Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the American Stock Exchange LLC to Rescind Exchange Rule 106

[Federal Register Volume 64, Number 204 (Friday, October 22, 1999)]
[Notices]
[Pages 57167-57168]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27603]



[[Page 57167]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42010; File No. SR-Amex-99-35]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the American Stock Exchange LLC to Rescind Exchange Rule 106

October 14, 1999.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 1, 1999, the American Stock Exchange LLC (``Amex'' or 
`'Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1)
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to rescind Exchange Rule 106, ``Substitute 
Principal,'' in its entirety. The Exchange believes that Rule 106 no 
longer serves any purpose and may allow parties to Exchange contracts 
to break trades without appropriate justification. The text of the 
proposed rule change is available at the Exchange and at the 
Commission.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Items IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    Exchange Rule 106 currently provides that: ``No party to a contract 
shall be compelled to accept a substitute principal unless the name 
proposed to be substituted was declared in, and as part of, the bid or 
offer giving rise to the contract.'' Although the Exchange traces Rule 
106 back to the 1921 Constitution of the New York Curb Market,\3\ a 
predecessor of the Exchange, the Exchange could not determine the 
original purposes of Rule 106. While the original rationale underlying 
Rule 106 is unknown, an exchange member recently invoked Rule 106 to 
attempt to renege on a contract when the member's counterparty 
initially provided an incorrect give-up, and later sought to correct 
the error by substituting the name of the correct clearing member.
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    \3\ Section 7 of Article XXIV of the 1921 Constitution of the 
New York Curb Market stated: ``No party to a contract shall be 
compelled to accept a substitute principal, unless the name proposed 
to be substituted shall be declared in making the offer and as a 
party thereof.''
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    The Exchange believes that Rule 106 is an artifact of another era 
and no longer serves any useful purpose in view of modern comparison 
and settlement facilities. The Exchange further believes that the 
substitution of the National Securities Clearing Corporation as the 
contraside to every compared trade and the clearing corporation 
guarantee obviate any former need that Exchange members may have had to 
maintain control overtrading counterparties. Because Rule 106 may have 
the pernicious effect of permitting parties to Exchange contracts to 
break trades without appropriate justification, the Exchange believes 
that Rule 106 should be deleted in its entirety.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\4\ in general, and furthers the 
objectives of Section 6(b)(5),\5\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices; promote just 
and equitable principles of trade; foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities; remove impediments to and perfect the mechanism of a free 
and open market and a national market system; protect investors and the 
public interest; and is not designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) by order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549-
0609. Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. 20549-0609. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Amex. All submissions should refer to File No. SR-Annex-99-35 and 
should be submitted by November 12, 1999.


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    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 99-27603 Filed 10-21-99 8:45 am]
BILLING CODE 8010-01-M