents,” “dollar” or “dollars” as the context requires. Except for the reference to “1/8 of a point” in Commentary .15 of Amex Rule 154, which is proposed to be changed to “ten cents,” all fractional references are proposed to be changed to their exact equivalents in cents. The seventh paragraph of Commentary .15 of Amex rule 154 provides that the specialist (subject to specified exceptions) may convert a percentage order on a destabilizing tick to establish a new bid in such size as he deems appropriate to narrow the quotation spread, provided that no such bid may be more than 1/8 point higher than the last sale. The amendment clarifies that the 1/8 point parameter applies to equities quoting in fractions and that, for equities priced in decimals, the applicable parameter would be $.10.
Rule 175 (Specialist Prohibitions). Fractional references are proposed to be changed to equivalents in cents in Amex Rule 175. References to “point” or “points” would be changed to “dollar” or “dollars,” as appropriate.
Rule 205 (Manner of Executing Odd-Lot Orders).
In Amex Rule 205, references to “point” or “points” would also be changed to “dollar” or “dollar,” as appropriate. The change to the title of Amex Rule 127 (Minimum Price Variation) is reflected in Commentary .04 of the same rule.
Rule 232 (Pre-Opening Application Rule).
The Exchange also proposes to amend Exchange Rule 232 to implement a proposed amendment to the ITS plan.
Rule 1000 (Portfolio Depositary Receipts) and 1000A (Index Fund Shares).
The references to fractional trading increments in Amex Rule 1000, Commentary .03(e) and Rule 1000A, Commentary .02(e) are proposed to be amended to clarify that these increments are subject to Amex Rule 127, Commentary .01, thus providing for prospective decimal pricing.
B. Amendments to Amex Options Rules
The Exchange has also identified various options rules that require revision in connection with the implementation of the conversion from fractions to decimals discussed above. These proposed changes are found in Exchange Rules 915, 918, 952, 958, 951C and 903G. Of these, the most significant proposed changes concern Exchange Rules 918, 958 and 952, which govern the minimum and maximum spreads for options quotations and the MPV for dealings on the Exchange in options contracts for which the underlying security is a stock. The remaining proposed changes to Exchange Rules 915, 951, and 903G convert existing fractional price references to their decimal equivalent, rounding up (down) where necessary.
Rule 915 (Criteria for Underlying Securities).
Amex Rule 915 provides eligibility criteria for underlying securities, which, among other things, require that the market price per share of the underlying security has been at least $71/2 for the majority of business days during the three calendar months preceding the date of selection. This price requirement, which will remain the same, is proposed to be revised to read $7.50.
Rule 918 (Trading Rotations, Halts and Suspensions).
Exchange Rule 918, Commentary .03 provides that a specialist is required to announce to the trading crowd a price indication at the tightest bid/ask interval (1/8th of a point for options contracts quoting at $3 per share per option or higher and 1/16th of point for those quoting below $3), prior to executing a transaction in an options series during a rotation. The term “tightest bid/ask interval” would be amended to “minimum price variation.” This provision will continue to apply for options series trading in fractions. The amended rule states that the MPV for options priced in decimals pursuant to the Plan is $.05 for options issues quoted under $3 a contract, and $.10 for options issues priced at $3 and greater. Reference is made to Amex Rule 952 (Minimum Price Variations).
Rule 952 (Minimum Price Variations).
Exchange Rule 952(a) states that the minimum fractional change for options on stocks or Exchange-Traded Fund shares is one-eighth point in option contracts quoted at $3 per share per option or higher, and one-sixteenth point in option contracts quoting under $3. These parameters will continue to apply to options trading in fractions. The same rule further states that no change may be made to the MPV for options quoting in decimals that is inconsistent with the Plan or that otherwise changes the MPV for options quoting in decimals, unless such change has been filed with the SEC pursuant to Rule 19b-4(f)(6) under the 1934 Act. The Exchange proposes to amend Exchange Rule 952(a) to state that the MPVs for option contracts priced in decimals, pursuant to the Plan, are $.05 MPV for options issues quoted under $3 a contract, and $.10 for options issues quoted at $3 a contract and greater. Options contracts that are not subject to decimal pricing would continue to be subject to the current Rule's minimum fractional parameters.
Rule 958 (Options Transactions of Registered Traders).
Maximum permissible spread parameters applicable to options are currently set forth in Exchange Rule 958(c). Conversion from fractions to decimals will not substantively affect Exchange Rule 958. However, the fractional spread parameters would be revised to state the same parameters expressed in cents. The proposed conversions are as follows:
| Current spreads expressed as fractions | Spreads following conversion to decimals | ||
|---|---|---|---|
| Prevailing bid | Maximum spread | Prevailing bid | Maximum spread |
| <$2.00 | 1/4 | <$2.00 | $0.25 |
| > or = $2.00, but < or = $5.00 | 3/8 | > or = $2.00, but < or = $5.00 | 0.37 |
| > $5.00, but < or = $10.00 | 1/2 | > $5.00, but < or = $10.00 | 0.50 |
| > $10.00, but < or = $20.00 | 3/4 | > $10.00, but < or = $20.00 | 0.75 |
| > $20.00 | 1 | > $20.00 | 1.00 |
Rule 951C (Premium Bids and Offers). Exchange Rule 951C provides that, except as provided in Commentary .01, bids and offers in stock index options should be expressed in terms of a percent, with fractions of a percent expressed in sixteenths in the case of a premium of less than $300, and in eights in the case of a premium greater than $300. The amended rule provides that such fractions apply to stock index options trading in fractions, and states that bids and offers for stock index options priced in decimals would be expressed in terms of a percent expressed in an MPV of $.05, in the case of a premium less than $300, and an MPV of $.10, in the case of a premium greater than $300. The second paragraph of Exchange Rule 951C would be amended to refer to percentages in addition to fractions of a percent. Exchange Rule 951C also states that no change may be made to the percentages set forth in the Rule that is inconsistent with the Plan or that otherwise changes such percentages for options quoting in decimals unless such change is filed with the SEC, pursuant to Rule 19b-4(f)(6) under the 1934 Act. Commentary .01 would also be amended to clarify that the reference to bids and offers in sixteenths refers to options quoting in fractions, for options on reduced value stock index groups having more than twelve months to expiration. Bids and offers in such options, subject to decimal pricing, would be in increments of $.05, representing a rounding down of the 1/16 parameter.
Id.
Rule 903G (Terms of FLEX Options).
Paragraph (c)(2) of Exchange Rule 903G would be amended to state that exercise prices and premiums would be rounded to the nearest MPV, referencing Exchange Rule 952 (Minimum Price Variation). Language relating to rounding exercise prices to the nearest 1/8 of a dollar is proposed to be deleted.
2. Statutory Basis
The Amex believes that the proposed rule change is consistent with section 6(b) of the Act in general and furthers the objectives of Section 6(b)(5) in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to, and perfect the mechanism of a free and open market and, in general, to protect investors and the public interest by providing for certain securities to be quoted in decimals beginning on August 28, 2000.
15 U.S.C. 78f(b)(5).
B. 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.
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.
III. 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 August 7, 2000, the date on which it was filed, it has become effective pursuant to section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder. 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 the furtherance of the purposes of the Act.
17 CFR 240.19b-4(f)(6).
The Amex has requested that the Commission accelerate the operative date. The Commission believes that it is consistent with the protection of investors and the public interest and therefore finds good cause to designate the proposal to become immediately operative upon filing. Acceleration of the operative date will permit the Exchange to begin decimal quoting for various securities described above starting on August 28, 2000.
The Plan provides for MPVs for equities and options of no less than one cent. The June 8th Order requires the Participants to submit joint or individual studies tow months after Full Implementation (as defined in the Plan) regarding the impact of decimal pricing on systems capacity, liquidity, and trading behavior, including an analysis of whether there should be a uniform minimum quoting increment. If a Participant wishes to move to quoting in an increment of less than one cent, the Participant should include in its study a full analysis of the potential impact of such trading on the Participant's market and the markets as a whole. Within thirty days after submitting the study, and absent Commission action, the Participants individually must submit for notice, comment, and Commission action, proposed rule changes under section 19(b) of the Act to establish their individual choice of minimum increments by which equities or options are quoted on their respective markets.
The Plan also contemplates that the options exchanges may wish to consider a pilot program for one-cent minimum price variations for quoting in a limited number of options (“Penny Pilot”) at some point in the implementation process. The Commission expects that, before implementing a Penny Pilot, the options exchanges will carefully coordinate on such issues as the selection and number of options to be included in the pilot to ensure the continued orderly operation of the markets and clearing organizations. In particular, the Commission expects that the options exchanges will consult with the Commission regarding the impact on market-wide capacity. Before implementing a Penny Pilot, each options exchange should also submit appropriate rule filings to the Commission under section 19(b) of the Act.
The Commission also believes that the proposed amendments are non-controversial as they provide housekeeping changes with respect to rules that express price values in fractions being changed to decimals. The Amex has also requested that the Commission waive the 5-day pre-filing requirement. The Commission also finds good cause to waive the 5-day pre-filing requirement since the proposal is in accordance with the Plan. For these reasons, the Commission designates that the proposal become operative immediately upon filing with the Commission.
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).
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change in consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549-0609. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference 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-00-41 and should be submitted by September 29, 2000.
For the Commission by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-23077 Filed 9-7-00; 8:45 am]
BILLING CODE 8010-01-M