Notice: Self-Regulatory Organizations Proposed Rule Changes: American Stock Exchange LLC

Friday,
July 21, 2006
Part IV
Securities and
Exchange
Commission
Self-Regulatory Organizations; American
Stock Exchange LLC; Notice of Filing of
Proposed Rule Change and Amendments
No. 1, 2, 3, 4, and 5 Thereto Relating to
the New Amex Hybrid Market Structure;
Notice
sroberts on PROD1PC70 with NOTICES
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41654 Federal Register / Vol. 71, No. 140 / Friday, July 21, 2006 / Notices
SECURITIES AND EXCHANGE Commission is publishing this notice to marketplace that integrates automated
COMMISSION solicit comments on the proposed rule execution (‘‘auto-ex’’) and floor-based
change, as amended, from interested auction trading. In this hybrid market,
[Release No. 34–54145; File No. SR–Amex– persons. direct market participants would consist
2005–104] of off-floor members, Specialists,
I. Self-Regulatory Organization’s
Self-Regulatory Organizations; Statement of the Terms of Substance of Registered Traders, and Floor Brokers.
American Stock Exchange LLC; Notice the Proposed Rule Change Investors and off-floor members would
of Filing of Proposed Rule Change and be able to choose from a variety of
The Exchange proposes to implement execution methods the one that best
Amendments No. 1, 2, 3, 4, and 5 a new hybrid market structure for equity
Thereto Relating to the New Amex suits their purpose at any point in time.
products and Exchange Traded Funds They can access the electronic
Hybrid Market Structure (‘‘ETFs’’) that will provide for a single environment directly, or take advantage
July 14, 2006. marketplace that integrates automated of point-of-sale representation provided
Pursuant to Section 19(b)(1) of the execution and floor-based auction by Floor Brokers in the crowd. To
Securities Exchange Act of 1934 trading. To facilitate the hybrid market, facilitate the hybrid market, the
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 the Exchange is undertaking a major Exchange is undertaking a major
notice is hereby given that on October technology upgrade and will implement technology upgrade and would
17, 2005, the American Stock Exchange a new trading platform for equity implement a new trading platform for
LLC (‘‘Amex’’ or ‘‘Exchange’’) filed with products and ETFs. This platform, equity products and ETFs. According to
designated as AEMISM, is aimed at the Exchange, this platform, designated
the Securities and Exchange
providing easy and fast access to as AEMISM—the ‘‘Auction & Electronic
Commission (‘‘Commission’’) the
automated order execution, as well as Market Integration’’ platform (referred to
proposed rule change as described in
encompassing auction market hereinafter as the ‘‘AEMI platform’’ or
Items I, II, and III below, which Items
capabilities for those situations in ‘‘AEMI’’)—is expected to provide easy
have been prepared by the Exchange.
which there are order imbalances that and fast access to automated order
On January 19, 2006, the Amex
require additional liquidity, or if price execution, as well as encompassing
submitted Amendment No. 1 to the
improvement from the auction process auction market capabilities for those
proposed rule change.3 On March, 10,
is desired. situations in which there are order
2006, the Amex submitted Amendment The text of the proposed rule change
No. 2 to the proposed rule change.4 On imbalances that require additional
is available on the Exchange’s Web site
March 14, 2006, the Amex submitted liquidity, or if price improvement from
(http://www.amex.com), at the
Amendment No. 3 to the proposed rule the auction process is desired. The
Exchange’s principal office, on the
change.5 On July 3, 2006, the Amex Commission’s Web site (http:// Exchange anticipates that auto-ex would
submitted Amendment No. 4 to the www.sec.gov), and at the Commission’s be available throughout the trading
proposed rule change.6 On July 13, Public Reference Room. session. However, for those instances
2006, the Amex submitted Amendment when excessive volatility occurs, auto-
No. 5 to the proposed rule change.7 The II. Self-Regulatory Organization’s ex would be unavailable for a limited
Statement of the Purpose of, and period of time during which the auction
1 15 U.S.C. 78s(b)(1). Statutory Basis for, the Proposed Rule market would be used to dampen
2 17 CFR 240.19b–4. Change volatility and gyrations in the market.
3 See Form 19b–4 dated January 19, 2006, which
In its filing with the Commission, the This fusion of auto-ex, that is based on
replaced the original filing in its entirety
(‘‘Amendment No. 1’’). Exchange included statements both limit and market orders, with the
4 See Form 19b–4 dated March 10, 2006, which concerning the purpose of and basis for auction process that creates price
replaced Amendment No. 1 in its entirety the proposed rule change and discussed discovery is designed to balance the
(‘‘Amendment No. 2’’). any comments it received on the premium on speed demanded by market
5 See Form 19b–4 dated March 14, 2006, which
proposed rule change. The text of these participants with the need to protect
replaced Amendment No. 2 in its entirety
(‘‘Amendment No. 3’’). statements may be examined at the investors from undue and costly
6 See Form 19b–4 dated July 3, 2006, which places specified in Item IV below. The volatility. The Exchange also believes
replaced Amendment No. 3 in its entirety Exchange has prepared summaries, set that this proposed hybrid market would
(‘‘Amendment No. 4’’). Among other things, the forth in Sections A, B, and C below, of promote fairness, stability, and
amendment (1) removed the proposed Passive Price competitiveness in the marketplace
Improvement (‘‘PPI’’) order type from AEMI until
the most significant aspects of such
its parameters can be revised; (2) stated the statements. under Regulation NMS.9
Exchange’s commitment to make AEMI’s depth-of- Categories of Floor Participants in
book information broadly available; (3) added A. Self-Regulatory Organization’s
AEMI. In all securities traded on AEMI,
additional size and value requirements for certain Statement of the Purpose of, and
Specialists would continue to provide
cross orders; (4) distinguished two different quote Statutory Basis for, the Proposed Rule
indicators that may be disseminated in connection liquidity and stabilization as they
Change
with the Exchange’s publishing of non-firm quotes, currently do.10 They would maintain
(5) revised its proposed procedures with respect to 1. Purpose their affirmative and negative
an intermarket sweep order to which no response,
or only a partial fill, is received; (6) changed the The purpose of the Exchange’s
manner in which unexecuted or partially executed proposal is to implement a new hybrid equities on the Exchange, such as listed and UTP
intermarket sweep orders generated during an stocks, closed-end funds, and certain structured
market structure for equity products and products. The term ‘‘ETFs’’ includes Portfolio
auction are handled; and (7) made a number of
other corrections and clarifications to the proposed ETFs 8 that would provide for a single Depositary Receipts, Index Fund Shares, Trust
rule changes. Issued Receipts, and Partnership Units.
7 See Partial Amendment to Form 19b–4 dated send intermarket sweep orders to other markets; 9 17 CFR 242.600 et seq.
July 13, 2006 (‘‘Amendment No. 5’’). In Amendment and (4) acknowledging that its proposed trade- 10 See infra, the discussion under ‘‘Rule 170–
No. 5, the Exchange made a number of technical through treatment for late trade reports will not AEMI’’relating to proposed changes to existing
changes, including (1) stating the timeframe for the obviate or invalidate an away market’s rules requirements for Floor Official approval in
availability of depth-of-book data; (2) clarifying regarding such late trades. connection with certain transactions for the
when Exchange Specialists may charge 8 As used herein, the term ‘‘equity products’’ Specialist’s own account that involve destabilizing
commissions; (3) clarifying when the Exchange will includes equities and securities that trade like ticks.
Federal Register / Vol. 71, No. 140 / Friday, July 21, 2006 / Notices 41655
obligations,11 manage auctions, and may Brokers could represent customer orders incoming executable orders would be
add resident liquidity to the AEMI Book as crowd members electronically, trade processed immediately and
(as described herein) at up to five price on parity in the electronic environment, automatically without human
levels, including the quote that each and initiate and participate in auctions, intervention. If Amex were not the
Specialist must provide to meet his using their judgment to obtain best national best bid or best offer (‘‘NBBO’’),
obligation to assist in the maintenance execution for their customers. the incoming executable order would be
of a fair and orderly market and of price Off-floor members could access the routed out immediately and
continuity with reasonable depth.12 electronic environment in two main automatically, in whole or in part, to the
They would have a choice of quoting ways. First, they could send orders trading center(s) with the best-priced
methods, and could stream quotes into directly to the AEMI Book. automated quotation that is immediately
AEMI from proprietary systems, Alternatively, they could direct orders accessible (as required by Rule 611 of
generate quotes automatically based on to booths on the floor, which would Regulation NMS).16 AEMI would
parameters set by the Specialist within allow Floor Brokers to represent their contain predetermined parameters that
AEMI, or enter quotes physically. In orders on the floor and use their point- would automatically disable auto-ex
instances where the Specialist’s quote is of-sale privileges as members of the when triggered, and Amex would
depleted, AEMI would generate crowd to obtain best execution for their publish non-firm manual quotes until
emergency quotes based on parameters customers. Orders sent to the Exchange auto-ex is re-enabled.17
set by the Specialist so that the that must be handled manually would The AEMI Platform. The AEMI
affirmative quote obligations of the be directed to the order-entry firm’s platform is a single electronic system
Specialist are met. broker booth to be managed by booth that would process quotes and orders in
Market makers designated as personnel or redirected to Floor Brokers. all equity and ETF securities on the
Registered Traders would add liquidity For example, ‘‘not held’’ and SEC Rule Exchange. The ‘‘AEMI Book’’ is the
to the ETF marketplace through the 144 orders would be handled outside physical part of the AEMI platform that
continuous provision of competitive the AEMI Book and would be sent to a comprises all quotes and orders that
quotes and must be in the crowd 13 in booth. By contrast, orders that may not could be eligible for auto-ex during the
order to do so. The Exchange intends to be handled manually (such as odd-lot Exchange’s regular session. These orders
foster quote competition between the orders) would be sent automatically to could logically be represented in the
Specialists and Registered Traders. the AEMI Book. automated environment by members in
Unlike the existing Amex system where The Exchange is committing to the crowd interacting directly with
Registered Traders’ quotes are imbedded making depth-of-book information AEMI (‘‘crowd orders’’), or represented
in the Specialist’s quote, Registered broadly available with respect to its directly in the automated environment
Traders would be required by Amex securities that are traded in AEMI, and (‘‘public orders’’). Quotes and orders
rules to make competitive quotes the Exchange intends to implement this submitted to the AEMI Book by
separately from the Specialist. They program with the rollout of AEMI prior Registered Traders and Floor Brokers
would be able to stream quotes into to the Trading Phase Date (as defined standing in the crowd would be
AEMI from proprietary systems, below under ‘‘Implementation of the considered crowd interest. All other
generate quotes automatically based on AEMI Platform’’).14 This represents a orders and quotes would constitute the
parameters within AEMI, or enter significant change from the Exchange’s Specialist Order Book (i.e., all other off-
quotes into AEMI physically from a initial proposal, under which only the floor orders submitted directly to AEMI;
‘‘front-end’’ device supplied by the other percentage, limit, and market
Specialist would have been able to see
Exchange. They would also be orders left with the Specialist by Floor
this information. The Exchange will
permitted to add liquidity at up to five Brokers; and the Specialist’s own
make a separate rule filing with the
price levels on both sides of the market quotes). The Specialist Order Book
Commission in connection with any
and could participate in auctions, would therefore be a subset of the AEMI
related fees that are proposed to be
provided that they are actively quoting, Book. Further, except in certain defined
charged for the depth of book
thereby serving to provide added depth circumstances, the AEMI rules would
information.
and competition to the marketplace. provide that the Specialist’s own
This proposal seeks the approval of
Registered Traders would function proprietary interest would yield to
new rules to implement AEMI for equity
under essentially the same restrictions orders on the Specialist Order Book,
that are applicable to them in the products and ETFs. Key features of the
proposed new hybrid market are thereby ensuring that customer interest
Amex’s current rules. is afforded a higher priority in the
Floor Brokers would maintain their summarized under the headings below.
Automated Trading Center. By electronic environment.
value-added services through their AEMI would generally execute orders
point-of-sale proximity, participation in implementing AEMI, the Exchange
intends to qualify as an ‘‘automated according to price/time priority.
auctions, trading on parity, and However, AEMI would execute orders at
provision of liquidity to the electronic trading center’’ under Regulation
NMS.15 The Exchange would publish a single price point according to Amex
environment in the form of crowd parity, priority, and precedence rules.
orders. They would receive orders from automated quotes for all securities on
the AEMI platform. The publication of The instructions and characteristics of
customers electronically via the floor
automated quotes means that all the orders at the price point are
booth automated routing systems and
considered first, and then, depending on
would manage their order flow using 14 The Exchange intends to provide depth-of-book
hand-held terminals. This should result information to vendors and direct subscribers 16 However, an incoming intermarket sweep order
in faster responses to customers. Floor simultaneously with the first day of AEMI (as defined herein) or immediate-or-cancel order
operation. Moreover, the Exchange commits to would not be routed out to another trading center.
11 See Amex Rule 170 and related Commentary. providing vendors and limited direct subscribers 17 AEMI could also disseminate a non-firm quote,
12 Amendment No. 5 eliminated references in this sufficient information including technical using a different indicator, when the Exchange is
sentence and in a related footnote to PPI orders that specifications to permit them to obtain the depth- incapable of collecting, processing, and/or making
were included in Amendment No. 4. of-book data feed as of the first day of AEMI available quotations in one or more securities due
13 In ETFs, a crowd is defined as three contiguous operation. See Amendment No. 5. to the high level of trading activity or the existence
panels. 15 See 17 CFR 242.600(b)(4). of unusual market conditions.
product type, the capacity designation The AEMI platform would also market which displays a better-priced
and allocation indicator for the orders process orders that are not intended to quotation, provided Amex is publishing
would be considered. Orders with an receive auto-ex. Examples of such an automated quotation.21 Otherwise,
allocation designation of ‘‘crowd’’ orders include on-close orders and auto-ex of an incoming order would
would trade on parity with public opening orders, all of which would have occur according to whether the
orders in the AEMI Book, and crowd a time dependency. Similarly, orders incoming order would do one of the
orders would be restricted to crowd that require election or conversion following:
members. Orders with an allocation before they could be automatically (a) Lock the APQ: If an incoming order
designation of ‘‘public’’ would trade on executed (i.e., stop orders, stop limit would lock the Amex Published Quote
parity with the crowd orders and could orders, and percentage orders) and (‘‘APQ’’), it would automatically
be submitted by any on-floor or off-floor orders that require filing and re-filing execute against any contra-side interest
market participant, as well as by Floor before their terms meet conditions for resident on the AEMI Book. Any
Brokers in the form of percentage, limit, automated execution (i.e., tick sensitive unexecuted balance would be posted
or market orders left with the Specialist. orders) would be processed within the simultaneously on the AEMI Book and
Generally, the Specialist interest would AEMI environment. These orders would reflected immediately in the new APQ.
yield to those public orders that are be held separate until the conditions for (b) Cross the APQ: If an incoming
being represented in the marketplace as automatic election, conversion, or order would cross the APQ, it would
part of the Specialist Order Book, which execution are met and the orders are automatically execute against orders at
is part of the AEMI Book.18 Every order added to the AEMI Book, where they each price point up to its limit price, or
would have a capacity designation of then would become eligible for auto-ex. until it were filled or breached a
‘‘agency’’ or ‘‘principal’’ which is The Exchange is proposing to adopt a tolerance. All liquidity at each price
derived from the account type code for completely new rule for handling odd- point would be cleared before the next
the order designated by the member lots in AEMI that is based on the current price point could trade. This is known
who enters the order. This denotes New York Stock Exchange (‘‘NYSE’’) as sweeping the book, and during the
whether the order is a customer (non- rule. During the regular trading session, sweep the incoming order could access
broker-dealer) order or a broker-dealer an odd-lot trade would be limited to the other points of liquidity prior to
order, which affects its priority standing size of the nearest round-lot trade that reaching its limit price, such as a
during execution.19 A broker-dealer elected it. For example, assume there percentage order or a Specialist’s
order could be a principal order entered are two odd-lot orders of 60 shares and emergency quote, both of which are
by a member that is a broker-dealer or 50 shares, respectively, and a round-lot described later in this document. If the
it could be an order entered by a trade of 100 shares takes place. Odd-lots range of the sweep includes better-
member acting as an agent for a broker- could trade up to 100 shares. However priced protected quotations at other
dealer. The rules regarding priority and the second odd-lot order of 50 shares markets, AEMI would send intermarket
precedence for ETFs would differ from would trade in its entirety to avoid sweep orders to clear those better prices
the corresponding rules for equity- splitting an odd lot (i.e., 110 shares simultaneously with performing the
traded securities because ETFs are executes in total). If a market odd-lot sweep. Assuming no breach of a
traded more like derivative products order were not filled on the basis of tolerance has caused auto-ex to be
round-lot trades within 30 seconds of its disabled, any unexecuted balance
with market makers in the crowd. In
arrival, then the odd-lot order would would be posted simultaneously on the
summary, the principal/agency capacity
trade at the price of the qualified AEMI Book and reflected immediately
designation serves to ensure that
national best bid or offer, as defined in in the new APQ.
investors’ orders are afforded
the rule.20 If the odd lot is part of a (c) Lock the NBBO: If an incoming
precedence in the execution process,
mixed lot, then the odd lot would trade order would lock the NBBO, AEMI
and the public/crowd indicator serves to
automatically against the Specialist at would immediately issue an intermarket
distinguish off-floor orders (which are
the same time and same price as the first sweep order for the displayed quantity.
all public) from activity that is afforded
round-lot of the order. If the displayed quantity were less than
the privileges of presence in the crowd.
Automated Execution. Amex would the size of the order, AEMI would
All off-floor orders are therefore public,
by default publish an automated simultaneously post any balance on the
all quotes from Registered Traders are
quotation for all securities in AEMI, and AEMI Book and reflect this immediately
crowd, and Floor Brokers choose
auto-ex in the AEMI platform would in the new APQ.
between submitting public and crowd
operate according to two basic (d) Cross the NBBO: If an incoming
orders depending on their physical
principles. First, interest that is eligible order would cross the NBBO, AEMI
location on the trading floor.
to trade must be resident in the AEMI would immediately issue intermarket
Book prior to an incoming order sweep orders for the displayed
18 The Exchange anticipates allowing a Specialist
to charge commissions under AEMI for orders that

arriving, with the exception of quantities of those protected quotations.
require special handling or for which the Specialist percentage orders and emergency Therefore, AEMI would sweep the
otherwise provides a service as agent for the order quotes, which are both triggered protected quotations of away markets at
(e.g., percentage orders). However, the Specialist automatically. Second, Amex would the same time as it sweeps in full size
would be prohibited by Amex Rule 152(c) from
charging a commission if the Specialist were a
immediately and automatically ship an the same price points on the AEMI
contra-party to the trade. Amendment No. 5 further intermarket sweep order to any away Book. As above, during the sweep the
stated that a Specialist would not be allowed to incoming order could access other
charge a commission on any transaction in AEMI 20 Under the current NYSE odd-lot rule, a market
points of liquidity prior to reaching its
to which the Specialist’s own proprietary interests order not filled on the basis of a round-lot trade limit price, such as a percentage order
were not required to yield by AEMI rules or the within 30 seconds of arrival would trade at the
Specialist’s agency responsibility. For instance, an price of an adjusted ITS bid or offer. Amex’s or a Specialist’s emergency quote.
ETF Specialist would be allowed to trade on parity proposed AEMI odd-lot rule would instead use the
with, but not charge a commission for, a broker- qualified national best bid or offer, as defined in the 21 In Amendment No. 5, the Exchange clarified
dealer order in AEMI. See Amendment No. 5. rule, due to the Exchange’s expected use of private that Amex would only ship an intermarket sweep
19 Proposed Rule 719–AEMI provides detailed linkages instead of ITS at the time that Regulation order to an away market with a better price if the
descriptions of available account type codes. NMS takes full effect. Amex were publishing an automated quotation.
Assuming no breach of a tolerance has With spread tolerance, auto-ex would Exchange’s ‘‘1%, 2, 1, 1⁄2 point’’ rule.23
caused auto-ex to be disabled, any be disabled when an inbound order has The incoming order would execute
unexecuted balance would be posted walked the book beyond a predefined against the quote and auto-ex would
simultaneously on the AEMI Book and price level relative to the price of the automatically be disabled. This rule
reflected immediately in the new APQ. security at the time of the initial would serve to maintain continuity and
Auto-ex in the AEMI platform would execution against the order. The spread reduce volatility in the market.
be disabled (and re-enabled) only in tolerance is designed to mitigate In the case of a tolerance breach or a
specific, published circumstances that volatility caused by the entry of a large gap trade that violates the Exchange’s
Amex believes are consistent with sized order where there is no natural ‘‘1%, 2, 1, 1⁄2 point’’ rule, auto-ex would
investor protection and with the contra-interest on the book (commonly be disabled and the APQ would be
maintenance of fair and orderly markets. known as ‘‘pounding’’). The spread designated as non-firm, being comprised
Such instances could occur due to the tolerance is an Exchange-set parameter of the unexecuted balance at the price
presence of a large imbalance, during per security and is applied dynamically of the automated NBBO on the same
periods of high volatility, or as a result according to the first execution price of side corresponding to the aggressing
of system malfunction. the security against the incoming order, order (e.g., automated national best bid
The conditions outlined below under based on the table below: for an aggressing buy order), with the
which auto-ex could be disabled during contra-side of the quote reflecting the
the regular trading session are designed Tolerance best bid, offer, or order in AEMI. If there
to work together to balance the demand Stock price (cents) is no imbalance (e.g., the breaching
for speed and immediate access to order was an immediate-or-cancel
execution with the need to provide a Less than $5 ............................. 5 order), then the natural current Amex
stable and fair marketplace. Amex $5–$15 ...................................... 15
market is reflected in the manual APQ.
More than $15 .......................... 25
recognizes that periods of high volatility If there were no orders left on the
and low liquidity could cause auto-ex to contra-side of the AEMI Book (e.g. the
For example, suppose the Exchange’s
be disabled in a single security by one stock is illiquid), and auto-ex has been
quote is 100 shares offered at $3.10 and
or more tolerances within a short time. disabled, AEMI would generate a
the best automated away market bid is
In compliance with Regulation NMS, stabilizing quote automatically so that a
$3.09 for 200 shares. Assume there are
Amex would continuously monitor the two-sided non-firm quotation would be
additional offers at the Amex of 500
frequency of disablement of auto-ex and published. The stabilizing quote would
the cause in each instance in order to shares each at price levels of $3.11,
be for one round lot at one tick away
ensure that one or more tolerances is not $3.13, $3.15, $3.16, and $3.18 and there
from the price of the automated NBBO
being breached continuously or are no protected offers between $3.11
on the contra-side.24
consistently, either in individual and $3.15. An inbound order to buy Once auto-ex is disabled, incoming
securities or market-wide. Should this 4,000 shares at the market would immediate-or-cancel orders would
be the case, Amex would review and, therefore aggress the book five cents expire on receipt. Incoming market and
with the appropriate regulatory from the first execution at Amex. This limit orders would be added to the
approvals, make adjustments to the results in trades of 100 shares at $3.10, AEMI Book (but would not update the
conditions under which auto-ex is 500 shares at $3.11, 500 shares at $3.13, APQ) and any order could be amended
disabled so as to maintain both and 500 shares at $3.15. Auto-ex is or canceled. If auto-ex were disabled
consistency of market quality for disabled after the size offered at $3.15 due to a tolerance breach or gap trade,
investors and compliance as an is exhausted. The APQ is consequently the Specialist would have ten seconds
automated trading center under $3.09 22 bid for 2,400 shares, 500 shares to take action to re-enable auto-ex and
Regulation NMS. offered at $3.16 and both sides are non- disseminate a new automated APQ, after
There are six situations under which firm quotations. which time auto-ex would automatically
auto-ex in AEMI would be disabled. With momentum tolerance, auto-ex attempt to resume and disseminate a
Four of these situations involve trading would be disabled when multiple orders new automated APQ. If the remainder of
circumstances that could otherwise have moved the price of a security in the aggressing order that caused the
result in price volatility in an individual one direction beyond a predefined imbalance expired or were canceled or
security and are described here. The trading boundary in a 30-second time the AEMI Book were not locked or
fifth situation is the ‘‘cash close’’ for period. The momentum tolerance is crossed, the Specialist could re-enable
certain ETFs and is referred to under designed to mitigate volatility caused by auto-ex prior to the expiration of the 10-
‘‘Openings and Closings’’ below, and a rapid succession of small orders in second period through a ‘‘front-end’’
the sixth situation is when unusual very short time frames (commonly device. Otherwise, if the order
market conditions (as defined in Rule known as ‘‘spraying’’). imbalance remained and the AEMI Book
602 of Regulation NMS) occur. Of the Spread and momentum tolerances were locked or crossed, the Specialist
four trading situations, AEMI would would work simultaneously to prevent would be required to conduct an
automatically disable auto-ex in three excessive volatility, so while each of a auction for the imbalance, and the
circumstances related to breaching series of small orders might not action of printing the auction trade or
predefined tolerance levels held within individually trigger the spread performing a pair-off would
the system, namely ‘‘spread tolerance,’’ tolerance, their combined effect could automatically re-enable auto-ex and
‘‘momentum tolerance,’’ and a ‘‘gap trigger the momentum tolerance. publish an automated quote. If the
trade tolerance’’ (i.e., exceeding a With a gap trade, the gap between the Specialist had not so acted or gapped
specified maximum range from the last current quotation and the last sale has the quote by the end of the ten-second
sale). In the fourth possible trading breached the parameters of the period, then auto-ex would resume
circumstance in which auto-ex would automatically, provided the AEMI Book

22 The bid is set at the prevailing best automated
be disabled (‘‘gapping the quote’’), the were not locked or crossed. If the AEMI
away market bid to insure that the Amex quote,
Specialist would manually gap the although manual and non-firm, does not lock or
quote to address a large order cross any away market’s automated offer. See 23 Proposed Rule 154–AEMI.
imbalance. Amendment No. 5. 24 See proposed Rule 128A–AEMI(g).
Book were still locked or crossed after imbalance, but no auto-ex would occur auto-ex due to a tolerance breach and
the initial ten-second period and the until the Specialist performed a pair-off, oversized orders arriving via a Floor
Specialist had still taken no action, and the APQ is updated. Note that Broker in the crowd would be able to
AEMI would attempt to re-enable auto- orders that are participating in the pair- take advantage of the auction market
ex every subsequent ten seconds. The off could not be canceled or amended and liquidity offered in the crowd.
APQ would not be updated until auto- during the pair-off duration itself, which When the Specialist conducts an
ex were re-enabled and an automated would last no more than three seconds. auction and prints the resulting trade,
quotation were disseminated. Amex’s Gap quote situations involve clearly relevant orders in the electronic
Regulatory Division could bring large imbalances compared with the environment would be included and the
enforcement action against Specialists typical trading volume in a security. For AEMI platform would automatically
that have a pattern of failing to take example, assume the Exchange quote is satisfy better displayed automated
action within the initial ten seconds $5.09 bid for 100 shares, 300 shares quotations (protected quotations) 27 at
under the circumstances described offered at $5.11, and the automated away markets as part of the auction
above. national best bid is $5.10. Further print. Since verbal bids and offers
The Exchange is proposing to adopt assume that a Floor Broker walks into would not have standing in the AEMI
rules for gapping the quote similar to the Crowd looking to purchase 50,000 Book, it would be the electronic print
those of the NYSE in order to maintain shares. The Specialist determines that that finalized the trade and recorded the
uniformity in the marketplace. A gapping the quote is in the interest of aggressing and contra-participants. To
Specialist would gap the quote when the marketplace, and enters the side and ensure the price discovery process is
either: (i) A large order has been size of the imbalance and the price at fairly leveraged, negotiated trades and
represented in the crowd; or (ii) an which the contra-side would print. auction trades could not take place
incoming order has swept the book, Auto-ex would be disabled and the outside the APQ when auto-ex is
disabled auto-ex, and left a large order gapped quote would be published as a enabled.
imbalance in the security. If the non-firm quotation at $5.10 bid for The Specialist would conduct an
Specialist gaps the quote, auto-ex would 50,000 shares and a contra-side of 100 auction based on information from both
be disabled and a gapped quote would shares (a round lot) offered at $5.20. The the crowd and AEMI relating to the
be disseminated, reflecting the order Floor Broker would submit his imbalance, minimum Specialist and
imbalance. If auto-ex had already been imbalance from his hand-held terminal crowd exposure, and away market
disabled due to the tolerance breach, so that it is electronically captured in obligations. The Specialist and crowd
then it would remain disabled and the AEMI and could participate in the pair- exposure would represent the minimum
existing non-firm quote would be off performed by the Specialist. If commitment of the crowd, once the
updated with a non-firm gapped quote. incoming contra-side order flow of imbalance had been offset by away
This quote would be published in order 45,000 shares entered the book market obligations and the contra-side
to attract electronic contra-side interest electronically, the Specialist would interest already on AEMI that would
and would be displayed until incoming auction the outstanding 5,000 shares in participate in the trade. Should the
order flow offsets the imbalance to such the crowd and perform the pair-off, market change between the time of the
an extent that the Specialist could pair which would cause the trade to be verbal auction and the auction trade
off the imbalance, which would printed and auto-ex to be re-enabled. being printed, then the exposure of the
automatically re-enable auto-ex. The The pair-off itself is described later in crowd could change, up to the
quote could be gapped for a maximum this document under ‘‘Performing a Pair maximum exposure of the imbalance
of two minutes, by which time the Off.’’ itself. After conducting the auction, the
Specialist would be required to perform The Auction Process. Vital to the Specialist would print the trade and
an auction, or he would have to request AEMI platform is the preservation of the subsequently manage the post-trade
a trading halt with Senior Floor Official auction market, represented by members allocation to the crowd, after which
or Exchange Official approval. The in the crowd trading on parity. AEMI would send notification of
gapped quote disseminated by the Specialists, Floor Brokers, and individual trades to active crowd
Specialist would be comprised of the Registered Traders would continue to participants. To be considered an active
order imbalance at a bid or offer equal add depth to the price discovery process crowd participant, at the time of the
to the price of the automated NBBO on by their interaction and presence in the auction trade, a Registered Trader in the
the side of the imbalance,25 and a crowd at the point of sale. The AEMI crowd would have to have a bid or offer
round-lot on the contra-side at the price platform would support auctions and on the AEMI Book, and a Floor Broker
at which the Specialist judges the stock negotiated trades 26 taking place in the would have to be represented by a
would next print if there were no trading crowd and interacting with crowd order on the opposite side of the
additional interest or cancellations. If orders in the AEMI Book. If the imbalance.
the gapped quote were the result of an Specialist were to conduct an auction in If a Floor Broker were to walk into a
order represented in the crowd, the the new hybrid market, he would print crowd with an order, he could
Floor Broker whose order imbalance has the auction trades to the tape via AEMI. participate in a verbally transacted trade
caused the quote to be gapped would be Both electronic imbalances that disable with one or more individual crowd
required to enter his order into AEMI participants, including the Specialist. If
immediately so that it participates in the 26 Negotiated trades are one-to-one trades between the Specialist printed a trade inside the
pair-off. When the quote is gapped,
two crowd members (possibly including the automated NBBO, there would be no
Specialist) and would be allowed only while auto- electronic orders (including orders at
incoming orders would be added to the ex is enabled. An auction trade is between a single
AEMI Book and any order not crowd participant and multiple counterparties in the Amex) and no away exposure to be
satisfied. However, if he printed a trade
participating in the pair-off could be the crowd. They are differentiated by the need to
amended or canceled, including the
allocate on a post-trade basis to crowd participants. outside the automated NBBO, orders on
However, this difference does not affect priority and the AEMI Book could participate and
parity rules, the standing of orders on the AEMI
25 The NYSE rule provides that the side of the Book, or the issuance of intermarket sweep orders. intermarket sweep orders would be
gapped quote reflecting the order imbalance be at An auction trade could take place either while auto-
the price of the last sale. ex is enabled or in order to re-enable auto-ex. 27 See 17 CFR 242.600(b)(57) and (58).
automatically generated to satisfy better- away market, the unexecuted portion The offer for 1,000 shares on the AEMI
priced automated quotations at away would expire and the two Floor Brokers book is included in the trade and
markets. If one or more intermarket would have no further obligations with receives price improvement of $0.04.
sweep orders 28 had been generated by respect to such order. In this trade, the The balance of the printed trade of 6,500
an auction trade and were unexecuted Specialist played no part other than to shares is the Specialist/crowd exposure.
in whole or in part by away markets, the print the trade. If the away market rejects the
remaining portion of the aggressing (ii) Auction Trade with auto-ex intermarket sweep order for 500 shares,
order that was suspended in AEMI at enabled. Suppose the APQ for an ETF the balance of the suspended order
the time intermarket sweep orders were is 1,000 shares offered at $5.80 and the would be released on the AEMI Book
generated would be reincorporated into automated national best offer is 1,000 without losing order time priority.
AEMI without losing order time priority shares offered at $5.79. A Floor Broker In both of the above auction trade
and would re-aggress the AEMI Book walks into the crowd with an order to examples, the Specialist would oversee
(including the generation of intermarket buy 5,000 shares. The Floor Broker the electronic capture of the crowd
sweep orders to away markets, if announces a bid of $5.80 and the crowd, allocation, based on the AEMI priority
necessary), except for negotiated trades made up of four Registered Traders and and parity rules and involving an
where any unexecuted intermarket two Floor Brokers, verbally confirms its allocation table for the security as
sweep orders expire. offsetting interest. All of the crowd determined by the ETF Trading
The following are examples of the participants are represented Committee (if the security is an ETF).
different types of trades discussed electronically on the contra-side of the For a listed stock, UTP stock, or closed-
above: AEMI Book at the time of the trade with end fund, the allocation of crowd
(i) Negotiated Trade. Assume that two the exception of one Floor Broker, who exposure is among eligible crowd
Floor Brokers negotiate a trade while is therefore not eligible to participate in participants and the Specialist Order
standing in the crowd. They request that the trade. Since AEMI does not permit Book and is based on equal splits among
the Specialist print the trade, which he a print outside the APQ while auto-ex all crowd participants, with the whole
could do at or inside the APQ. The is enabled, the Specialist could print the of the Specialist Order Book deemed as
Specialist enters both Floor Broker trade only at $5.80 or better. The one crowd participant for these
badge identifiers into AEMI and the Specialist enters into AEMI a trade of purposes.29 This allocation pertains to
trade is printed. If the price is outside 5,000 shares at $5.80 with the Floor each member of the crowd participating
the APQ, it is rejected. If the price is Broker’s badge identifier as the on the contra-side at the time of the
outside the automated NBBO, then an aggressor. AEMI automatically generates trade (e.g., four Registered Traders and
intermarket sweep order is generated for an intermarket sweep order of 1,000 one Floor Broker in the first auction
the aggressing Floor Broker. Suppose shares at $5.79 and prints 4,000 shares trade example). Each Floor Broker
that the APQ is 1,000 shares offered at at $5.80 at the Amex. The print includes participating in an auction trade,
$5.80 and Floor Broker A negotiates to the 1,000 shares offered at $5.80 on the whether as an aggressor or as a crowd
buy 5,000 shares from Floor Broker B at AEMI Book with 3,000 shares trading participant on the trade, would conduct
$5.80. As the Specialist enters the trade, against the Specialist/crowd. If the away additional allocations to existing orders
the automated national best offer market rejects or only partly executes on their hand held terminals. These
changes from 1,500 shares offered at the intermarket sweep order for 1,000 allocations, once completed, would be
$5.80 to 500 shares offered at $5.79. shares, the balance of the suspended electronically communicated to AEMI,
AEMI would generate an intermarket order would be released on the AEMI and Floor Brokers would have 20
sweep order for 500 shares for Floor Book without losing order time priority. seconds to complete their respective
Broker A and print 4,500 shares at (iii) Auction Trade with auto-ex trade allocations. If an allocation were
$5.80. Floor Broker A has purchased the disabled. If auto-ex has been disabled reported to AEMI more than 20 seconds
1,000 shares offered on the AEMI Book due to a spread or momentum tolerance later, the trade allocation would be
and 3,500 shares from Floor Broker B. breach or a gap trade has occurred, the deemed late but would still be
Should the intermarket sweep order be Specialist could print the auction at a permitted. Post-trade allocation would
rejected or only partly executed by the price outside of the automated NBBO not occur for negotiated trades, since the
and outside the APQ. For example, Specialist would capture the two
28 Amex proposes to define an intermarket sweep assume that a large order has walked the counterparties at the time of the trade.
order as a limit order for an NMS stock (as defined book and breached the spread tolerance, Trading in the Crowd. A Floor Broker
in Regulation NMS): (1) Received on the Exchange
by AEMI from a member or another market center
causing auto-ex to be disabled and a could trade in any crowd on the floor
which is to be executed (i) immediately at the time non-firm quote to be published. Also under the hybrid market rules, but
such order is received in the AEMI Book, (ii) assume that a buy imbalance of 8,000 would have to be physically present in
without regard for better-priced protected shares is on the AEMI Book and the the crowd to represent a crowd order in
quotations displayed at one or more other market
centers, and (iii) at prices equal to or better than the manual APQ is $5.78 bid for 8,000 the AEMI Book. On leaving a crowd or
limit price, with any portion not so executed to be shares, 1,000 shares offered at $5.79. logging out of his system, a Floor Broker
treated as canceled; provided, however, that an The automated national best offer is 500 would be required: (i) To cancel all
order that is received through the communications shares offered at $5.80. The crowd, all crowd orders in the AEMI Book for
network operated pursuant to the Intermarket
Trading System (ITS) Plan or any successor to the of whom are represented electronically securities in the crowd he is leaving; (ii)
ITS Plan would trade only at a single price; or (2) on the contra-side of the AEMI Book, to electronically submit the orders in
generated by AEMI in connection with the verbally confirm their interest at a price the form of percentage or limit orders to
execution of an order by AEMI and routed to one of $5.83. There are no other orders on the Specialist for handling; or (iii) to
or more away market centers to execute against all
better-priced protected quotations displayed by the
the AEMI Book and no other protected electronically route the crowd orders to
quotes at away markets between $5.80 another Floor Broker in the crowd, via
other market centers up to their displayed size. An

intermarket sweep order would have to be marked and $5.83. The Specialist prints the
as such to inform the receiving market center that auction trade at $5.83, and AEMI 29 The Exchange revised the language in this
it could be immediately executed without regard to sentence in Amendment No. 5 to make clear that
protected quotations in other markets. Amex
automatically generates an intermarket the Specialist Order Book would be deemed as one
believes that this definition is consistent with the sweep order of 500 shares at $5.80 and crowd participant for purposes of the trade
Regulation NMS definition of the same term. prints 7,500 shares at $5.83 at the Amex. allocation.
his hand-held terminal. If the Floor execution of this order from his hand- Registered Traders’ bids would be on
Broker did not take one of the actions held terminal while away from the parity, and the fourth would not be on
above, he would be responsible for any crowd. The AEMI platform could parity. Once a trade occurs not
executions against his crowd orders on convert a percentage order involving any of these bids, such as a
the AEMI Book, and Amex could bring automatically, based on instructions the midpoint cross or a negotiated trade at
regulatory action against the Floor Floor Broker submitted with the or inside the APQ, all four bids would
Broker. percentage order. Alternatively, the be on parity. The establishment of parity
Floor Brokers would have a new Specialist could also convert a at the price would have no effect on the
electronic order type—a ‘‘reserve percentage order manually, depending execution speed or behavior of
order’’—which would consist of both a on market conditions and Floor Broker incoming order flow, but would ensure
visible size and an undisplayed instructions with respect to the that a Registered Trader’s ability to
(reserve) size that would not be percentage order. Because the proposed compete electronically is comparable to
included in the APQ. Reserve orders processing of percentage orders is his ability to compete in the current
would enable Floor Brokers to represent expected to primarily be automated, the crowds, irrespective of the technology
their customer interest at multiple price Exchange is seeking to remove some used to provide liquidity to the
points at or outside the APQ and to size restrictions associated with the electronic environment. Since the
participate in the electronic Specialist’s conversion on destabilizing purpose of this principle is to mitigate
environment on parity, while shielding ticks. the minute differences in processing
their orders from market impact. The In ETF securities, Registered Traders time or latency between competing
aggregate amount of all undisplayed would also participate in crowd activity, technologies, the concept is also applied
reserve orders (but not the individual individually adding liquidity to the to public orders when there is a mix of
orders) at each price point would be AEMI Book and to the auction process. public and crowd orders at a single
visible only to the Specialist, who Although Registered Traders would not price point. If there are multiple public
would include any reserve orders in an have the same quote obligations as orders at a price point, they would trade
auction. As a reserve order receives Specialists, they would be required to in price/time priority relative to each
executions, the displayed size would be maintain competitive two-sided quotes other but on parity with crowd orders at
replenished up to the maximum of the when physically in the crowd. This the same price.
defined display size or the remainder of active quote would designate them as New Electronic Order Types. To
the order. The price point could not be crowd members for that individual provide more trading opportunities to
traded through until all the reserve size security and thus make them eligible to off-floor participants in particular, the
has been exhausted. participate in crowd activity. Exchange is proposing to introduce new
For example, assume the APQ is $5.10 A ‘‘parity joining time’’ is applied in electronic cross order types. In addition
bid for 500 shares. Further assume that AEMI to public and crowd orders and to current crosses negotiated in the
a Floor Broker in the crowd enters a Registered Traders’ quotes that are crowd by Floor Brokers, which would
reserve order to buy 5,000 shares for entered within a prescribed time continue to be available under AEMI
$5.09, display 1,000, and a second Floor following certain events. A new order and applicable to all equity-traded
Broker enters a reserve order to buy entered would be considered on parity securities on the Amex unless stated
4,000 shares for $5.09, display 500. The if it were the only order at a price or it otherwise in the Exchange’s rules, five
Specialist would see the aggregated were entered within a two-second electronic order types are being
reserve size of 7,500 shares for $5.09 in ‘‘parity joining time,’’ which would introduced as well as one electronic
addition to the individual displayed permit parity to be established when a ‘‘auction cross’’ order type.30 All six of
interests. If an incoming sell order new highest bid (lowest offer) is these electronic order types are limited
subsequently exhausts the 500 shares established in AEMI, following a trade, to ETFs and Nasdaq UTP securities. The
bid at $5.10, the new APQ is $5.09 bid or when all bids (offers) at the APQ are
for 1,500 shares, reflecting the displayed canceled. If such an order or quote 30 Following discussion with the staff of the
portions of the Floor Brokers’ orders. established the new price, then only Commission, the Exchange is adding to the
If a Floor Broker were trading proposed AEMI rules additional minimum size
subsequent orders entered within the (greater than the largest customer order on the
multiple orders for different clients parity joining time would trade on Specialist Order Book at the cross price) and value
simultaneously during the day, he could parity. If an order or quote were ($100,000 or more) requirements for certain cross
enter a single crowd order into the submitted outside the parity joining orders that are priced at the APQ and allowed to
AEMI Book that represented all or a trade ahead of a previously displayed public
time at a price point at which there were customer order. While Amex believes that these
piece of each order. Prior to submission already an order or quote present, it requirements would not be triggered by the
of such an order to AEMI, the Floor would be on parity at the price after a operation of its proposed new electronic cross
Broker would designate the allocation trade at any price has occurred. This orders, they may be applicable to crosses negotiated
method of the trade (i.e., whether the in the crowd by Floor Brokers. See proposed Rule
principle would be applied to public 126–AEMI, Commentaries .01 and .02. Because the
returning trade against the order is and crowd orders and to quotes entered initial version of AEMI has not been programmed
allocated to the oldest customer order by Registered Traders when a new APQ to automatically check for these additional
represented, evenly across all the is established. parameters, the Exchange will need to develop and
For example, assume that three implement a surveillance and enforcement program
orders, or pro-rata based on size). with respect to member compliance with these
Floor Brokers could also leave Registered Traders are using a variety of additional rule requirements that would be in effect
percentage orders with the Specialist as Exchange-supplied and proprietary during the short period that it will take to develop
public orders, permitting their technology to submit quotes in a crowd, these new parameters into a future version of AEMI.
Amex regulatory officials will communicate the
customers’ orders to participate and each is bidding $6.00 for 2,000 details of the interim surveillance and enforcement
throughout the day in the electronic shares. Further assume that an incoming
program to the staff of the Commission by letter.

environment through manual sell order for 6,000 shares exhausts the The Exchange expects that this proposed interim
conversion, automatic conversion, and/ bid, and the three Registered Traders program will, due to limitations on its ability to
manually surveil compliance with the additional
or election. A Floor Broker could route submit fresh bids immediately. If a requirements on a real-time basis, be more punitive
a percentage order to the Specialist fourth Registered Trader joins the bid and after-the-fact in nature, as opposed to an
Order Book and then monitor the eight seconds later, the first three immediate rehabilitative approach.
electronic cross order type selected at the sell side marked as a short sale and pegged price and the Specialist’s or
order entry by the market participant designated for price improvement. Since Registered Trader’s size.
would dictate whether the cross order this is a tick sensitive order, AEMI (3) Single, two-way quotes could also
could be broken up by interacting with would take into account the tick of the be entered physically into the AEMI
orders on the AEMI Book, whether price last trade when generating the filing platform (‘‘solo quotes’’). A Specialist or
improvement is being sought for the price. Since the last trade was $5.13, a Registered Trader could enter solo
cross order, and how the residual of the minus tick, AEMI would re-price the quotes at any time. If the user were auto-
cross order would be handled after it order by one tick to $5.14 so that a plus quoting or streaming in quotes, a solo
had been broken up. Two examples of tick would result if this order traded quote would override the best existing
electronic cross order types are ‘‘cross’’ during the auction cross duration. In quote, auto-quote, or streamed quote.
and ‘‘cross only’’, which are this example, the auction cross would The next auto-quote or streamed quote
differentiated by their interaction with expire at the end of the price would override the previous solo quote.
the book—a ‘‘cross’’ order would improvement duration, since the cross These solo quotes would be represented
interact with orders in the AEMI Book could not occur at $5.12 under the short to the market place as automated
at the cross price whereas a ‘‘cross only’’ sale rule. By contrast, if two trades had quotations while auto-ex is enabled.
order would not. For example, if the occurred during the price improvement At the Amex, as discussed above,
APQ were $5.10 bid for 100 shares, 200 duration (at $5.10 and $5.11) to create Specialists are expected to maintain
shares offered at $5.11, the sell side of a plus tick, the auction cross would take continuous two-sided quotes in support
a ‘‘cross’’ order for 500 shares at $5.10 place at the designated cross price of of their affirmative market making
would trade 100 shares against the $5.10 $5.12. obligations to ensure price continuity
bid, since the existing electronic bid Quoting. Specialists would be and stability in the market. The AEMI
would take priority, and the remaining expected to maintain a two-sided quote platform would ensure that a Specialist
400 shares would be crossed against the during the regular trading session to is able to meet these obligations by
contra-side of the cross order. After both comply with their obligations under the generating a single two-sided, firm,
transactions, the 100 shares to buy from automated emergency quote when the
Exchange’s rules to assist in the
the ‘‘cross’’ order would expire. Under Specialist’s quote is decremented below
maintenance of a fair and orderly
the same scenario, a ‘‘cross only’’ order a configured size that is based on
market and of price continuity with
at $5.10 would be rejected, since its parameters set by the Specialist. This
reasonable depth. A Registered Trader
instructions would prevent interaction feature is available only when the
in ETF securities would be required to
with the AEMI Book when there is an Specialist is not streaming in his
maintain a two-sided quote to be
existing bid on the AEMI Book for $5.10 quotations. If the Specialist’s quote in a
eligible to participate electronically and
given stock were decremented to below
(i.e., equal to the cross price). in crowd trades. Specialists and
a specified size or were exhausted, and
Another cross order type, designated Registered Traders could submit quotes
no price change in the marketplace had
as an electronic ‘‘auction cross,’’ would in the following three ways: automatically generated a new quote,
actively seek price improvement, and (1) Specialists and Registered Traders then an emergency quote would be
the sender of the order would designate could optionally stream in multiple generated by AEMI, based on the
which side or sides of the cross are two-sided quotes (one quote per price programmed parameters. For example,
eligible for price improvement. For point) to add liquidity to up to a total assume that a Specialist has set
example, assume that the APQ is $5.10 of five price points on each side of the parameters that would generate a fresh
bid for 100 shares, 200 shares offered at AEMI Book. The Exchange is quote of 500 shares if his quote size is
$5.14, and an ‘‘auction cross’’ is introducing a new interface to facilitate decremented to below 200 shares, and
submitted for 500 shares at $5.12, with streaming in quotes from a proprietary this quote would be generated at two
the buy side designated for price application. ticks away from his previous quote.
improvement. The buy side of the cross (2) Quotes could be generated Further assume that (1) the Specialist’s
would be put on the AEMI Book and automatically (‘‘auto-quotes’’) within quote is pegged to the automated
reflected in the APQ at one tick worse AEMI. Auto-quotes are defined as national best bid, (2) his current quote
than the designated cross price. The quotes automatically generated within is 1,000 bid at $5.08 and represents the
APQ would therefore become $5.11 bid AEMI on behalf of a Specialist or automated national best bid, and (3) the
for 500 shares, 200 shares offered at Registered Trader, based on user- next best bid in the marketplace is at
$5.14. If the bid for $5.11 did not specified parameters relating to size, $5.07. An incoming sell order for 900
receive price improvement within three ticks, and underlying market data. A shares depletes his quote to below the
seconds, it would be canceled and the Specialist could peg either his best bid size specified and therefore an
cross would take places at $5.12, or his best offer to the automated NBBO. emergency quote is generated for 500
provided this is still feasible given Registered Traders could peg their best shares at $5.06 (assuming that a tick is
market conditions and there is no trade- bid or offer to one side of the APQ $0.01 for this security), which is now
through. If, however, the auction price (excluding their own quote if that quote the Specialist’s best bid.
were outside the automated NBBO at represented the only interest on that Intermarket Sweep Orders. Amex
the time of the trade, the auction cross side of the APQ) or the automated believes that the AEMI platform has
would expire. To ensure consistency NBBO. Both Specialists and Registered been designed to be fully compliant
with rules relating to short sales, the sell Traders could also peg their best bid or with the newly adopted Order
side of an auction cross that is exposed offer in ETFs to the Intra-day Optimized Protection Rule of Regulation NMS,
for price improvement could be re- Portfolio Value. The contra-side which requires that the visible size of all
priced by AEMI. For example, assume (unpegged) of the quote would be best automated quotes of all away
that the APQ is $5.10 bid for 100 shares, automatically generated based on a markets be cleared in order to execute
200 shares offered at $5.15, and the last quote spread designated by the user for or print a trade at a worse price. To this
trade on Amex is $5.13, which is a that security. If the price to which the end, incoming orders at the Exchange
minus tick. An ‘‘auction cross’’ is quote is pegged changed, a fresh auto- would be routed out automatically if an
submitted for 500 shares at $5.12, with quote would be generated based on the away market with an automated
quotation were displaying a better price, available at Amex. Any unexecuted pair-off commences would not alter the
provided Amex is publishing an balance would expire. pair-off to such an extent that it would
automated quotation.31 Intermarket Amex would monitor connections at disadvantage investors whose orders
sweep orders could be sent and received all times to ensure that systems were might now not be included for
through either ITS or private linkages functioning properly. All intermarket execution. During the pair-off itself,
with those other markets or market sweep orders sent by AEMI to away orders that were being processed as part
participants. Away markets could also markets would be immediate-or-cancel of the pair-off could not be altered or
would need to be cleared by a orders, and Amex therefore expects an canceled, while all other orders would
Specialist’s or Registered Trader’s quote immediate response from the away be queued in the AEMI platform (but
moving through an automated away market when accessing a protected would not be permitted to enter the
market (where regulations so permit). quote. To manage the issuance of AEMI Book). These queued orders could
If one or more away market best immediate-or-cancel intermarket sweep be amended or canceled at any time. If,
prices are required to be cleared in order orders to access manual quotes at the however, the Specialist failed to
to conform to the Order Protection Rule, NBBO, each intermarket sweep order complete the pair-off within three
an outbound intermarket sweep order would have an expiration delay timer. seconds, the pair-off session would be
would be generated to each away market This timer would control how long automatically canceled, and the queue
displaying a better price, in the AEMI would wait before cancelling the of new orders that had accumulated
displayed amount. The ‘‘sweep’’ intermarket sweep order and trading would be added into the AEMI Book,
qualifier on the order indicates to the through the quotation. If an intermarket where they would be eligible to
receiving trading center that the order sweep order were sent to an away participate in the new pair-off that the
could be executed even though it is at market and no response were received Specialist must perform.
an inferior price to the automated by the time the delay timer had expired, Openings and Closings. The Exchange
NBBO. and assuming that no system errors had is proposing to automate certain aspects
Only protected quotes of away been detected, AEMI would issue a of its opening session in AEMI. The
markets from 9:30 a.m. to 4 p.m. Eastern further request to cancel the order and Specialist would manually start the
Time would be considered by AEMI in would immediately trade through the opening pair-off session at or as close to
the calculation of how many orders to quotation. This would occur through the 9:30 a.m. as possible. The Specialist
send and where to send them. Where an release of the order that had been would perform the opening pair-off to
outbound obligation represents an order suspended on the AEMI Book pending open trading in a security. The
received by the Exchange, that order the response to the intermarket sweep Specialist could also open ETFs and
would be suspended on the AEMI Book order, and the released order would re- Nasdaq UTP securities on a quote if
and unavailable for execution on the aggress the AEMI Book (including the there were no marketable orders in the
Amex unless it were released. If a generation of intermarket sweep orders AEMI Book. As described above, the
rejection (i.e., a no-fill or partial fill to other away markets, if necessary). pair-off would have to be completed
cancellation) were received in response Such trade-throughs by Amex would within three seconds of the Specialist
to the obligation sent to away markets occur on a per-order basis.33 commencing it. All marketable crowd
If an away market sends a rejection in orders would be considered on parity
and no better automated quotations
response to an outbound intermarket for the opening pair-off. Any imbalance
existed, the balance of the suspended
sweep order and the quotation at the of marketable orders would be fully or
order would be released on the AEMI
away market were not updated, Amex partially filled against the Specialist and
Book without losing order time priority.
would trade through the quote, but Registered Trader orders at the pair-off
If a rejection were received and there
would still continue to route other price on the contra-side of the
were better automated quotations at
intermarket sweep orders to that imbalance. Market and marketable limit
other markets, the released order would
market’s protected quotation in the odd-lot orders would be automatically
be resent to those markets.32 If,
same security. executed against the Specialist at the
following a rejection, another away Performing a Pair-Off. At openings
market published a better quote before opening price. At the end of the opening
and closings and at the conclusion of pair-off session, any queue that was
the balance could be released (i.e., the auctions, the Specialist would be
automated NBBO has changed), the formed during the pair-off would then
required to perform a pair-off of orders be processed, with marketable orders
order would also be resent. Incoming in the AEMI Book in an orderly manner.
intermarket sweep orders to satisfy the relative to the pair-off trade price being
With the exception of closings, auto-ex automatically paired off and the
Order Protection Rule could also be would be automatically enabled (or re-
received by the Exchange from members imbalance being added to the AEMI
enabled) after the pair-off. The pair-off Book with the original time stamp
and away markets. Such incoming would have to be completed within
orders could trade at multiple prices up priority, and intermarket sweep orders
three seconds of the Specialist being sent to away markets as
to their limit at Amex, irrespective of commencing it, and during this pair-off
the prevailing automated NBBO, with necessary.34 At the open, if the
any new orders would queue unseen by imbalance were too large for the
the exception of intermarket sweep the Specialist and would not be
orders received through ITS, which Specialist and the crowd to offset, the
considered in the pair-off. This brief Specialist could delay the opening, with
would receive only the best price queuing would ensure that the pair-off appropriate approvals pursuant to
31 In Amendment No. 5, the Exchange clarified
is orderly, and that an incoming order proposed Rule 22–AEMI. At the close, if
that Amex would ship an intermarket sweep order that arrives at the same instant that the the imbalance were too large for the
to an away market with a better price only if the
Specialist and the crowd to offset, the
Amex were publishing an automated quotation. 33 Amex expects that a late trade report from an
32 In the situation where there were equal-priced away market following such a trade-through, while Exchange would declare a trading halt
automated quotations at other markets, the released possible, would be an infrequent event. In such
order would also be resent to those markets if the case, however, the Exchange acknowledges that its 34 The Exchange modified this sentence in
order exhausted all size on the AEMI Book at the proposed trade-through treatment would not Amendment No. 5 to state that AEMI would ship
price and were not completely filled. See obviate or invalidate the away market’s rules intermarket sweep orders to away markets as
Amendment No. 5. regarding such late trades. See Amendment No. 5. necessary.
and there would be no closing rotation The Specialist would conduct a post current trading environment.37 The
in that security. trade allocation with respect to the following is a brief discussion of each
The Exchange is also proposing to shares necessary to offset the imbalance, proposed new AEMI rule.
automate certain aspects of its closing as with a regular auction. Until this
process. The Specialist would conduct Rule 1–AEMI. Hours of Business
post-trade allocation process were
the closing pair-off session in his completed, the Specialist would be The Exchange proposes to adopt this
specialty security. In both UTP and responsible for the contra-side of the new AEMI rule, which tracks the
listed securities, an on-close imbalance imbalance traded. If there were no on- language of its current Rule 1 with the
of 25,000 shares or more would be close orders, the closing price would be exception of a reference to ‘‘After Hours
automatically published to the tape at the last sale in the security. Trading’’ in the current rule. This
20 and then ten minutes before the In the case of certain ETFs that trade facility, which has rarely been utilized,
market close at 4:00 p.m.35 In all up to 4:15 p.m., the Specialist could would not be supported by the AEMI
securities, the closing pair-off session perform a ‘‘cash close’’ pair-off during platform.
would commence automatically at the the regular trading session at 4:00 p.m.,
which would occur prior to the official Rule 3–AEMI. General Prohibitions and
official closing time and auto-ex would
closing session on the Exchange and Duty To Report
be disabled at this time. The Specialist,
who would perform a pair-off of orders would be an added service for those The Exchange proposes to adopt this
in the AEMI Book, would manually investors who wish to mark positions to new AEMI Rule, which tracks the
close each security, and all orders the cash close. In the event that there language of its current Rule 3 with the
would have to have been entered are ‘‘market at 4:00 p.m. cash close’’ primary exception of references in the
electronically in order to participate in orders for an ETF in the AEMI Book, Commentary to three specific kinds of
the close. auto-ex would be disabled automatically trading activity that members and
At the close, the Specialist would in that security at the 4:00 p.m. cash member organizations should avoid.
execute any imbalance at an auction close time. Once the pair-off is The reason for the change is that these
price determined in a manner consistent concluded, auto-ex would resume until particular restrictions would not be
with auction market procedures and disabled for the official closing pair-off compatible with the operation of AEMI,
would then pair off and execute the to be conducted at 4:15 p.m. including the use of intermarket sweep
remaining executable orders at that Implementation of the AEMI Platform. orders and the ability of incoming
closing price. Percentage orders and Amex believes that AEMI will be rolled orders to ‘‘walk the book.’’ The
stop orders that would be elected by the out over a period of time anticipated to Exchange is instead proposing to add
closing price determined by the begin early in the fourth quarter of 2006 new language that would emphasize the
Specialist could be included in pricing for equities and ETFs, prior to the final prohibition of certain ‘‘gaming’’
the close. For example, assume that the date set by the Commission for full behavior that could occur under the
market is in the closing pair-off session, operation of all automated trading AEMI platform.
auto-ex is disabled, and Amex is centers that intend to qualify their
quotations for trade-through protection Rule 22–AEMI. Authority of Floor
publishing a manual non-firm auction
under Rule 611 of Regulation NMS Officials
quote. Also assume that there is a
resting limit order, or the Specialist’s (‘‘Trading Phase Date’’). By the Trading The Exchange proposes to adopt this
own bid, on the AEMI Book to buy Phase Date, all Exchange-traded ETF new AEMI rule, which tracks the
10,000 shares at $10; that there is a shares, equity shares, and securities that language of its current Rule 22 with a
single market-on-close order to sell trade like equities would be on the few exceptions as follows. First, the
1,000 shares; and that there is a stop AEMI platform. The Exchange intends Exchange is proposing to add language
order to sell 50,000 shares with a stop to file separate rules with the to paragraph (b) of this rule, regarding
price of $10. The Specialist could price Commission for a modified version of reallocation of a security, to assure that
the close to take into account the the AEMI platform to be in effect during the rule is compatible with the
execution of the stop order so that all the rollout and prior to the Trading provisions of Amex Rule 27 on
trades executed at the close would Phase Date. The Exchange intends to reallocation. In addition, the Exchange
receive the same price. So if the refer to this pre-Rule 611 version of is not including the language in Section
Specialist priced the close at $9.60, the AEMI as AEMI-One. (c)(5) of the current rule, which requires
Proposed Rule 1A–AEMI, a a crowd announcement by a member if
market-on-close order would receive
transitional rule filed as part of this he is bidding or offering pursuant to an
$9.60, the buy order on the AEMI Book
proposal, describes the plan for the off-floor order for an account in which
would be filled at $9.60 (thereby
phase-in of the AEMI platform and the a member or member organization has
receiving price improvement of $0.40),
applicability of various Exchange rules an interest. That provision is primarily
and the balance of the stop order would
during and after the rollout period. applicable to ‘‘G’’ orders, which would
be filled against the Specialist at $9.60
Once the rollout of AEMI is complete not be accepted under AEMI due to the
also. Amex believes that this process
for all securities that had been subject fact that they are infrequently used on
would ensure price stability at the close
to a particular Exchange legacy rule, the the Amex and would require complex
and result in a robust close with the
Exchange will submit a ‘‘house- programming for AEMI to be able to
maximum volume being traded at a
keeping’’ filing pursuant to Rule 19b–4 execute them properly. Other than in
single auction price.36
under the Exchange Act, which will connection with ‘‘G’’ orders, there are
35 The imbalances would be published to
delete each such rule that is not no other situations that would compel a
Consolidated Tape Association (CTA) Tape B for applicable to the Exchange’s then need to announce in this manner, so
Amex-listed securities. Amex is working with the

Nasdaq SIP to publish the imbalances in Nasdaq
this section of the current rule would no
price that is determined by the closing pair-off, it
UTP securities to Tape C. Note that the Exchange would not necessarily be entitled to execution (or longer be necessary. The Exchange is
is proposing to make the publication of order partial execution) at the price of a quote or order
imbalances optional in Nasdaq UTP securities. on the opposite side of the market if auction market 37 In Amendment No. 5, the Exchange changed
36 Because a market-on-close order is a contingent principles would result in a closing price inferior the phrase ‘‘all Exchange-traded products’’ to ‘‘all
order, in that it is seeking to receive the closing to the latter quote or order. securities.’’
also proposing to exclude some related the AEMI platforms, the Exchange’s Registered Trader transactions in
language that is in the last paragraph of current rules (as amended from time to securities traded in AEMI could be
paragraph (c) of current Amex Rule 22, time) would apply to those securities effected only in accordance with the
along with some outdated language that continue to trade on the legacy provisions of proposed Rule 110–AEMI.
involving hand signals. In addition, a system, while the corresponding AEMI • ‘‘Specialist Order Book’’—the
provision in the current rule providing rules would apply to those securities accumulation of orders on the AEMI
for the prohibition of entry of stop or trading on AEMI. When AEMI is fully Book that would not be represented by
stop limit orders is not being included implemented and there are no more a broker standing in the crowd or other
in the proposed Rule 22–AEMI due to securities trading on the legacy system, party. It would be a subset of the AEMI
the fact that the election and execution the Exchange will file a proposed rule Book. The Specialist Order Book would
of such orders would be fully automated change with the Commission to propose not include the bids and offers of
in AEMI. that each AEMI rule completely replace Registered Traders in the crowd.
The Exchange is also proposing to add its corresponding counterpart (e.g., • ‘‘Automated National Best Bid and
language in Commentary .02 to the proposed Rule 108–AEMI would replace Offer’’ (‘‘automated NBBO’’)—the
proposed new rule to recognize the fact Amex Rule 108) and that certain other highest automated bid and lowest
that records of rulings and decisions of rules that are not applicable to automated offer calculated and
Floor Officials could be created transactions in AEMI be rescinded. disseminated on a current and
electronically under AEMI and not just The Exchange anticipates that the continuing basis by a plan processor
by filling out paper forms. A related start of the roll-out would occur prior to pursuant to an effective national market
revision would provide that the need for the final date set by the Commission for system plan.
Floor Official approval of a particular full operation of all automated trading • ‘‘Automatic conversion’’—
action with respect to a security could centers that intend to qualify their automatic conversion (‘‘auto
be indicated to the Specialist quotations for trade-through protection conversion’’) of percentage orders by
electronically on a system maintained under Rule 611 of Regulation NMS AEMI. Auto conversions would be
by the Exchange. It would further (‘‘Trading Phase Date’’). Consequently, a governed by certain conditions in the
provide for the proper response by a somewhat modified early version of the AEMI Book which would qualify a
Specialist to an electronic message AEMI platform (referred to as ‘‘AEMI- percentage order to be converted. The
regarding required Floor Official One’’) would be in operation starting parameters that would trigger an auto
approval. with the initial roll-out and continuing conversion would be configurable. An
Rule 60–AEMI. Vendor Liability through the day prior to the Trading auto conversion could also take place
Disclaimer Phase Date. The Exchange intends to file during an opening, a re-opening, and
a separate set of rules in the near future the closing pair-off.
The provisions of this proposed new that would cover the operation of AEMI- • ‘‘Manual conversion’’—The
rule track the language of a paragraph in One. Specialist could manually convert
current Amex Rule 60 relating to When the AEMI platform is fully percentage orders depending on the
liability arising out of the use of any implemented, transitional Rule 1A– instruction on the percentage order. The
electronic system, service, or facility AEMI would be rescinded except for the AEMI platform would permit both
provided by the Exchange to members definitions contained therein, which active and passive manual conversions.
for the conduct of their business on the would migrate to the ‘‘Definitions’’ • ‘‘Active manual conversion’’—a
Exchange. However, most of the section at the beginning of the Amex’s manually converted percentage order
language in the current rule is not being ‘‘General and Floor Rules.’’ 38 Key that becomes an immediate-or-cancel
retained in the proposed new rule definitions include: (‘‘IOC’’) order and immediately
because it relates to systems and • ‘‘AEMI Book’’—the part of the aggresses the AEMI Book.
personnel (i.e., ‘‘System Clerks’’) that AEMI platform that would hold and • ‘‘Passive manual conversion’’—a
are no longer utilized at the Exchange or automatically match orders, bids, and manually converted percentage order
would no longer be utilized after AEMI offers submitted to it electronically by that becomes a limit order at the APQ.
is implemented. These systems include the Specialists, Registered Traders, It could set a new APQ or join the
the Post Execution Reporting (‘‘PER’’) Floor Brokers, and off-floor members. existing APQ.
and Amex Options Switch (‘‘AMOS’’) • ‘‘Crowd Order’’—an order in the • ‘‘Trade event’’—Every execution
systems, the On-Line Comparison AEMI Book that would be represented due to an aggressing order would be
System (‘‘OCS’’) system, and the NYSE by a broker standing in the crowd or a considered a ‘‘trade event’’ by the AEMI
electronic display book licensed by the bid or offer in the AEMI Book entered platform. The election of a percentage
Exchange. by a Registered Trader standing in the order, stop order, or stop limit order
Rule 1A–AEMI. Applicability, crowd. would be based on a trade event.
Definitions, References and Phase-In • ‘‘Customer’’—any person who is not • ‘‘Specialist emergency quote’’—a
a broker/dealer. firm, automated quote automatically
Proposed Rule 1A–AEMI is a • ‘‘Public order’’—an order, initiated
transitional rule that outlines the plan generated by AEMI when the
either on the Floor by a Floor Broker
for the phase-in of AEMI and the Specialist’s mandatory quote is reduced
(e.g., a percentage order or a limit order)
applicability of various Exchange rules to or below a configured size in order
or off-floor by a member, that would be
during and after this period of time. The to ensure continuity of price and assist
entered directly into the Specialist
proposed rule also sets out requirements the specialist in meting his quoting
Order Book.
obligations under proposed Rule 170–
for members and member organizations • ‘‘Registered Trader’’—a member
and their associated persons with AEMI. Such a quote would be generated
who would be authorized by the rules

respect to AEMI training and the use of according to parameters set by the
of the Exchange to initiate trades while
AEMI technology. Specialist, and would be obligatory if
on the Floor for his or her account.
During the roll-out period for the the Specialist were utilizing an AEMI
AEMI platform, while the Exchange has 38 The Exchange would have to file a proposed ‘‘front-end’’ device to generate quotes.
securities trading on both the legacy and rule change with the Commission for this purpose. This feature would be disabled if quotes
were streamed in from a proprietary not complete the pair-off within three conflicting procedures in current Amex
system.39 seconds, the pair-off session would Rule 108.
• ‘‘Stabilizing quote’’—a non-firm terminate, all messages in the message
quote that would automatically be Rule 109–AEMI. ‘‘Stopping’’ Stock
queue would enter the AEMI Book and
generated by AEMI when auto-ex were would be on parity with the orders that The current ability of a Specialist or
disengaged following a tolerance breach were part of the unsuccessful pair-off other member of the Exchange to agree
or gap trade (see proposed Rule 128A– effort, and the Specialist would have to to ‘‘stop’’ stock at a specified price (i.e.,
AEMI(g)) and no orders existed on the reinitiate the opening pair-off session to to guarantee that the order of the
contra-side of the AEMI Book. Under open the security. The Specialist would member who accepts the stop would be
those circumstances, AEMI would open the security on a quote if there executed at the stop price or better)
automatically publish a quote for one were no bids, offers, or orders in the would not exist under AEMI.
round lot at one tick away from the AEMI Book that were eligible for Consequently, the current language in
price of the automated NBBO on the execution on the open. Amex Rule 109 governing such
contra-side. Once any orders that were in a agreements is not included in proposed
message queue during the opening pair- Rule 109–AEMI, which contains a
Rule 108–AEMI. Priority and Parity at simple prohibition on such
off session were entered into the AEMI
Openings and Reopenings arrangements with respect to any
Book after the opening pair-off had been
Proposed Rule 108–AEMI is an completed, AEMI would attempt to security traded in AEMI. The Exchange
amended version of current Amex Rule automatically pair off any marketable is including in proposed Rules 131A–
108 and provides that orders, bids, and orders from the queue at the opening AEMI(b) and 118–AEMI(j) (see below)
offers must be received by AEMI prior price unless this would cause a trade language that is in current Amex Rule
to the commencement of the opening through of a protected quotation in 109(d) relating to the manner of printing
pair-off in order to participate in that another market center. In the latter case, the close.
pair-off. Orders that were not AEMI would attempt to effect the pair-
represented electronically in the AEMI Rule 110–AEMI. Registered Traders and
off at whichever price would result in Floor Trading
Book would not participate in the the largest trade and would not result in
opening. The proposed new rule, which a trade-through of a protected quotation. The Exchange is proposing Rule 110–
would also apply to reopenings, If such a post-opening pair-off could not AEMI to establish the standards for floor
provides the priority and parity rules be effected or there were orders from the trading by Registered Traders under
(which replace the current priority and message queue that did not participate AEMI, where a Registered Trader is
parity rules) that the AEMI platform in the pair-off, the remaining orders defined as a member who is authorized
would apply to the opening pair-off and from the message queue that entered the by the rules of the Exchange to initiate
also would provide requirements for the AEMI Book would be treated in the trades while on the floor for his or her
execution of market and limited price same manner as incoming orders during account. Under the proposed rule,
orders and for tick sensitive purchases the regular session, including the Registered Traders would be limited to
and short sales. The rule identifies generation of intermarket sweep orders transactions in index warrants, currency
‘‘Must Trade Orders’’ (market orders as required. warrants, securities listed pursuant to
and certain limited price orders treated The Exchange is also replacing the Section 107 of the Amex Company
as market orders) that would have to be Specialist book enhanced splits during Guide (‘‘Other Securities’’), Trust Issued
executed on the opening or reopening parity allocation, with an equal split Receipts, Partnership Units, and
and ‘‘May Trade Orders’’ that are between the book and each crowd derivative products (including ETFs).
eligible, but are not required, to be participant.40 The proposed new rule incorporates
executed on the opening or reopening. The foregoing proposed opening current requirements (see Amex Rule
Orders within each of the two foregoing procedures would replace any 958, Commentary .10) that transactions
groupings would be deemed to be on by Registered Traders in AEMI in index
parity, except that orders on the 40 The allocation split between the in-parity warrants, currency warrants, Other
visible size of (i) public orders on the Specialist Securities, Trust Issued Receipts, and
Specialist Order Book (a subset of the Order Book (including the Specialist’s quote) and
AEMI Book) would be executed in the (ii) Crowd Orders is illustrated in the following
Partnership Units could be effected only
order in which they were received. example. Suppose there are three visible in-parity by Registered Traders who were regular
Further, in the case of ETFs, all public bids for a common stock in the Specialist members, while transactions by
Order Book for a total of 400 shares at $13.00, Registered Traders in AEMI in
customer orders to buy or sell would be which price is at the APQ and the NBB. Also
executed before any broker-dealer assume an in-parity bid by the specialist for 1,000 derivative products could be effected by
orders, bids, or offers on the same side shares at the same price, as well as in-parity Crowd Registered Traders who were regular
of the market. Order bids of 1,000 shares each by Floor Broker A members, Options Principal Members,
and Floor Broker B. If there is an aggressing sell or limited trading permit holders.
The opening pair-off session for a order at the market for 1,000 shares, the total
security, once initiated by the allocation for the in-parity public orders and the
Most of the provisions in proposed
Specialist, would have to be completed specialist bid (which are aggregated and treated as Rule 110–AEMI and its associated
with the Specialist’s selection of the a single participant for computational purposes) is commentary are currently in the
1⁄3 of the 1,000 shares based on two crowd
single opening pair-off price within Exchange’s trading rules (primarily
participants plus the aggregated public/specialist
three seconds. During the opening pair- bids treated as a third participant. The public/ current Amex Rules 111, 950 and 958
off session, incoming orders, bids, specialist bids therefore receive a total of 400 shares and their commentaries), so Registered
offers, cancellations, amendments, and because the system will round up to the nearest Traders would function under
round-lot when computing the allocation to the essentially the same requirements that
other messages would be held in a public orders. Within the public/specialist band,
are currently applicable to them. These
message queue and would not be the Specialist is at the back of the line and must
included in the opening pair-off. The yield to all of the public orders. In this example, provisions are being adapted to the
the three public bids for 400 shares will consume AEMI platform and placed in proposed
rule provides that, if the Specialist did the entire public allocation, leaving none for the
Specialist. The remaining 600 shares are allocated
Rule 110–AEMI for convenience of
39 See supra, under ‘‘Quoting’’ for a discussion to the two Crowd Orders in the amount of 300 reference and to minimize the burden of
and related example of such an emergency quote. shares to each. multiple cross-references. Consequently,
the Exchange will propose that current thereunder with respect to transactions afterward, since he would not have the
Amex Rule 111 be rescinded upon the initiated and effected in AEMI in the same quoting obligations of a Specialist
full implementation of the AEMI capacity of a Registered Trader. This as specified in proposed Rule 170–
platform. could include transactions initiated AEMI(d). In addition, the absence of a
Each Registered Trader electing to from off the floor in the capacity of a quotation from a Registered Trader
engage in transactions in AEMI would Registered Trader if certain ‘‘in-person’’ would not be a basis for a non-
be assigned by the Exchange one or share volume percentage requirements regulatory halt in the related security.
more securities in the aforementioned are met. A Registered Trader who
categories, and transactions in AEMI Rule 118–AEMI. Trading in Nasdaq
establishes or increases a position for an
initiated by such Registered Trader for Securities
account in which he or she has an
any account in which he or she has an interest while on the floor of the Proposed Rule 118–AEMI does not
interest shall, to the extent prescribed Exchange would not retain priority over contain the provision in current Amex
by the Exchange, be in such assigned an off-floor customer order. Rule 118 that allows telephone access to
securities. Registered Trader the Exchange Specialists by Nasdaq
transactions should constitute a course Rule 112–AEMI. Suspension of System market makers and other
of dealings reasonably calculated to Registration of Registered Trader exchanges trading Nasdaq securities
contribute to the maintenance of a fair Proposed Rule 112–AEMI replicates pursuant to Unlisted Trading Privileges
and orderly market, including the the language of current Amex Rule 112 (‘‘UTP’’) because this is incompatible
making of competitive bids and offers as but with cross-references to other AEMI with the way orders would be processed
reasonably necessary and engaging in rules which would contain the by AEMI. Certain outdated requirements
dealings for his or her own account in appropriate provisions being referenced. in current Amex Rule 118 with respect
situations where there is a lack of price to Specialist registration for trading
Rule 115–AEMI. Exchange Procedures
continuity, a temporary disparity Nasdaq securities are also not in the
for Use of Unusual Market Exception
between supply and demand, or a language of proposed Rule 118–AEMI.
temporary distortion of price The Exchange is proposing Rule 115– In addition, the proposed rule has been
relationships for the products in which AEMI which would extend to Registered modified to reflect recent changes to
he or she is trading and any underlying Traders the provisions of current Amex current Amex Rule 118 which provide
securities. Rule 115 that are applicable to that all Nasdaq listed securities are
The proposed rule would establish Specialists with respect to procedures in eligible securities, instead of just the
minimum percentages of share volume the event of an inability to update ‘‘National Market’’ securities.
and number of transactions that a quotes on a timely basis due to a high Under the proposed rule, odd-lot
Registered Trader would have to level of trading activity or the existence orders in Nasdaq securities would be
execute in person and not through the of an unusual market condition. Under executed pursuant to the procedures in
use of orders entrusted to a broker or the proposed new rule, in the event that proposed Rule 205–AEMI, which is
Specialist, and it further would require the Exchange were unable to accurately based on the text of NYSE’s odd-lot rule,
that Registered Traders and Specialists collect, process, and/or disseminate with some modifications. The language
compete with each other to improve the quotation data in one or more securities of current Amex Rule 118 regarding
quoted markets in all securities that owing to the high level of trading odd-lot orders would not be a part of the
they trade. The proposed rule would activity or the existence of unusual proposed rule. Some change from the
recognize, however, that there are market conditions, AEMI would be NYSE rule text is necessary with respect
circumstances in which some required to immediately disable auto-ex to Nasdaq securities in connection with
communication between the Specialist and disseminate the indicator ‘‘N’’ to provisions that utilize an adjusted ITS
and Registered Traders could be indicate that Amex’s quotation, if a bid or offer as an execution price. In
necessary and appropriate, such as trading halt has not been declared and those instances, due to its expected use
making a collective response to a quotations are being published for such of private linkages instead of ITS at the
request for a market, provided that the security or securities, was not firm. time that Regulation NMS takes full
member representing such order A Specialist or Registered Trader effect, Amex would instead use the
requested such response and the size of unable to update his quotation on a ‘‘qualified national best bid’’ or the
the order were larger than the size timely basis due to the high level of ‘‘qualified national best offer’’, defined
disseminated in AEMI. Such a collective trading activity or the existence of an as the highest bid and lowest offer,
response would happen only in the unusual market condition would have respectively, disseminated by the
crowd verbally. For instance, suppose to promptly notify a Floor Official. The Exchange or another market center;
the APQ for an ETF is $3.50 bid for Floor Official, with the involvement of provided, however, that (i) the bid and
3,000 shares and 5,000 shares offered at a member of the Amex regulatory staff, offer in another such market center must
$3.55. If a Floor Broker walks into the would then consult with the Market conform to Exchange requirements for
crowd with an order to buy 20,000 Operations Division of Amex to minimum price variations, (ii) the
shares of the ETF at the market, he determine whether to declare a non- quotation does not result in a locked or
could request a collective quote from regulatory halt in such security or crossed market, (iii) the other market
the specialist/crowd. This verbal securities if the ability of the Specialist center is not having quotation
process would be similar to the auction to promptly communicate quotation dissemination problems, (iv) the bid or
process when auto-ex is enabled, and data were adversely affected. In the offer is firm, and (v) the quotation
the crowd would be required to absence of such a non-regulatory halt, disseminated by the other market center
collectively confirm their verbal incoming orders would continue to is automated.
interest. execute against orders for the security or The Exchange proposes to standardize
A Registered Trader electing to engage securities in the AEMI Book. its closing procedures under AEMI so
in transactions in AEMI under the A Registered Trader unable to publish that the procedures for Nasdaq UTP
proposed rule would be designated as a a quotation in a security could securities would be substantially the
Specialist on the Exchange for purposes withdraw or cancel his quotation and same as for listed stocks. All market-on-
of the Act and the rules and regulations inform the Market Operations Division close (‘‘MOC’’) and limit-on-close
(‘‘LOC’’) orders would have to be the MOC and marketable LOC of this input of bids, offers, and orders,
entered into AEMI by the applicable imbalance at the price of the imbalance AEMI would disseminate the Amex best
deadlines in the proposed rule to trade, if those orders were executable quote, together with the associated
participate in the closing. Orders not based on the order of execution of visible size, to the tape. AEMI would
represented electronically would not orders, bids, and offers on the close, as also disseminate an indicator to the tape
participate. The Exchange proposes to provided in proposed Rule 118–AEMI. whenever the Amex quote is not firm.
accept tick-sensitive MOC and LOC The proposed rule provides 11 A Registered Trader who is not in the
orders for Nasdaq UTP securities to categories that determine the order of crowd for a security would not be
offset imbalances, although tick- execution by AEMI at the close, ranging allowed to submit a bid or offer to AEMI
sensitive MOC and LOC orders whose from market orders (including MOC for that security but could give an order
execution would violate customer orders), which have the highest priority, to a Floor Broker as a Crowd Order or
restrictions or the Commission’s short to buy percentage orders and sell place an order on the Specialist Order
sale rules at the time of publication percentage orders with a limit price Book for the Registered Trader’s
would not be reflected in the closing equal to the closing price, which have account. A Floor Broker who is not in
imbalances.41 The AEMI platform the lowest priority. Certain lower the crowd for a security would not be
would automatically publish all priority stop and percentage orders that allowed to submit a Crowd Order to
imbalances to the tape; however, the are elected would be executed by AEMI AEMI for that security.
Exchange proposes in this rule to make only if there were sufficient interest in Members could make verbal bids and
publication of imbalances optional for AEMI to execute them, and AEMI would offers in the trading crowd, provided
all Nasdaq UTP securities since the execute all customer orders in ETFs in that these bids/offers are deemed
Exchange is not the primary market. these lower priority categories before it withdrawn if not immediately executed.
The closing procedures for Nasdaq executed any broker-dealer orders in Accordingly, verbal bids and offers
UTP securities would change, as these categories. would not be reflected in the published
follows. Currently, the imbalance of References to ‘‘G’’ orders and certain quotation. Because AEMI would not
MOC and marketable LOC orders is other order types that are currently recognize a verbal bid or offer in the
printed against the bid or offer, as the acceptable are not included in proposed crowd, trades executed in AEMI could
case may be. Under AEMI, if there were Rule 118–AEMI and several other trade through a verbal bid/offer without
an imbalance at the close between the proposed rules because these order satisfying it.
buy and sell MOC and marketable LOC types would not be available under The Exchange is also proposing in
orders, the Specialist would, at the close AEMI. In addition, certain current Rule 123–AEMI that Specialists and
or as soon after the close of trading in notification requirements involving Registered Traders be allowed to stream
the security as practicable, execute the paper forms are not being included in bids and offers into AEMI at up to five
imbalance at an auction price under proposed Rule 118–AEMI and other price points, as well as manually
prevailing market conditions that is proposed rules because the information updating their bids and offers in AEMI.
consistent with auction market would be available electronically in In addition, both Specialists and
procedures. The Specialist would AEMI. Registered Traders would be allowed to
conduct the post-trade allocation with automatically generate proprietary bids
Rule 119–AEMI. Indications, Openings
respect to the shares necessary to offset and offers in AEMI (‘‘Auto-Quote’’), and
and Reopenings
the imbalance of buy/sell interest at the the proposed rule specifies the
closing price, and AEMI would then Proposed Rule 119—AEMI tracks the
provisions of current Amex Rule 119 acceptable bases for those Auto-Quotes
send notification of individual trades to
with several additional provisions, (for example, the automated away
active crowd participants (consisting of
including the requirement of mandatory market best bid or offer, with or without
Registered Traders in the crowd with a
dissemination of an indication to the a price adjustment). Registered Traders
bid or offer on the AEMI Book on the
tape prior to an opening, if such could also Auto-Quote based on the best
contra-side of the imbalance and Floor
opening would result in a price change bid or offer published by the Amex.43
Brokers with a crowd order on the
of 10% or more from (1) the last sale Except when auto-ex is disabled, the
contra-side of the imbalance, in each
reported on the Amex, (2) the offering AEMI platform would immediately
case at the time of the trade), as with a
price of the security in the case of an display any regular-way limit order, bid,
regular auction and the associated
priority and parity rules. initial public offering, or (3) the last or offer that would improve or add to
Following the printing of the closing reported sale on a securities market the size of the APQ that is not executed
imbalance, AEMI would print at the from which the security is being upon receipt in the AEMI Book except
same price any paired quantity of MOC transferred. for immediate-or-cancel, fill-or-kill, on-
and LOC orders. The pair-off transaction close, 4 p.m. cash close, or odd-lot
would be reported to the tape with an Rule 123—AEMI. Manner of Bidding orders. AEMI would not display the
appropriate indicator.42 Subsequently, and Offering reserve size of a Crowd Order until it is
AEMI would execute at that same price Proposed Rule 123–AEMI describes in eligible for display.44
stop orders and percentage orders on the detail how the AEMI platform would If AEMI ships an order, bid, or offer
AEMI Book elected by the execution of process bids, offers, and orders. The to an away market to comply with Rule
AEMI platform would accept electronic 611 or Rule 610 of Regulation NMS,
41 Commentary .02 to current Amex Rule 7, the bids and offers from both the Specialist
43 Auto-quoting is a separate function from
Exchange’s rule on short sales, provides that Rule and Registered Traders and include
7 does not apply to transactions on the Exchange streaming in quotes and also from the generation of
in Nasdaq securities pursuant to unlisted trading
them in the AEMI Book. The AEMI an emergency quote. See supra, the discussion of
platform would also accept orders from
privileges under Amex Rule 118. these functions and their relationship under
42 The indicator is intended to alert other market Floor Brokers standing in the crowd ‘‘Quoting.’’ See also infra, a similar discussion
participants that (i) there is trading ahead of limit (‘‘Crowd Orders’’) and other off-floor under ‘‘Rule 170–AEMI.’’
orders, bids, or offers in AEMI; and (ii) such market 44 In Amendment No. 5, the Exchange eliminated
participants with orders, bids, or offers limited to

orders transmitted to AEMI an extraneous reference to passive price
the price of the transaction being reported are not electronically, and would file all such improvement orders because that order type has
eligible to participate in the print. orders in the AEMI Book. On the basis been eliminated from the proposed rule change.
AEMI would: (1) Suspend the shipped publishing a non-firm quote, AEMI certain types of orders. For a listed
order, bid, or offer; and (2) remove (or would disable auto-ex. stock, UTP stock, or closed-end fund:
not incorporate) the suspended order,
Rule 124–AEMI. Types of Bids and • An in-parity specialist bid (offer)
bid, or offer from the Amex quote to the would yield to a public bid (offer).
Offers
extent that it has been shipped. An • A specialist bid (offer) would not
order that has been shipped to another Proposed Rule 124–AEMI contains participate in parity with a crowd bid
market is deemed to have been removed provisions that differ from some of the (offer) if AEMI received a public bid
from the AEMI Book and, consequently, provisions of current Amex Rule 124 (offer) outside the parity joining time.
could not be traded against and could be regarding acceptable types of bids and • If a specialist bid (offer) was or
traded through. If a shipped order were offers under AEMI. The term ‘‘regular would have participated in parity but
returned unexecuted, in whole or part, way’’ has been redefined in the for the submission of one or more public
by the away market, the unexecuted proposed new rule to recognize that the bids (offers) pursuant to the two prior
portion of the suspended order, bid, or normal settlement cycle for a security in bullet points, and all such public bids
offer shall be incorporated or reinserted AEMI can be either cash, next-day, or (offers) are subsequently canceled before
into AEMI and quoted or requoted with the third business day after the day of the next trade in that security, the
the same time stamp priority as it would the contract. specialist bid (offer) would, for the next
have had if it had not been shipped; Rule 126–AEMI. Precedence of Bids and trade, regain the priority and parity
provided, however, that additional Offers status it held or would have held.
intermarket sweep orders shall be Similarly, for an ETF or other equity-
generated as required under Rule 611 of Proposed Rule 126–AEMI sets out the
rules of precedence of bids and offers in traded product that is not a listed stock,
Regulation NMS in connection with the UTP stock, or closed-end fund:
reaggressing of the AEMI Book by the AEMI for equities and ETFs and other
equity-traded securities. The priority • An in-parity broker-dealer bid
unexecuted portion of the suspended (offer) (including that of a specialist)
order. and precedence rules are different
between ETFs and other equity-traded would yield to a public customer bid
A floor member whose order, bid, or (offer) or a crowd customer bid (offer).
offer is incorporated into the APQ securities (listed equities, Nasdaq
stocks, closed-end funds, etc.) because • If a specialist bid (offer) was or
would be deemed by the Exchange to be would have participated in parity but
the responsible broker or dealer for such ETFs are traded more like derivative
products with market makers in the for the submission of one or more public
quote under the Commission’s Firm customer bids (offers) or crowd
Quote Rule. A Floor Broker would be crowd.
Proposed Rule 126–AEMI would customer bids (offers) pursuant to the
responsible for any Crowd Order that he prior bullet point, and all such public
entered into AEMI, even if he leaves the provide that bids (offers) communicated
to AEMI within two seconds (the customer bids (offers) and crowd
crowd without withdrawing the Crowd customer bids (offers) are subsequently
Order. ‘‘parity joining time’’) of (i) the
establishment of a new highest bid canceled before the next trade in that
Automated bids and offers
(lowest offer) in AEMI, (ii) a trade in security, the specialist bid (offer) would,
disseminated through the AEMI
AEMI, or (iii) cancellation of all bids for the next trade, regain the priority
platform would be firm until revised or
(offers) that are at the APQ, would be and parity status it held or would have
withdrawn. Other bids and offers
considered in parity, for purposes of the held.
disseminated through AEMI, such as
next trade, with bids or offers at the A new provision on parity of
when the Exchange is conducting an
same price point remaining in the AEMI refreshed size of reserve orders would
auction or is unable to accurately
Book following any of these three provide that, if an aggressing order
collect, process, and/or make available
events. In the case of the cancellation of exhausts all visible size at a price and
quotations under certain circumstances,
all bids (offers), the participant joining there are two or more reserve orders at
would be non-firm, and AEMI would
time would apply only to the side of the that price at a priority level, the reserve
disseminate a specified indicator
quote on which the cancellation took orders would refresh and the refreshed
whenever the APQ is not firm. The
place. A related provision in proposed sizes of those reserve orders would be
circumstances under which such a non-
Rule 128A–AEMI specifies that bids in parity with each other. In this
firm indicator would be disseminated
(offers) in the AEMI Book would remain situation, AEMI would continue to
are: (1) The Exchange is incapable of
firm following any of the three events execute the aggressing order until all
collecting, processing, and/or making
described above. Bids (offers) at the size resulting from the first refreshment
available quotations in one or more
same price point remaining in the AEMI were exhausted. If the aggressing order
securities due to the high level of
Book following such event would be had not yet been completely filled, the
trading activity or the existence of
considered on parity at that price point reserve orders would refresh again and
unusual market conditions; (2) auto-ex
unless such bids (offers) were revised or the refreshed sizes would again be in
has been disabled due to the breach of
withdrawn. A bid (offer) that is revised parity with each other. (Orders having
a tolerance (as defined in proposed Rule
would lose its priority and parity status ‘‘reserve size’’ are more fully discussed
128A–AEMI(g)), and auto-ex and the
and would be treated as a newly in subparagraph(s) of proposed Rule
dissemination of an automated
submitted bid (offer). A reduction in 131–AEMI.) Once visible size and
quotation have not yet resumed (see
order/quote size would not result in a reserve size at a price were executed by
conditions for auto-ex resumption
loss of parity status. an aggressing contra-order, AEMI would
described in proposed Rule 128A–
The proposed new rule also specifies execute, to the extent possible, portions
AEMI(g)); or (3) a gap quote situation
a number of exceptions to parity for of percentage orders elected by the
exists due to an order imbalance (as
foregoing trade events. Finally,
described in proposed Rule 170–

the latter two circumstances (breach of a tolerance marketable stop and stop limit orders
AEMI(f)).45 In conjunction with of a gapped quote). These quote indicators should would not receive a parity allocation but
not be confused with the indicators A, B, and H,
45 The indicator ‘‘N’’ would be used in connection which are for firm quotes and denote that a market
would be deemed elected by the
with the first of these three circumstances, and the center is not meeting the Regulation NMS definition foregoing trade events only after the
indicator ‘‘U’’ would be used in connection with of an automated market even though auto-ex is on. aggressing order had completed the final
round of the parity allocation process Rule 126–AEMI would list the order of order time priority. AEMI would
with respect to the foregoing categories. priority for various combinations of allocate the remaining amount of the
Proposed Rule 126–AEMI lists the public and crowd customer orders and aggressing order to the individual crowd
order of priority for various public and crowd non-customer (i.e., non-customer orders in parity pursuant
combinations of public and crowd broker-dealer) orders. Once visible to an allocation wheel based on order
orders. For example, in the case of a customer size at a price is exhausted, time priority. Once visible non-
listed stock where there were public AEMI would then allocate any customer in-parity orders are filled in
orders that are in parity (and no public remaining shares to in-parity bids full, the next priority level in AEMI for
orders outside the in-parity time (offers) for the account of non- execution of any remaining balance of
window), the highest execution priority customers. If the Specialist’s quote is in the aggressing order would be the not-
would belong to visible size of public parity with other non-customer bids in-parity Specialist quote and visible
orders (including passive manual (offers), AEMI would calculate the size of public and crowd non-customer
conversion percentage orders), visible allocation to the Specialist using the orders, based on time priority.
size of crowd orders, and the Specialist appropriate percentage from the Replenished reserve size at a price
quote, in parity. The proposed rule Specialist allocation table below, based would not be filled until non-customer
describes the parity allocation process on the number of crowd participants visible size at that price is fully filled,
under a number of scenarios. In the (and counting all of the public non- and AEMI would execute customer
foregoing example, any securities sold customer orders on the AEMI Book as a replenished reserve size before
in execution of an aggressing order single crowd non-customer participant executing any non-customer
would be divided equally (with for this purpose).47 The Specialist replenished reserve size.
rounding as specified in the rule) among would not be required to yield Proposed Commentaries .01 and .02
the Specialist Order Book (which precedence to other non-customer relating to certain floor-based cross
includes all public orders and the orders on the AEMI Book for such ETFs trades involving 5,000 shares or more
Specialist quote) and each of the and other equity-traded securities which have been modified to add certain
individual Floor Brokers representing are not stocks or closed-end funds. additional value and size parameters
the crowd orders. From the quantity and to clarify the application of
allocated to the Specialist Order Book, Number of Specialist Crowd/public precedence under AEMI.48
the individual public orders in parity crowd par- allocation allocation
would be allocated shares in order time ticipants (percent) (percent) Rule 126A–AEMI. Protected Bids and
priority, and the Specialist quote would Offers of Away Markets
1 ................ 60 40
not receive an allocation until all of the 2–4 ............ 40 60 Proposed Rule 126A–AEMI would
in-parity public orders had been filled. 5–7 ............ 30 70 provide for an intermarket sweep order
The allocation of the individual crowd 8–15 .......... 25 75 that Amex believes is consistent with
orders among the Floor Brokers in parity 16+ ............ 20 80 the definition of that term in Regulation
would be accomplished pursuant to an NMS.49 Except under eight specific
‘‘allocation wheel’’ based on order time AEMI would then divide the balance circumstances that are identified in the
priority, until the allocation is of the unfilled aggressing order among proposed rule, AEMI would generate an
exhausted.46 The existing enhanced visible in-parity non-customer orders intermarket sweep order to any away
split for orders on the Specialist’s book based upon the number of members in market displaying an automated bid or
with respect to securities sold in the the crowd representing non-customer offer that is protected under the Order
execution of simultaneous bids (offers) orders (again treating all of the public Protection Rule of Regulation NMS
would be eliminated under the non-customer orders on the AEMI Book simultaneously with the execution of a
proposed rule. as a single crowd non-customer transaction on the Amex that would
With respect to ETFs and other participant for this purpose). From the constitute a trade-through. The
equity-traded securities which are not quantity allocated to public non- circumstances under which intermarket
stocks or closed-end funds, proposed customer orders in parity, the sweep orders would not be generated
individual public non-customer orders include circumstances in which: (1) The
46 An allocation wheel based on time priority in parity would be allocated shares in trade-through transaction was effected
operates in the following manner. For the first
aggressing order on a given day for which none of
when the trading center displaying the
47 The Specialist allocation talbe is the same table
the orders at the price point have participated in that is currently utilzed on the Exchange for the
protected quotation that was traded
such an allocation wheel, the first order to be allocation of options contracts. See Amex Rule 935– through was experiencing a failure,
allocated the lost size would be the visible in-parity ANTE. Although the table is not currently material delay, or malfunction of its
Crowd Order with the highest order time priority applicable to securities traded on the Exchange
in the AEMI Book. AEMI would then work its way systems or equipment; (2) the trade-
other than options, the Exchange believes that its
through the individual Crowd Orders in order time application to ETFs and similar securities is
through transaction was not a ‘‘regular
priority, allocating the lot size to each until the total appropriate. Similar to options, ETFs are traded in way’’ contract; (3) the trade-through
in-parity crowd allocation were exhausted. If this crowds with Registered Traders, and the specialist transaction was a single-priced opening,
allocation had not been exhausted after all of the therefore has to split his participation with these
Crowd Orders had been allocated one lot, the reopening, cash closing, or closing
market makers. In contrast, there are no competing
system would move back to the partially unfilled market makers on the floor in equities. All ETF transaction by the Amex; (4) the trade-
visible inparity Crowd Order with the highest order specialists also have to create and redeem ETF through transaction was executed at a
time priority at the price point and repeat the creation units, and there are attendant expenses time when a protected bid was priced
process. involved that an equity specialist is not obligated
If, during the same day, another allocation wheel
higher than a protected offer in the NMS
to incur. In addition to the obvious fact that ETFs
were required and there were two or more orders are derivatively priced, similar to options, the
48 The additional value and size parameters that
in parity at the price point that had participated in competitive landscape and market structure for
a prior allocation wheel on that day, the first order ETFs differ from that for listed equities, where most will be applicable to floor-based cross trades would
that would be allocated the lot size would be the order routers will go to the primary markets first. not be programmed into the initial version of AEMI.
in-parity Crowd Order have the highest order time Finally, there are a number of other areas in which See supra note 30 for a discussion of the
priority in the prior allocation wheel not to receive the ETF order handling rules differ from listed surveillance and enforcement of these requirements
an allocation in the final round of that allocation equity rules, including the election of stop orders, during the short period that it will take to develop
wheel. See Commentary .04 to this rule for an order types supported, closing procedures, cash these new parameters into a future version of AEMI.
example of the operation of an allocation wheel. closing, and auxiliary opening procedures. 49 See 17 CFR 242.600(b)(30).
stock; (5) the trade-through transaction described in the immediately prior crowd, a bid or offer in AEMI would not
was the execution of an order identified paragraph (including the generation of be deemed accepted by a member
as an intermarket sweep order; (6) at the intermarket sweep orders to other away making a verbal acceptance in the
time Amex effected the trade-through markets, if necessary). Other intermarket trading crowd until the Specialist had
transaction, it simultaneously routed an sweep orders would still continue to be entered a trade into AEMI. Similarly,
intermarket sweep order to execute routed to that particular away market’s trades executed by AEMI could trade
against the full displayed size of any protected quotation in that security. through a verbal bid or offer in the
protected quotation in the NMS stock crowd without satisfying the verbal bid
Rule 127–AEMI. Minimum Price
that was traded through; (7) the trade- or offer. Verbal bids and offers have no
Variations
through transaction was the execution standing in the AEMI Book.
of an order at a price that was not based, For equity-traded securities, the A new auto-ex eligible order, bid, or
directly or indirectly, on the quoted Exchange is proposing in Rule 127– offer would be executed against the
price of the security at the time of AEMI to provide for a minimum price contra-side orders, bids, or offers
execution and for which the material variation of one one-hundredth of a cent residing in the AEMI Book in
terms were not reasonably determinable ($.0001) for quotes and orders 51 priced accordance with the rules of precedence
at the time the commitment to execute below $1.00 per share, as provided for for bids and offers until: (i) Filled in
the order was made; or (8) the trading in Rule 612 (the ‘‘Sub-penny Rule’’) of full; (ii) the size of the orders, bids, or
center displaying the protected Regulation NMS. To the extent that the offers residing in the AEMI Book is
quotation that was traded through had Commission grants an exemption from exhausted; (iii) a Spread or Momentum
displayed, within one second prior to the Sub-penny Rule for a security (e.g., Tolerance for the security is breached;
execution of the trade-through QQQQ) priced above $1.00, the or (iv) a gap trade (as defined below)
transaction, a best bid or best offer, as Exchange would provide for a minimum occurs. Automated execution that
applicable, for the NMS stock with a price variation equal to that set forth in resulted in a trade-through of a
price that was equal or inferior to the the Commission’s exemption order for protected quotation at an away market
price of the trade-through transaction.50 that security. would not occur without such protected
Each outbound intermarket sweep order Rule 128A–AEMI. Automatic Execution quotation being satisfied through the
would be issued as an immediate-or- issuance of an intermarket sweep order,
cancel order but would also carry an This rule being proposed by the unless a valid exception contemplated
expiration delay timer. Exchange governs the auto-ex by Rule 611 of Regulation NMS exists.
The proposed rule also spells out the functionality of the AEMI platform and AEMI would not intentionally publish
actions that the Exchange proposes to would replace existing Amex Rule an automated bid (offer) equal to or
take if an intermarket sweep order were 128A. Under this proposed new rule, higher (lower) than the national best
not filled under several scenarios. Amex AEMI would automatically execute offer (bid) without sending intermarket
would actively monitor all systems round-lot or partial round-lot orders, sweep orders to execute against the full
relating to private linkage at all times to bids, or offers in eligible securities for displayed size of the protected
ensure that systems are functioning regular-way delivery that are received quotations in the away markets.52
correctly. Amex would also ensure that by AEMI electronically following the When a Registered Trader or
the private linkage provider is opening or reopening of a security on Specialist moves his quote to match the
responsible for the active monitoring of the Exchange. Orders that hit the Amex APQ on the other side of the market
APQ would receive immediate fills (and (e.g., a Registered Trader raises his bid
all connections relating to private
notification thereof), and allocations (if to match the offer side of the APQ),
linkage and for providing immediate
any) would follow thereafter. AEMI would automatically execute the
notification regarding system problems. The rule would provide that, for auto-
If AEMI did not receive any response at trade at the price of the APQ for the
ex eligible securities that trade until 4 lesser of the size of the APQ or the size
all to an outbound intermarket sweep p.m., auto-ex would automatically turn
order and assuming that no system of the bid/offer that hit the APQ;
off one second prior to 4 p.m. if there provided, however, that any trade
errors had been detected, AEMI would were any on-close orders in the AEMI
issue a cancellation at the expiration of execution resulting from the Specialist
Book; otherwise it would be turned off moving his quote would have to be
the expiration delay timer. This action at 4 p.m. However, for auto-ex eligible
would release the corresponding order consistent with the requirements of
securities that trade until 4:15 p.m., proposed Rule 170–AEMI.
that had been suspended on the AEMI such as ETFs, auto-ex would
Book pending the response to the AEMI would automatically execute a
automatically turn off one second prior trade when a member used the hit or
intermarket sweep order, and the to 4 p.m. if there were any on-cash-close take functionality of AEMI to initiate an
released order would re-aggress the orders in the AEMI Book and would order against the APQ or otherwise
AEMI Book (including the generation of remain off until the cash close is initiates an order to trade with the bid/
intermarket sweep orders to other away performed. Once the Specialist offer displayed in the APQ. Such an
markets, if necessary). performed the cash close, AEMI would
Finally, in the event that AEMI order could be entered by the member
resume automatic execution. Auto-ex from on or off the floor of the Exchange.
receives a rejection (i.e., a no-fill or would then continue until one second
partial fill cancellation) in response to Members who wish to use the hit or take
prior to 4:15 p.m., at which time it functionality would have to specify the
an outbound intermarket sweep order would automatically turn off if there price and quantity of the hit or take
and the quotation at the away market is were on-close orders in the AEMI Book; order. When a member uses the hit or
not updated, AEMI would release the otherwise it would turn off at 4:15 p.m. take functionality, AEMI would validate
corresponding order that had been While open outcry would still that the specified price is equal to or
suspended on the AEMI Book so that it continue to take place in the trading
could re-aggress the AEMI Book as 52 In Amendment No. 5, the Exchange modified
51 The
language of this sentence, as provided in the last two sentences of this paragraph to clarify
50 Each of these circumstances corresponds to one Amendment No. 4, was revised by Amendment No. that AEMI would not intentionally trade through
of the exceptions listed in Rule 611(b) of Regulation 5 to clarify that Rule 612 of Regulation NMS applies better prices at away markets, unless a valid
NMS. to quotes and orders. exception to Rule 611 exists.
better than the contra-Amex quote and queue that entered the AEMI Book limits specified in proposed Rule 154–
automatically generate a limit order at would be treated in the same manner as AEMI(e)—the ‘‘1%, 2, 1, 1⁄2 point’’ rule
that price. Equity Specialists who use incoming orders during the regular (‘‘gap trade’’);
the hit or take functionality would have session, including the generation of (5) When the Exchange is conducting
to do so in a manner consistent with the intermarket sweep orders as required. the ‘‘cash close’’ pair-off in an ETF (see
requirements of proposed Rule 170– There are six situations in which proposed Rule 131–AEMI, Commentary
AEMI. An order initiated by a member auto-ex would become unavailable for .03); or
using the hit or take functionality would the execution of trades during the (6) When the Exchange has
expire if not immediately executed but regular trading session, as follows: 55 determined that (i) ‘‘unusual market
would be capable of generating (1) Where the automatic execution of conditions’’ exist in one or more
intermarket sweep orders to clear better a single order causes a breach of the securities as described in proposed Rule
away markets before executing on the Spread Tolerance in the security, where 115–AEMI; or (ii) a Senior Floor Official
Amex. the Spread Tolerance is (i) measured determines that the market(s) where
Any quotation in a non-ETF Amex- against the change in price from the first securities trade representing more than
listed security or a non-Nasdaq UTP execution of the incoming order on the 25% of the index value of an ETF are
equity security entered into the AEMI Amex; (ii) based on a table with three experiencing communications or system
platform by the Specialist while auto-ex possible values of the Spread Tolerance, problems, ‘‘unusual market conditions’’
is enabled that would cause the APQ to depending on the price level of the as described in Rule 602 under
be crossed would automatically be security (5 cents for price under $5; 15 Regulation NMS, or delays in the
rejected.53 Any quotation in an ETF or cents for price range $5–15; 25 cents for dissemination of quotes.
a Nasdaq UTP equity security entered price over $15); and (iii) applied Under the proposed rule, members
into the AEMI platform by the Specialist dynamically based on the price of the could not trade in the open outcry
or a Registered Trader while auto-ex is security at the time of the incoming market (other than to consummate an
enabled that would cause the APQ to be order execution; auction trade to remove the conditions
locked or crossed would be (2) Where the automatic execution of that disengaged auto-ex ) while auto-ex
automatically executed.54 For all one or more orders within a 30-second is disabled as a result of any of the
securities, when auto-ex is disabled due window causes a breach of the foregoing circumstances but could enter
to the breach of a Spread or Momentum Momentum Tolerance in the security, and cancel bids, offers, and orders in
Tolerance or a gap trade, orders and meaning that the price of a security, as AEMI during this time.
quotations (with the exception of the a result of trades on the Amex, has In the event of the breach of the
Specialist’s quotation) that enter the moved an amount equal to or more than Spread Tolerance, the Momentum
AEMI Book and are priced better than the greater of 15 cents or 1% within 30 Tolerance, or gap trade tolerance (each
the contra-side of the APQ would seconds (with the high price being being a ‘‘Tolerance’’) for a security,
participate in the auction trade to established with reference to the price auto-ex and the dissemination of an
eliminate the locked or crossed market of the lowest Amex trade in the security automated APQ would be automatically
and would result in the dissemination during the previous 30 seconds and the disabled for an initial period of ten
of an automated APQ. low price being established with seconds. The re-enabling of auto-ex and
Following the termination of a reference to the price of the highest the dissemination of an automated APQ
message queue, the AEMI Book would Amex trade in the security during the would be contingent on the AEMI Book
first process any cancellations or order previous 30 seconds); not being in a locked or crossed
amendments. AEMI then would attempt (3) Where the opening is delayed, condition during, or at the end of, this
to automatically execute any marketable Amex is disseminating a gapped quote initial ten-second time period. The
orders in a message queue at the pair- (see proposed Rule 170–AEMI(f)), or Specialist would be required to pair off
off price unless this would cause a trading is halted in a security; the remainder of an aggressing order
trade-through of a protected quotation, (4) Where a trade in a security other that resulted in a locked or crossed
in which case, AEMI would attempt to than an ETF has exceeded the price AEMI Book to re-enable auto-ex prior to
effect the pair-off at whichever price change parameters of the price change the expiration of the ten-second time
would result in the largest trade and period. The contra-interest applied
would not result in a trade-through of a
55 The Exchange considered including in the list
against the aggressing order in the pair-
of circumstances in which auto-ex would be off would come from marketable orders
protected quotation, provided, however, unavailable the gap pricing parameters directed at
that AEMI would not automatically abusive ‘‘gap elections’’ of stop orders that the on the contra-side of the AEMI Book.
execute orders that accumulated in a Exchange first implemented on a pilot basis in Any portion of the aggressing order that
message queue after the close. If such a 1987. See Securities Exchange Act Release No. is not paired off against marketable
24021 (January 21, 1987), 52 FR 3370 (February 3, orders on the AEMI Book would be
pair-off cannot be effected or there were 1987). Although never formally part of the
orders from the message queue that did Exchange’s rules, the Exchange has nonetheless parity-allocated against the Specialist
not participate in the pair-off, the required its Specialists to adhere to these and/or eligible crowd participants
remaining orders from the message parameters unless Floor Official approval was represented electronically on the contra-
obtained ever since their initial application. side of the AEMI Book. Upon the
However, the Exchange believes that, in the
53 See proposed Rule 170–AEMI, Commentaries
automated AEMI environment, the likelihood that Specialist’s performance of this pair-off,
.01 and .02, regarding the requirements with respect Specialists will engage in abusive ‘‘gap elections’’ AEMI would automatically disseminate
to such quotations entered into the AEMI platform of stop orders will be greatly reduced and it is a new automated APQ. Alternatively,
by the Specialist that would cause the APQ to be therefore not necessary to build these numerical
locked but not crossed.
the Specialist could re-enable auto-ex
parameters into the AEMI platform. This is partly
54 The reason for the disparate treatment of ETFs the result of some protection against this form of prior to the expiration of the ten-second
period through a ‘‘front-end’’ device if
and Nasdaq UTP equity securities is the complexity manipulation in AEMI that will be offered by the
surrounding the short sale ‘‘tick test’’ as it applies ‘‘gap trade’’ provisions of proposed Rule 154– the remainder of the aggressing order (if
to non-ETF Amex-listed securities and non-Nasdaq AEMI(e) in the foregoing list. Those provisions, any) were expired or canceled or the
UTP equity securities. In contrast, the ‘‘tick test’’ is plus the enhanced surveillance capabilities
not applicable to ETFs and Nasdaq UTP equity inherent in the AEMI platform, should provide AEMI Book were not locked or crossed.
securities, and those quotations can be treated in a adequate protection against potential gap election Following the breach of the
much simpler fashion. abuses by Amex Specialists. Tolerance, the remainder of the
aggressing order (if any) would be enter an auction trade into AEMI if he or offer would re-aggress the orders,
reflected in the APQ at the price of the participates in the trade. If the Specialist bids, and offers in the AEMI Book
automated NBBO on the same side were not part of an auction trade, the (including the generation of intermarket
corresponding to the aggressing order member who initiates the trade would sweep orders to away markets, if
(e.g., automated national best bid for an have to report the trade to the Specialist necessary); provided, however, that
aggressing buy order), with the contra- for input into AEMI. Upon input, AEMI intermarket sweep orders generated by a
side of the quote reflecting the best bid, would: (i) Immediately send a report of trade having only a single member on
offer or order in AEMI (both sides being the trade to the tape (less the size of any the buy side and a single member on the
non-firm). If there were no remainder intermarket sweep order(s) to be sell side that are not executed by an
because the aggressing order were immediately sent to away markets); (ii) away market would be automatically
canceled or expired (e.g., it is an IOC execute any bids, offers, or orders on the expired and not executed at the Amex.
order) or were filled upon the breach of AEMI Book that were able to be With respect to intermarket sweep
the Tolerance, the APQ would reflect executed at the price of the auction orders to away markets generated by an
the best bid and offer in the AEMI Book trade; (iii) generate intermarket sweep auction trade, in the event that AEMI (i)
with both sides non-firm. If there were order(s) to away markets; and (iv) does not receive any response to an
no orders left on the contra-side of the disseminate a new automated APQ outbound intermarket sweep order by
AEMI Book, a stabilizing quote would unless auto-ex were already enabled. the time the expiration delay timer has
be generated automatically so that a The Specialist would conduct the post- expired (assuming that no system errors
two-sided non-firm quotation is trade allocation for trades with more have been detected), or (ii) receives a
published, with a round lot at one tick than one contra-side member, and AEMI rejection (i.e., a no-fill or partial fill
away from the price of the automated would then send notification of cancellation) in response to such order
NBBO on the contra-side. individual trades to active crowd and the quotation at the away market is
During the ten-second time period participants (Registered Traders in the not updated, the Exchange would follow
following the breach of the Tolerance, if crowd with a bid or offer on the AEMI the procedures described for such
the Specialist had not resolved the Book on the opposite side of the circumstances in proposed Rule 126A–
locked or crossed AEMI Book along aggressing order and Floor Brokers with AEMI, which would include the release
with AEMI disseminating a new a Crowd Order on the opposite side of of the suspended portion of the order on
automated APQ, incoming orders, the aggressing order, in each case at the the AEMI Book that was represented by
amendments, and cancels would time of the trade) upon the Specialist’s the unexecuted (or partially executed)
continue to enter the AEMI Book but confirmation of the post-trade outbound intermarket sweep order and
would not update the APQ. On the allocation. The requirement that a the re-aggressing of the AEMI Book by
expiration of the ten-second time period Specialist confirm the initial post-trade the released order.
following the breach of the Tolerance, if allocation (which would be an estimate Finally, AEMI would process a cross
the AEMI Book were not locked or computed by AEMI based on assumed executed by a member in the crowd in
crossed, auto-ex and the dissemination participation by all of the active crowd the same manner as other auction
of an automated Amex quote would participants and the Exchange’s priority trades. However, only the member who
resume automatically. If the AEMI Book and parity rules) is to allow the active executed the cross would receive a trade
remained locked or crossed following crowd participants to verbally confirm notification from AEMI in the event that
the expiration of the ten-second period, their participation or non-participation. the cross is not ‘‘broken up’’ at the cross
auto-ex and the dissemination of an Any necessary adjustments by the price by the crowd (verbally) or by
automated quotation would not resume Specialist would result in a reallocation, resting bids, offers, or orders in the
until the Specialist had taken action to also computed by AEMI. If the specialist AEMI Book. Further, a clean agency
pair off the remainder of the aggressing had not confirmed the allocation within cross that satisfies the size and value
order (i.e., to resolve the locked or a three-minute period following the parameters in Commentaries .02 and .03
crossed condition). AEMI would trade, the default allocation would be to proposed Rule 126–AEMI could not
perform a recursive check every AEMI’s estimated allocation to the be broken up at the cross price by the
subsequent ten seconds to determine if Specialist and the active crowd crowd (verbally) or by resting bids,
the locked or crossed condition had participants. The Floor Brokers that are offers, or orders in the AEMI Book, and
been eliminated and, if it had been a party to the auction trade, both on the Specialists and market makers could not
eliminated, auto-ex and the side of the aggressing order and the interfere with such trades. In addition,
dissemination of an automated Amex contra-side, would each have 20 a cross that takes precedence based on
quote would resume automatically.56 seconds following notification by AEMI size (see Commentary .01 to proposed
Rule 128B–AEMI. Auction Trades of their respective individual trades to Rule 126–AEMI) could not be broken up
complete an additional allocation to the at the cross price by resting bids, offers,
This proposed new rule would
existing orders in their hand held or orders in the AEMI Book. In
provide for the integration of auction
terminals. If such a trade allocation executing a cross trade by open outcry,
trades with orders, bids, and offers on
were reported to AEMI more than 20 members would be required to follow
the AEMI Book and away markets. An
seconds later, it would be deemed late the crossing procedures set forth in
auction trade could be (1) a trade
but would still be permitted. proposed Rule 152–AEMI (if a member
executed between or among members on
the Floor by open outcry (which trades If one or more of the intermarket or member organization were taking or
could incorporate orders on the AEMI sweep orders generated by an auction supplying stock to fill a customer’s
Book); or (2) a cross trade executed by trade were unexecuted in whole or in order) or proposed Rule 151–AEMI (in
part by away markets, AEMI would all other situations).
a member on the floor by open outcry.

Under the provisions of the rule, a release the remaining portion of any Rule 128C–AEMI. Locking or Crossing
Specialist would immediately have to order, bid, or offer in AEMI that had Quotations in NMS Stocks
been suspended at the time the
56 See supra, related discussion under intermarket sweep orders were The Exchange is proposing the
‘‘Automated Execution.’’ generated, and the released order, bid, adoption of this new rule which is
based on the Commission’s proposed Exchange could not guarantee that an opportunities for percentage orders with
SRO locking/crossing rule. elected stop order would be executed at respect to securities in AEMI. The
the electing price. Exchange expects that conversions
Rule 131–AEMI. Types of Orders • AEMI would not be programmed to would primarily occur automatically
The Exchange is proposing to create a execute (i) ‘‘company buy-back’’ orders when AEMI is in effect.
number of new order types, as well as in conformity with the ‘‘safe harbor’’ Subparagraph (j) of proposed Rule
to make changes to existing order types, provisions of Commission Rule 10b–18; 154–AEMI contains further regulation
under AEMI, as follows: or (ii) ‘‘stabilizing’’ orders entered concerning the handling and execution
• Alternative or either/or orders pursuant to Rule 104 of Regulation M 57 of percentage orders.
would no longer be accepted on the in connection with purchases of a Another new order type that would be
Exchange. security in distribution; although such accepted in the proposed AEMI
• An ‘‘all or none’’ order would no order types would still be acceptable on platform is a ‘‘reserve order,’’ which is
longer be accepted on the Exchange. the Exchange. a limited price order submitted to AEMI
• An ‘‘immediate-or-cancel’’ order A ‘‘percentage order’’ would continue by a Floor Broker standing in the crowd
received by the AEMI Book would not as an order type under AEMI, and it and which consists of both a visible and
be routed to another market center. would be defined as a public, limited an undisplayed (reserve) size. The
• A buy (sell) limited price order price, round-lot, day order to buy (or reserve size is not included in the APQ.
would be immediately executed in sell) 50% of the Amex volume of a A broker could specify the visible size
AEMI if its limit price were equal to or specified stock after its entry into the of a reserve order subject to a visible
higher (lower) than the best offer (bid) Specialist Order Book, but it could be minimum size established by the
on the Amex. A buy (sell) limited price entered only with ‘‘last sale’’ or buy- Exchange. Following a trade that
order would result in the generation of minus/sell-plus election instructions. executes against the visible size of a
one or more intermarket sweep orders to Only a Floor Broker could enter a reserve order, AEMI would replenish
access protected quotes at away markets percentage order, which is a public the displayed size from the order’s
if its limit price were equal to or higher order for which the Specialist has reserve quantity up to the lesser of the
(lower) than the automated national best agency responsibility. In the case of displayed size or the remainder of the
offer (bid). The unexecuted remainder of ETFs and other equity-traded products reserve size. Only the cumulative size of
a limited price order would be posted that are not listed or UTP stocks or all reserve size at each price point
on the AEMI Book. closed-end funds, the percentage order would be visible to the Specialist. A
• A new intermarket sweep order would have to be on behalf of a Specialist would not be permitted to
would be available, which Amex customer and not a broker-dealer. disclose reserve size in response to a
believes would provide a means to Market circumstances could prevent a market probe by a member or member
satisfy better away market obligations percentage order from buying (or organization or in response to an
consistent with the requirements of selling) this percentage through inquiry from a representative of the
Regulation NMS. election. issuer of the security.
• A ‘‘fill-or-kill’’ order for equity The elected portion of every A new order type that would be
traded securities received in the AEMI percentage order would have to be available to any member is a ‘‘hit or
Book would be canceled automatically executed immediately in whole or in take’’ order, which is an order that
if it could not be executed at the best part at the price of the electing would trade against the APQ and could
price point in the AEMI Book. A ‘‘fill- transaction, or better. Any elected be entered by the member from on or off
or-kill’’ order would not be routed to portion not so executed would revert to the floor of the Exchange. It is an order
another market center. its status as an unelected percentage that expires if not immediately executed
• AEMI would not accept a ‘‘not order and be subject to subsequent but that is capable of generating
held’’ order, although such an order election or conversion. intermarket sweep orders to clear better
type would still be acceptable on the A ‘‘percentage order’’ would be away markets. A hit or take order can
Exchange. automatically converted into an IOC be specified as ‘‘sell short.’’
• A ‘‘good until a specified time’’ order, or manually converted into either AEMI would also accept several types
order would no longer be accepted on an IOC order (active manual conversion) of electronic ‘‘cross orders,’’ but only in
the Exchange. or a regular limit order (passive manual ETFs and Nasdaq securities admitted to
• Other current order types that conversion). The automatically dealings on Amex on an unlisted basis.
would no longer be accepted on the converted portion of every percentage A cross order would be an order
Exchange when AEMI is implemented order would have to be executed submitted by a member or member
are scale orders, switch or contingent immediately in whole or in part at the organization to AEMI with both buy and
orders, and time orders. price of the conversion, or better. Any sell interest specified in a single order.
• ITS commitments to away markets automatically converted portion not so The types of electronic cross orders that
that are irrevocable for a fixed time executed would revert to its status as an would be accepted in AEMI are
period are being retained as a valid unelected percentage order and be designated in proposed Rule 131–AEMI
order type on the Exchange in situations subject to subsequent election or as: (1) Cross, (2) cross only, (3) mid-
where auto-ex is not available. conversion. The Exchange is proposing point cross, (4) IOC cross, (5) PNP cross,
• ‘‘G’’ orders could no longer be to not carry over, in this rule and in and (6) auction cross. The amount of
entered on the Exchange upon the proposed Rule 154–AEMI, the current each of the first five of the foregoing
implementation of AEMI. restriction requiring a 5,000 share cross order types that is executed (if
• Stop and stop limit orders to buy or minimum order size for certain any), the generation of intermarket
sell that are ‘‘too marketable’’ (i.e., conversions, since the average trade size sweep orders to markets displaying
automatically executable with the next at the Amex is substantially less than protected quotes, and the execution
trade) would be rejected, and any and 5,000 shares and the restriction price or prices for the order would
all ETF stop and stop limit orders could significantly limits the execution depend on several factors, including: (1)
be elected by a quotation as provided in The relationship between the cross
proposed Rule 154–AEMI(c). The 57 17 CFR 242.104. price, the automated NBBO and the
APQ; and (2) pre-existing bids, offers, ahead of other limit orders, bids, and the automatic execution of an order, bid,
and orders in the AEMI Book. offers in AEMI at the time of the cash or offer by AEMI against an Amex quote
In the case of an auction cross, the close. that was not firm under one of the three
person entering the cross order would exceptions to the firm quote
have to specify the side(s) of the cross Rule 131A–AEMI. Market on Close
requirement for bids and offers in AEMI
selected for possible price improvement. Policy and Expiration Procedures that are set forth in proposed Rule 123–
AEMI would display the side(s) The closing procedures in proposed AEMI(h). The first exception involves a
specified for possible price Rule 131A–AEMI, which would apply circumstance in which the Exchange is
improvement for a three second to listed stocks and closed-end funds, incapable of collecting, processing, and/
‘‘Auction Cross Duration.’’ The side(s) are somewhat modified from the current or making available quotations in one or
of the cross selected for price procedures in Amex Rule 131A. Most more securities due to the high level of
improvement would have to be importantly, members and member trading activity or the existence of
displayed one minimum trading organizations must enter all MOC and unusual market conditions. The second
increment worse than the proposed LOC orders into AEMI prior to the exception involves a circumstance in
cross price (i.e., the buy side of the cross applicable deadlines in order for them which auto-ex has been disabled due to
would have to be displayed one tick to be eligible to participate in the the breach of a Spread or Momentum
below the proposed cross price and/or closing. Orders entered after the Tolerance or a gap trade, and auto-ex
the sell side of the cross would have to deadline that did not offset a published and the dissemination of an automated
be displayed one tick above the imbalance would be rejected. quote have not yet resumed. The third
proposed cross price). During the three- The closing procedures for listed exception involves a gap quote situation
second Auction Cross Duration, the stocks and closed-end funds under that exists due to an order imbalance.58
displayed order could be price AEMI, as set forth in this rule, would A Floor Official would have the
improved by new bids, offers, or orders basically be the same as those described authority to review the foregoing
entering the AEMI Book. If the cross above under proposed Rule 118–AEMI transactions and make adjustments to
price were equal to or better than the for Nasdaq securities with unlisted the terms accordingly or declare a
automated NBBO and between the APQ trading privileges, including printing transaction null and void. The new rule
at the end of the Auction Cross the close and providing for the would provide that any member who
Duration, AEMI would execute the allocation of the imbalance, as well as seeks to have one or more transactions
auction cross at the cross price; the order of execution of orders, bids, reviewed would have to submit the
otherwise, the order would be canceled and offers in the AEMI Book at the matter to a Floor Official and deliver a
to avoid trading through the automated close. The major difference is in the written complaint to the Service Desk
NBBO or the APQ. If one or both sides calculation of the 3:40 p.m. and 3:50 and the other member(s) who were part
selected for display were executed in p.m. imbalances, where the last Amex of the trade within 30 minutes of the
part during the Auction Cross Duration, sale is used for listed stocks while the transaction. Once a complaint had been
the unfilled balance would continue to consolidated last sale is used for Nasdaq received, the complainant would have
be displayed and would be executed at UTP stocks. up to 30 minutes, or any longer period
the end of the Auction Cross Duration specified by the Floor Official, to submit
at the cross price, and any remainder Rule 132–AEMI. Price Adjustment of any supporting written information
would be canceled at the end of the Open Orders on ‘‘Ex-Date’’ concerning the complaint necessary for
Auction Cross Duration, unless the The After Hours Trading facility on a review of the transaction. Other
order were designated Cross and Post the Amex would not be available under procedural requirements are provided
(‘‘CNP’’), in which case the unexecuted AEMI, and the Exchange is proposing for in the revised rule.
balance of the cross order would be not to carry over any references to the
Rule 150–AEMI. Purchases and Sales
added to the AEMI Book. If a side facility in the Exchange’s current rules,
While Holding Unexecuted Market
selected for display were executed in such as the reference in current Amex
Order
full during the Auction Cross Duration, Rule 132.
the other side of the auction cross order The Exchange is proposing, in Rule
would be canceled unless the order Rule 135–AEMI. Cancellations of, and 150–AEMI, to provide three additional
were designated CNP. AEMI would Revisions in, Transactions Where Both exemptions to the current prohibition
reject auction cross orders if the cross the Buying and Selling Members Agree against a member buying or selling any
price were at the APQ or outside the to the Cancellation or Revision security on the Exchange for his own
automated NBBO. Proposed Rule 135–AEMI would account (or for any account in which he
Finally, proposed Rule 131–AEMI sets differ from current Amex Rule 135 by or his member organization or certain
forth the procedures to be followed for clarifying that a correction to the tape related parties have a direct or indirect
‘‘Market at 4 p.m. cash close’’ orders in would change the calculation of the interest) if the member (or member
Portfolio Depositary Receipts and Index ‘‘tick’’ of the next trade only if the last organization or related party) either: (1)
Fund Shares that trade on the Exchange published trade were the subject of the Holds an unexecuted market order in
until 4:15 p.m. Such market orders correction. that security for a customer, on the same
would be executed at one price (which side of the market; or (2) buys or sells
would be the prevailing bid or offer on Rule 135A–AEMI. Cancellations of, and
that security at a price more favorable
the Exchange, depending on the Revisions in, Transactions Where Both
than that of an unexecuted limited price
imbalance) at 4 p.m., or as soon as the Buying and Selling Members Do Not
order in that security held for a
practicable thereafter. AEMI would not Agree to the Cancellation or Revision
customer on the same side of the
generate an intermarket sweep order to The Exchange is proposing, in Rule market.
an away market displaying a protected 135A–AEMI, a change in its process for The three proposed additional
bid or offer, even if the execution price ‘‘breaking’’ a transaction, or modifying ‘‘trading ahead’’ exemptions are: (1) A
would constitute a trade through. one or more terms of the transaction, in purchase or sale of any security by a
Market at 4 p.m. cash close orders and situations where a transaction is
other market orders would be executed claimed to be erroneous as a result of 58 See proposed Rule 170–AEMI(f).
Specialist where the member or member AEMI is functional. Certain references interfere with the maintenance of a fair
organization entering a percentage order in current Amex Rule 154 to the and orderly market, entry of percentage
has permitted the Specialist to be on Specialist’s role in accepting orders orders could be banned for a given
parity with the order; 59 (2) a purchase would no longer be applicable under security, with Floor Official approval,
or sale of an ETF by a Specialist where AEMI and are not part of the proposed provided this were done before the start
the Specialist is on parity with another new rule. of the trading session.
broker/dealer order pursuant to the Paragraph (a) of proposed Rule 154– • The Specialist could (but is not
Exchange’s rules (e.g., proposed Rule AEMI would provide that a Specialist required to) manually convert (i) a
126–AEMI); or (3) a purchase or sale of could accept only orders, cancellations, percentage order to buy into a regular
any security by a Specialist where the or amendments to orders that are limit order for transactions effected on
order is suspended in whole or part in received by him/her through AEMI and a ‘‘minus’’ or ‘‘zero-minus’’ tick or (ii)
AEMI because it has been sent to could not accept orders, cancellations, a percentage order to sell into a regular
another market. or amendments to orders that were limit order for transactions effected on
handed to him/her in writing or a ‘‘plus’’ or ‘‘zero plus’’ tick (these ticks,
Rule 151–AEMI. ‘‘Open Outcry’’ Cross communicated to him/her verbally. under these circumstances, being
Transactions Paragraph (b) of proposed Rule 154– hereinafter referred to as ‘‘stabilizing
Proposed Rule 151–AEMI would have AEMI would further clarify proposed ticks’’).
a different title from current Amex Rule Rule 131–AEMI with respect to the • AEMI would automatically convert
151 to clarify that the subject matter is types of orders that would be acceptable a percentage order into a regular limit
minimum price variations of trading in under AEMI. It provides that the order to effect a transaction on a
open outcry cross transactions, and following order types, although stabilizing tick when an incoming order
additional language would clarify that acceptable on the Exchange, would not creates a market that meets the values
the rule does not apply to cross orders be accepted by AEMI: Not-held orders, specified by the entering broker for: (i)
entered into AEMI pursuant to proposed company buy back orders with Maximum spread between bid and ask;
Rule 131–AEMI. instructions to adhere to safe harbor (ii) ratio between the Amex published
conditions of Commission Rule 10b- bid size and the Amex published offer
Rule 152–AEMI. Taking or Supplying ndash;18, stabilizing orders, sell orders size; and (iii) size parameters listed in
Stock To Fill Customer’s Order to be executed under SEC Rules 144 and proposed Rule 131–AEMI(m) (i.e.,
Similar to the changes in the 145, and sell orders requiring delivery maximum conversion size per trade and
preceding rule, clauses (i) and (ii) of the ‘‘with prospectus.’’ aggregate maximum conversion amount
proposed Rule 152–AEMI(a)(2) contain Paragraph (c) of proposed Rule 154– for the order).
language that is not in current Amex AEMI would prove that stop and stop • If an entering Floor Broker were to
Rule 152 in order to clarify that their limit orders to buy or sell a security specify that the Specialist could
provisions do not apply to cross orders whose price is derivatively based upon manually convert a percentage order to
entered into AEMI pursuant to proposed another security or index of securities buy or sell into a regular limit order for
Rule 131–AEMI. would automatically be elected by a transactions effected on destabilizing
quotation in the circumstances specified ticks (as defined in current Amex Rule
Rule 153–AEMI. Record of Orders after the order is received in the AEMI 154), this would cause AEMI to
This proposed rule would add Book. The prior approval of a Floor automatically convert the percentage
provisions that are not in current Amex Official would no longer be required. order to effect a transaction on a
Rule 153 that would apply the The paragraph further provides that a destabilizing tick when an incoming
Exchange’s record keeping requirements Specialist would have to obtain a Floor order creates a market that meets the
to proprietary systems of members or Official’s approval before electing a stop values specified on the order.
member firms that are approved by the order by selling stock to the existing bid • Consecutive automatic conversions
Exchange and receive orders on the or buying stock at the existing offer for would not occur until the passage of a
floor. In addition, certain references in his own account, but that such approval specified period of time. This time
the current rule to the After Hours would not be required for ETFs or period is set for a given security, and
Trading Facility, which would no longer Nasdaq securities to which the could be changed only before the start
exist under AEMI, are not included in Exchange had extended unlisted trading of the trading session.
the proposed rule. privileges. Other changes in paragraphs • The 5,000-share minimum order
(d) through (i) of proposed Rule 154– size parameter specified in current
Rule 154–AEMI. Orders in the AEMI AEMI would reflect the fact that certain
Platform Amex Rule 154 with respect to certain
orders would reside on the AEMI Book conversions is not included in the
Proposed Rule 154–AEMI has a rather than being held by the Specialist. proposed rule.60
different title from current Amex Rule Paragraph (j) of proposed Rule 154– • In connection with the 25 cent
154 (which is titled ‘‘Orders Left With AEMI would supplement proposed Rule parameter specified in clauses (4) and
Specialist’’) on which it is based, and 131–AEMI(m) and specify the treatment (7) of paragraph (j) with respect to
contains additional provisions that of percentage orders in AEMI. In certain conversions, this parameter
reflect the treatment of orders when addition to removing references to items could be modified for all percentage
that are not compatible with the orders in a given security with the prior
59 An example of a situation in which a member
electronic handling of these orders by approval of a Senior Floor Official,
who has entered a percentage order might permit AEMI—such as time stamping; orders
the Specialist to be on parity with the order would provided any such change were made
be if the member was attempting to build a being given to, held and handled by the before the start of the trading session.
Specialist; and the use of written
substantial position in a security (or liquidate such Note that an aggressing order could
a position) and simply wanted to trade along with instructions—the following changes to trade with an existing Specialist quote
the Specialist for the day in a passive manner (i.e., the treatment of percentage orders under
without causing price fluctuations). The liquidity and this trade could elect a percentage
provided by the Specialist would be the reason that current Rule 154 are being made:
the member might permit the Specialist to be on • In a situation where the Specialist 60 See discussion above under proposed Rule
parity with the percentage order. believes that percentage orders would 131–AEMI.
order, thereby making the latter eligible order’’ in the current rule is also not Specialist to ‘‘gap the quote’’ when a
for immediate execution. However, if included in the proposed new rule significant order imbalance exists. This
there were no remaining interest from because this order type would no longer could occur as a result of an order
the aggressing order, the elected exist on the Exchange. represented in the crowd or an
percentage order would not participate incoming electronic order that had
Rule 157–AEMI. Orders With More
in the trade, in whole or in part, at the swept the book, disabled auto-ex, and
Than One Broker
price of the electing transaction and left an unmanageable electronic
would revert back to its status as an This proposed rule, whose purpose is imbalance in the security. In such a
unelected percentage order. Such a to prohibit deceptive practices in situation, the Specialist would display
Specialist dealer trade (as well as a relation to competition, would prohibit on the side of the imbalance a bid or
subsequent dealer trade if the a Registered Trader from maintaining a offer equal to the price of the automated
percentage order had not been otherwise Crowd Order with a broker or NBBO on the same side corresponding
re-elected at that time) at the limit price maintaining an order on the Specialist to the order causing the imbalance (e.g.,
of the percentage order would not be Order Book while the Registered Trader the automated national best bid for an
deemed a violation of Amex rules is either bidding or offering for the aggressing buy order) and show the full
prohibiting ‘‘trading ahead’’ of a security in the open outcry market, or is size of the electronic imbalance or the
customer order because the percentage maintaining a bid or offer for the order represented in the crowd (as the
order was not eligible for execution at security in AEMI. case may be). The Specialist would
the time of the Specialist trade. The Commentary to the proposed rule display one round lot for the contra-side
incorporates into the rules a policy size. The price of the contra-side quote
Rule 155–AEMI. Precedence Accorded approved by the Commission 61 and would have to represent the Specialist’s
to Orders Entrusted to Specialists would require that, to ensure fairness in determination of the price at which the
In proposed Rule 155–AEMI, the trading crowds, Registered Traders in a security would trade if no contra-
Exchange is revising the list of joint account could never trade in the interest developed or no cancellations
exceptions to the requirement that a same crowd at the same time. Registered occurred as a result of the gapped
Specialist must give precedence to Traders that have a relationship with quotation. If the gapped quote were the
orders in the Specialist Order Book in the same member organization can, result of an order represented in the
any security in which he is registered however, trade in the same crowd at the crowd, the Floor Broker whose order
before executing at the same price any same time, but only if they had first imbalance had caused the quote to be
purchase or sale in the same security for demonstrated to the Exchange’s gapped would be required to enter his
an account in which he has an interest. satisfaction that they were not order (i.e., the side and size and the
The exceptions to the precedence ‘‘affiliated’’ with one another. However, contra-side quote price) into AEMI
requirement would be: (1) A purchase or if two or more such related Registered immediately. The gapped quote would
sale of any security by a Specialist Traders were to trade in the same crowd be non-firm. After publishing the
where the member or member at the same time, they would be limited gapped quote, the Specialist would be
organization entering a percentage order to the match they could get if there were required to ask a Senior Floor Official or
has permitted the Specialist to be on only two of them in the crowd. Such an Exchange Official to supervise the
parity with the order; (2) a purchase or related Registered Traders who wish to process. A gapped quote shall be
sale of an ETF by a Specialist where the use this exception would have to submit displayed until offsetting interest is
Specialist is on parity with another to the Amex Membership Department received electronically but shall not
broker-dealer order pursuant to complete documentation of their exceed two minutes.63 While the
proposed Rule 126–AEMI; or (3) a relationship to their member quotation is gapped, orders,
purchase or sale of any security by a organization as well as their cancellations, and other messages
Specialist where the order has been relationship to each other and explain would continue to enter AEMI, but
suspended in AEMI because it had been why they believe they are not would not update the APQ and no
sent to another market pursuant to the ‘‘affiliated.’’ In addition, if two trades would occur. In addition, ITS
rules of the Exchange. These same Registered Traders had a relationship commitments received from other
exceptions are discussed above under with the same member organization, but markets during a gapped quote would
proposed Rule 150–AEMI. were not affiliated with each other, be canceled. The Senior Floor Official or
Certain other Specialist obligations in those Registered Traders would not be Exchange Official supervising the
Commentary .03 and .04 of the current permitted to trade in the same crowd at gapped quote process would determine
Amex Rule 155 are not being included the same time if the member whether: (i) To execute the orders
as part of the proposed rule because organization’s share of their profits and/ immediately and terminate the gapped
they would be performed by AEMI. or losses exceeds ‘‘100%’’ of those quote; (ii) to direct the Specialist to
References to orders received by the profits and/or losses.62 maintain the gapped quotation for no
Specialist through the PER and AMOS Rule 170–AEMI. Registration and more than two minutes in order to allow
systems, which would no longer be Functions of Specialists time for contra-side interest to develop
operative, are also not included in the or cancellations to occur; or (iii) to halt
proposed rule. In proposed Rule 170–AEMI, there
trading in the stock. At the end of the
would be a number of changes from
Rule 156–AEMI. Representation of two minutes from the initiation of the
current Rule 170 regarding the
Orders gapped quote, the Specialist, in
registration and functions of Specialists.
consultation with the supervising
This proposed rule would not include A new paragraph (f) would allow a
Senior Floor Official or Exchange
language that is in existing Amex Rule
Official, must either conduct an auction

156 regarding ‘‘at the close’’ orders 61 See Securities Exchange Act Release No. 23145
(April 17, 1986), 51 FR 15564 (April 24, 1986) (File trade and disseminate an automated
because that language is duplicative of
No. SR–Amex–86–9).
language regarding such orders that 62 The language of this entire paragraph, as 63 The language of this sentence, as provided in
would be in proposed Rules 118–AEMI provided in Amendment No. 4, was revised by Amendment No. 4, was revised by Amendment No.
and 131–AEMI. A reference to a ‘‘switch Amendment No. 5. 5.
quotation or trading should be halted in where permitted by the Commission’s his offer is accessed by an aggressing
the stock. short sale rule; buy order.
In connection with the reduction or • The purchase of all or substantially Any selling of stock to the bid on a
liquidation of an existing position in a all of the stock offered on the AEMI direct minus tick or a zero-minus tick,
security in which a Specialist is Book on a zero plus tick, when the stock or the purchasing of stock on the offer
registered by a person or party that is so offered represents all or substantially on a direct plus tick or a zero plus tick
affiliated with the Specialist or all the stock offered in the market; would have to be effected in
Specialist member organization, the • The supplying short of all or conjunction with the Specialist’s re-
new conditions for allowing such orders substantially all the stock bid for on the entry in the market on the opposite side
are that they must: (1) Not be identified AEMI Book on a zero-minus tick where of the market from the liquidating
to the Specialist as being for an account permitted by the Commission’s short transaction, where the imbalance of
in which such persons or party has a sale rule, when the stock so bid for supply and demand indicates that the
direct or indirect interest, and (2) be represents all or substantially all the immediately succeeding transactions
represented by an independent broker. stock bid for in the market; and could result in a lower price (following
Amex believes that these changes are • Failing to re-offer or re-bid where the Specialist’s sale of stock to the bid
necessary because existing restrictions necessary after effecting the transactions on a direct minus tick or a zero-minus
on such liquidations require that the described above. tick) or a higher price (following the
orders be identified as being for an Because of the time delays that are Specialist’s purchase of stock on the
account in which the affiliated person inherent in the process of obtaining offer on a direct plus tick or a zero plus
or party has a direct or indirect interest. Floor Official approval, however, Amex tick).
Under AEMI, such orders would not be Commentary .03 would clarify that a
is adding a provision to Commentary .01
able to be identified to the Specialist. Specialist’s quotation in an ETF or other
of proposed Rule 170–AEMI that would
The Exchange believes that this derivatively priced security should be
allow a Specialist to effect an auto-ex
alternative approach is consistent with such that a transaction effected at his
transaction without the approval of a
the operation of AEMI and provides quoted price or within the quoted
Floor Official in the destabilizing tick spread would bear a proper relation to
adequate safeguards against abuses.
situations described above if he: (i) the value of underlying or related
To facilitate the Specialist’s
Purchases on the Amex Published Bid securities.
continuity responsibility, AEMI would
(which must be equal to his bid) when In addition, Commentary .07 of
automatically update the Specialist’s
his bid is accessed by an aggressing sell proposed Rule 170–AEMI (which would
quote with a Specialist emergency quote
order; or (ii) sells on the Amex not apply to the trading of ETFs or
based on parameters set by the
Published Offer (which must be equal to Nasdaq securities trading UTP on the
Specialist. If a Specialist were
his offer) when his offer is accessed by Exchange) would require that, if a ‘‘net
displaying an automated quote and his
an aggressing buy order. long’’ position were created as a result
mandatory quote were reduced to or
below a configured size, a new quote Commentary .02 of proposed Rule of a Specialist’s maintenance of an
would be automatically generated. This 170–AEMI (which would not apply to investment position in a security in
feature would be disabled if quotes are the trading of ETFs or Nasdaq securities which he is registered while a short
streamed in. Emergency quotes that trading UTP on the Exchange) would position in such security exists in his
were generated as a result of incoming revise, and add more flexibility to dealer account, the Specialist could not
order flow sweeping the AEMI Book (consistent with the new automated cover such a short position by
would be injected into the sweep (if AEMI environment), the restrictions purchasing on the offer in the full-lot
appropriately priced) so that the relating to a Specialist’s transactions for market on a ‘‘plus’’ tick. In addition, he
incoming order could receive price his own account in liquidating or would also have to limit his purchase
improvement.64 decreasing his position in a security in on the offer to no more than 50% of the
Commentary .01 of proposed Rule which he is registered. Unless such security offered on a ‘‘zero plus’’ tick,
170–AEMI (which would not apply to transactions are reasonably necessary in and in no event could he purchase the
the trading of ETFs or Nasdaq securities relation to the Specialist’s overall final full-lot offered. Further, this
trading UTP on the Exchange) would position and the prior approval of a section proposes to remove the
revise, and add more flexibility to Floor Official has been obtained, the stabilizing restriction on assigning stock
(consistent with the new automated Specialist could not liquidate a position to an investment account, since the
AEMI environment), the restrictions by selling stock to the bid on a direct ability to limit destabilizing transactions
relating to a Specialist effecting minus tick or by purchasing stock on would be reduced in the AEMI
transactions for his own account for the the offer on a direct plus tick automated environment.
purpose of establishing or increasing a (equivalent to the restrictions on Finally, proposed Rule 170–AEMI
position. The types of transactions establishing or increasing a position would not contain the language in
prohibited (except when reasonably described in Commentary .01 as Commentary .10 of current Amex Rule
necessary to render the Specialist’s described above). However, for the same 170 relating to Quote Assist, since that
position adequate to the needs of the reason discussed in the preceding facility would be replaced by AEMI.
market; with the approval of a Floor paragraph, the Specialist would be
permitted to effect an auto-ex Rule 174–AEMI. Disclosures by
Official; or under specified market Specialists Prohibited
conditions) would be: transaction without Floor Official
• A purchase on the offer at a price approval in the destabilizing tick Paragraph (b) of current Amex Rule
above the last regular-way trade in the situations described in the prior 174 allows the Specialist, when
sentence if he: (i) Purchases on the requested by a member, member
same trading session, or a sale short to

the bid at a price below the last regular- Amex Published Bid (which must be organization, or representative of the
way trade in the same trading session equal to his bid) when his bid is issuer of the security involved, to
accessed by an aggressing sell order; or disclose to such parties the names of
64 See supra, under ‘‘Quoting’’ for a discussion (ii) sells on the Amex Published Offer buying and selling member
and related example of an emergency quote. (which must be equal to his offer) when organizations in Exchange transactions
unless specifically directed to the into the AEMI Book. The proposed new Rule 206–AEMI. Prohibition of Round-
contrary by the parties involved. rule also contains updated provisions Lot Transactions Merely for Purpose of
Proposed Rule 174–AEMI would make relating to delivery prior to expiration. Establishing Odd-Lot Prices
this disclosure mandatory upon such References to ‘‘odd-lot dealer’’ in
request, except that it would involve Rule 200–AEMI. Odd-Lot Dealer
Registration current Rule 206 would be changed in
only post-trade disclosure for the language of proposed Rule 206–
transactions to which the Specialist Proposed Rule 200–AEMI would AEMI to ‘‘specialist’’, as discussed
were a counterparty due to the fact that, include certain references that differ above under proposed Rule 200–AEMI.
in AEMI, the Specialist would not know from current Amex Rule 200 to reflect The first paragraph of Commentary .01
the entering firm on an order nor the the fact that there would no longer be to the proposed rule would differ from
parties to a trade unless he were a
any separate odd-lot dealers on the the language of the current rule through
counterparty. Comment .01 to current
Exchange and that the Specialist in an the addition of the phrase ‘‘to the bid’’
Amex Rule 174 would then become
equity-traded security is the odd-lot to the restrictive language incorporated
redundant and is not included in
dealer in that security. from the existing rule concerning the
proposed Rule 174–AEMI.
Paragraph (c) of proposed Rule 174– sale of a round-lot as principal on a
Rule 205–AEMI. Manner of Executing minus or zero-minus tick. Similarly, the
AEMI, regarding the disclosure of Odd-Lot Orders
information by the Specialist about the second paragraph of Commentary .01 to
quantity of buying or selling interest in In proposed Rule 205–AEMI, the the new rule would differ from the
the market, would contain provisions Exchange would replace its current language of the current rule through the
that differ from the corresponding approach regarding the execution of addition of the phrase ‘‘on the offer’’ to
provisions of current Amex Rule 174. odd-lot orders (as reflected in Amex the restrictive language incorporated
The proposed new rule would provide Rule 205) with completely new from the existing rule concerning the
that this information also includes the language based on NYSE’s odd-lot rule purchase of a round-lot as principal on
quantity of buying or selling interest on (although not in its entirety), with a plus or zero-plus tick. These changes
the AEMI Book, other than information additional references to AEMI, where would align the restrictions with the
about the reserve (undisplayed) size of appropriate. Additional provisions have changes being made in proposed Rule
reserve orders on the AEMI Book (which been added in subparagraphs (b)(iv) and 170–AEMI regarding the prohibition on
the Specialist must not disclose). The (b)(vi) regarding the use, under certain sales to the bid and purchases on the
same prohibition against disclosure of circumstances, of the ‘‘qualified offer by the Specialist. These changes
undisplayed reserve order size is being national best bid or offer’’ 65 rather than add more flexibility to the existing
made applicable to the dissemination of the adjusted ITS bid or offer as under restrictions, which the Exchange
depth indication by the Specialist. believes is necessary and appropriate for
the current NYSE rule with respect to
the new automated AEMI environment.
Rule 178–AEMI. Responsibility of the execution price of odd-lot market
In addition, language has been added to
Specialist orders not executed within 30 seconds
the proposed new rule to clarify that
of receipt by AEMI, or that are entered
Proposed Rule 178–AEMI, which Commentary .01 does not apply to
within 30 seconds of the close of trading
would address the responsibility of the Specialist transactions in ETFs.66
and not executed prior to the closing
Specialist in responding to member
transaction. Rule 207–AEMI. Limitation on Electing
requests for reports on orders that were,
Existing Commentary in current Odd-Lot Stop Orders
or should have been, executed, is based
on the provisions of current Amex Rule Amex Rule 205 concerning sales References to ‘‘odd-lot dealer’’ in
178, modified to cover orders entered erroneously not printed on the tape is current Amex Rule 207 would be
into AEMI. (Amex Rule 178 currently not being carried over into the proposed changed in the language of the proposed
references only orders given to the rule because odd-lot executions would Rule 207–AEMI to ‘‘specialist’’, as
Specialist.) Proposed Rule 178–AEMI be completely automated under AEMI discussed above under proposed Rule
would provide that a request for a report and the situation envisioned should not 200–AEMI. In the proposed rule, the
and any response thereto would have to occur. Commentary .05 in the new rule phrase ‘‘to the bid’’ is being added to the
be transmitted through AEMI. If a adds a definition of ‘‘qualified national restrictive language incorporated from
request for a report were not transmitted best bid or offer’’ for a security. the existing rule regarding the necessity
to the Specialist though AEMI, it would for prior approval of a Floor Official to
not be deemed to have been given to the 65 The ‘‘qualified national best bid or offer’’ for a allow the Specialist to sell any round lot
Specialist and would be of no force or security is defined as the highest bid and lowest at a price below the last different price,
offer, respectively, disseminated (A) by the and the phrase ‘‘on the offer’’ is being
effect. Several provisions in current Exchange or (B) by another market center; provided,
Amex Rule 178 and the related however, that the bid and offer in another such added to the corresponding restrictive
Commentary regarding paper requests market center would be considered in determining language incorporated from the existing
and reports would no longer be the qualified national best bid or offer in a security rule regarding the purchase of a round
only if (i) the quotation conformed to the lot at a price above the last different
applicable to securities traded in AEMI requirements of proposed Rule 127–AEMI
and are not part of proposed Rule 178– (‘‘Minimum Price Variations’’), (ii) the quotation price. These changes are consistent with
AEMI. did not result in a locked or crossed market; (iii) the changes being made with respect to
the market center were not experiencing operational restrictions in proposed Rules 170–
Rule 179–AEMI. Expiring Equity or system problems with respect to the AEMI and 206–AEMI as discussed
Securities dissemination of quotation information; (iv) the bid
above, adding additional flexibility for
or offer were ‘‘firm,’’ that is, members of the market
The provisions of proposed Rule 179–
center disseminating the bid or offer had not been

AEMI track those of current Amex Rule relieved of their obligations with respect to such bid 66 Specialist transactions in ETFs and Nasdaq
179, except that references relating to or offer under Rule 602(b)(2) of Regulation NMS UTP securities are not subject to the restrictive
pursuant to the ‘‘unusual market’’ exception of Rule provisions of proposed Rule 170–AEMI, so the
orders entered on the Specialist’s book 602(a)(3) of Regulation NMS; and (v) the quotation changes being made to Commentary .01 of proposed
have been changed to reflect the fact disseminated by the other market center is Rule 206–AEMI are not applicable to ETFs and
that orders would henceforth be entered automated. Nasdaq UTP securities.
the Specialist that the Exchange believes in that manner under AEMI. Finally, Commentaries .08 and .09 to Rule
would be necessary and appropriate for several new codes would be added in 1000A would not be included in the
the new automated AEMI environment. the proposed rule for stock transactions language of proposed Rule 1000A–AEMI
with respect to orders directly tied to due to being replaced by the parity
Rule 220–AEMI. Communications to
expiring index-related derivative allocation methodology of proposed
and on the Floor contracts. Rule 126–AEMI. A minimum price
Commentary .04 to proposed Rule variation of $0.0001 for such quotes and
Rule 1000–AEMI. Portfolio Depositary
220–AEMI, concerning the Exchange’s orders 71 priced under $1.00 is being
Receipts
policies on hand-held terminals added as provided for by Regulation
(‘‘HHTs’’), would contain provisions Commentary .04 to proposed Rule NMS. In addition, the proposed rule
that update and extend the provisions 1000–AEMI would not include a would provide that the minimum price
incorporated from current Amex Rule paragraph that is in current Amex Rule variation for quotations and orders in a
220 to cover other means of data 1000 requiring manual input for the security that has been exempted by the
communications technology as well entry of orders, as this requirement Commission from Rule 612 of
(e.g., desktop computers). Proposed would not be compatible with the Regulation NMS would be the minimum
Rule 220–AEMI would provide that operation of AEMI. price variation set forth in the
Registered Traders must develop or Commentary .05 to current Amex Commission’s exemption order for that
secure for use HHTs that would allow Rule 1000 involving facilitation orders security.
them to: (1) Communicate their bids and would not be included in the language
offers to AEMI; (2) execute trades of proposed Rule 1000–AEMI due to Rule 1200–AEMI. Trading of Trust
against orders, bids, and offers in AEMI; those orders being replaced by the Issued Receipts—Rules of General
and (3) receive notifications from the operation of the rules on crossing Applicability
Specialist regarding the Registered orders.68 Similarly, Commentaries .07
and .08 to current Amex Rule 1000 As with current Amex Rules 1000 and
Trader’s post-trade allocation. All clock 1000A, the Exchange is proposing to
sources would have to utilize would not be included in the language
of proposed Rule 1000–AEMI due to the exclude from proposed Rule 1200–
millisecond increments and be AEMI certain language that is in current
synchronized to a Stratum-1 time fact that the current ETF parity and
allocation rules would be replaced by Amex Rule 1200 requiring manual input
source, and the Exchange would use for the entry of orders, due to
industry standard radio frequencies for the parity allocation methodology of
proposed Rule 126–AEMI. A minimum incompatibility with the operation of
the wireless portion of the data AEMI.
communications infrastructure. A new price variation of $0.0001 for such
requirement would be added that quotes and orders 69 priced under $1.00 Rule 1200A–AEMI. Commodity-Based
members and member organizations is being added to the proposed rule as Trust Shares
must ensure that there are sufficient provided for by Regulation NMS.70 In
addition, the proposed rule would As with current Amex Rules 1000 and
firewalls in their systems to ensure that
provide that the minimum price 1000A, the Exchange is proposing to
inappropriate communications are not
variation for quotations and orders in a exclude from proposed Rule 1200A–
sent to the Floor. The current restriction
security that has been exempted by the AEMI certain language that is in current
on image transmission through the data
Commission from Rule 612 of Amex Rule 1200A requiring manual
communications infrastructure would
Regulation NMS would be the minimum input for the entry of orders, due to
be eliminated under the proposed rule
price variation set forth in the incompatibility with the operation of
change. 67 Finally, the Exchange would
Commission’s exemption order for that AEMI.
require members and member
security. Rule 1200B–AEMI. Currency Trust
organizations (and their employees or
approved persons) that have developed Rule 1000A–AEMI. Index Fund Shares Shares
HHTs to maintain a record of any The same substantive changes from
transmissions to or from their HHTs. As with Amex Rules 1000 and 1000A,
the language of current Amex Rule the Exchange is proposing to exclude
Rule 719–AEMI. Comparison of 1000A are being made to proposed Rule from proposed Rule 1200B–AEMI
Exchange Transactions 1000A–AEMI involving Index Fund certain language that is in current Amex
Shares as described above with respect Rule 1200B requiring manual input for
The proposed rule would contain to proposed Rule 1000–AEMI for
several changes in the account-type the entry of orders, due to
Portfolio Depositary Receipts. incompatibility with the operation of
codes from those in the current Commentary .05 to proposed Rule
Exchange rule for equity transactions AEMI.
1000A–AEMI would not include a
that must be submitted as trade data by paragraph that is in current Amex Rule Rule 1500–AEMI. Trading of
each clearing member organization. 1000A requiring manual input for the Partnership Units
Code letter ‘‘A’’, which previously was entry of orders; Commentary .06 to
available for all agency customer As with current Amex Rules 1000 and
current Amex Rule 1000A would not be
accounts, would be available only for 1000A, the Exchange is proposing to
included in the language of proposed
agency non-broker-dealer customer exclude from proposed Rule 1500–
Rule 1000A–AEMI due to the proposed
accounts. Several current codes for AEMI certain language that is in current
rules on crossing orders that would
transactions that result from telephone Amex Rule 1500 requiring manual input
become effective at that time; and
access to UTP Specialists are not being for the entry of orders, due to
included in the proposed rule, since 68 See proposed Rules 126–AEMI, 131–AEMI(r),
incompatibility with the operation of
transactions would no longer originate and 152–AEMI. AEMI.

69 In Amendment No. 5, the Exchange changed
67 An example of an image transmission would be the language of this sentence that the minimum 71 In Amendment No. 5, the Exchange changed
a picture of a written time stamp of an order. The price increments apply to quotes and orders in a the language of this sentence that the minimum
previous restriction was based on bandwidth security. price increments apply to quotes and orders in a
limitations. 70 See proposed Rule 127–AEMI. security.
Company Guide, Section 910–AEMI. C. Self-Regulatory Organization’s 100 F Street, NE., Washington, DC
Relationship With Specialist Statement on Comments on the 20549–1090.
Procedures, Rules and Regulations Proposed Rule Change Received From All submissions should refer to File
Members, Participants or Others Number SR–Amex–2005–104. This file
This section of the Amex Company number should be included on the
No written comments were solicited
Guide deals with the relationship subject line if e-mail is used. To help the
or received by the Exchange on this
between an issuing company and the Commission process and review your
proposal.
Specialist in its securities. Proposed comments more efficiently, please use
Section 910–AEMI contains language III. Date of Effectiveness of the only one method. The Commission will
not in current Section 910 to reflect the Proposed Rule Change and Timing for post all comments on the Commission’s
fact that, under AEMI, orders would be Commission Action Internet Web site (http://www.sec.gov/
transmitted to the Specialist through the Within 35 days of the date of rules/sro.shtml). Copies of the
Exchange’s systems rather than publication of this notice in the Federal submission, all subsequent
manually or by telephone. The proposed Register or within such longer period (i) amendments, all written statements
section would also contain revised as the Commission may designate up to with respect to the proposed rule
language in paragraph (d)(i) regarding 90 days of such date if it finds such change that are filed with the
prohibited disclosure by Specialists to longer period to be appropriate and Commission, and all written
conform to the corresponding publishes its reasons for so finding, or communications relating to the
provisions of proposed Rule 207–AEMI (ii) as to which the Exchange consents, proposed rule change between the
(discussed above). the Commission will: Commission and any person, other than
(A) By order approve the proposed those that may be withheld from the
2. Statutory Basis rule change or public in accordance with the
(B) Institute proceedings to determine provisions of 5 U.S.C. 552, will be
The Exchange believes that the whether the proposed rule change available for inspection and copying in
proposed rule change is consistent with should be disapproved. the Commission’s Public Reference
Regulation NMS, as well as with Section Room. Copies of the filing also will be
6(b) of the Act,72 in general, and furthers IV. Solicitation of Comments
available for inspection and copying at
the objectives of Section 6(b)(5),73 in Interested persons are invited to the principal office of the Exchange. All
particular, in that it is designed to submit written data, views, and comments received will be posted
prevent fraudulent and manipulative arguments concerning the foregoing, without change; the Commission does
acts and practices, to promote just and including whether the proposed rule not edit personal identifying
equitable principles of trade, and, in change, as amended, is consistent with information from submissions. You
general, to protect investors and the the Act. Comments may be submitted by should submit only information that
public interest. any of the following methods: you wish to make available publicly. All
Electronic Comments submissions should refer to File
B. Self-Regulatory Organization’s
Number SR–Amex–2005–104 and
Statement on Burden on Competition • Use the Commission’s Internet should be submitted on or before
comment form (http://www.sec.gov/ August 11, 2006.
The Exchange believes the proposed rules/sro.shtml); or
rule change would impose no burden on • Send an e-mail to rule- For the Commission, by the Division of
competition that is not necessary or comments@sec.gov. Please include File Market Regulation, pursuant to delegated
appropriate in furtherance of the authority.74
Number SR–Amex–2005–104 on the
purposes of the Act. subject line. J. Lynn Taylor,
Assistant Secretary.
Paper Comments [FR Doc. 06–6357 Filed 7–20–06; 8:45 am]
• Send paper comments in triplicate BILLING CODE 8010–01–P
72 15 U.S.C. 78f(b). to Nancy M. Morris, Secretary,
73 15 U.S.C. 78f(b)(5). Securities and Exchange Commission, 74 17 CFR 200.30–3(a)(12).

Notice: Self-Regulatory Organizations Proposed Rule Changes: American Stock Exchange LLC

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Friday,

July 21, 2006

to charge commissions under AEMI for orders that

circumstance in which auto-ex would automatically, provided the AEMI Book

other market centers up to their displayed size. An

program to the staff of the Commission by letter.

Amex-listed securities. Amex is working with the

who would be authorized by the rules

participants with orders, bids, or offers limited to

described in proposed Rule 170–

a member on the floor by open outcry.

Official, must either conduct an auction

same trading session, or a sale short to

center disseminating the bid or offer had not been

transactions would no longer originate and 152–AEMI. AEMI.

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