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4738 Federal Register / Vol. 72, No.

21 / Thursday, February 1, 2007 / Notices

immediately list and trade a new Comments should be directed to: R. eighty hours per OTC derivatives
derivative securities product so long as Corey Booth, Director/Chief Information dealer 2 and that the average amount of
such product is in compliance with the Officer, Securities and Exchange time for the annual audit report is 100
criteria of Rule 19b–4(e) under the Act. Commission, C/O Shirley Martinson, hours per OTC derivatives dealer, for a
However, in order for the Commission 6432 General Green Way, Alexandria, total of 180 hours per OTC derivatives
to maintain an accurate record of all Virginia 22312 or send an e-mail to: dealer annually. Thus the staff estimates
new derivative securities products PRA_Mailbox@sec.gov. Comments must that the total number of hours necessary
traded through the facilities of SROs be submitted to OMB within 60 days of for the five OTC derivatives dealers to
and to determine whether an SRO has this notice. comply with the requirements of Rule
properly availed itself of the permission Dated: January 23, 2007. 17a–12 on an annual basis is 900 hours.
granted by Rule 19b–4(e), it is necessary Written comments are invited on: (a)
Florence E. Harmon,
that the SRO maintain, on-site, a copy Whether the proposed collection of
Deputy Secretary. information is necessary for the proper
of Form 19b–4(e) under the Act. Rule
19b–4(e) requires SROs to file a [FR Doc. E7–1582 Filed 1–31–07; 8:45 am] performance of the functions of the
summary form, Form 19b–4(e), and BILLING CODE 8011–01–P agency, including whether the
thereby notify the Commission, within information shall have practical utility;
five business days after the (b) the accuracy of the agency’s estimate
SECURITIES AND EXCHANGE of the burden of the proposed collection
commencement of trading a new
COMMISSION of information; (c) ways to enhance the
derivative securities product. In
addition, the Commission reviews SRO quality, utility, and clarity of the
Proposed Collection; Comment
compliance with Rule 19b–4(e) through information to be collected; and (d)
Request
its routine inspections of the SROs. ways to minimize the burden of the
The collection of information is Upon Written Request, Copies Available collection of information on
designed to allow the Commission to From: Securities and Exchange respondents, including through the use
maintain an accurate record of all new Commission, Office of Filings and of automated collection techniques or
derivative securities products traded Information Services, Washington, DC other forms of information technology.
through the facilities of SROs and to 20549. Consideration will be given to
determine whether an SRO has properly Extension: comments and suggestions submitted in
availed itself of the permission granted Rule 17a–12, SEC File No. 270–442, OMB writing within 60 days of this
by Rule 19b–4(e). Control No. 3235–0498. publication.
The respondents to the collection of Direct your written comments to R.
Notice is hereby given that pursuant Corey Booth, Director/Chief Information
information are self-regulatory to the Paperwork Reduction Act of 1995
organizations (as defined by the Act), Officer, Securities and Exchange
(44 U.S.C. 3501 et seq.), the Securities Commission, C/O Shirley Martinson,
including national securities exchanges and Exchange Commission
and national securities associations. 6432 General Green Way, Alexandria,
(‘‘Commission’’) is soliciting comments VA 22312 or send an e-mail to:
Fourteen respondents file an average on the collection of information
total of 50 responses per year, which PRA_Mailbox@sec.gov. Comments must
summarized below. The Commission be submitted to OMB within 60 days of
corresponds to an estimated annual plans to submit this existing collection
response burden of 50 hours. At an this notice.
of information to the Office of
average cost per burden hour of $239.50, Management and Budget for extension Dated: January 24, 2007.
the resultant total related cost of and approval. Florence E. Harmon,
compliance for these respondents is Rule 17a–12 (17 CFR 240.17a–12) Deputy Secretary.
$11,975 per year (50 burden hours under the Securities Exchange Act of [FR Doc. E7–1583 Filed 1–31–07; 8:45 am]
multiplied by $239.50/hour = $11,975). 1934 (15 U.S.C. 78a et seq.) is the BILLING CODE 8011–01–P
Compliance with Rule 19b–4(e) is reporting rule tailored specifically for
mandatory. Information received in OTC derivatives dealers registered with
response to Rule 19b–4(e) shall not be the Commission, and Part IIB of Form SECURITIES AND EXCHANGE
kept confidential; the information X–17A–5,1 the Financial and COMMISSION
collected is public information. Operational Combined Uniform Single [Release No. 34–55162; File No. SR–Amex–
Written comments are invited on: (a) (‘‘FOCUS’’) Report, is the basic 2006–106]
Whether the proposed collection of document for reporting the financial
information is necessary for the proper and operational condition of OTC Self-Regulatory Organizations;
performance of the functions of the derivatives dealers. American Stock Exchange LLC; Order
agency, including whether the Rule 17a–12 requires registered OTC Granting Approval to Proposed Rule
information will have practical utility; derivatives dealers to file Part IIB of the Change as Modified by Amendment
(b) the accuracy of the agency’s estimate FOCUS Report quarterly. Rule 17a–12 No. 1 Thereto, Relating to the Adoption
of the burden of the collection of also requires that OTC derivatives of a Penny Pilot Program
information; (c) ways to enhance the dealers file audited financial statements
quality, utility, and clarity of the annually. There are currently five January 24, 2007.
information collected; and (d) ways to registered OTC derivatives dealers. The I. Introduction
minimize the burden of the collection of staff does not expect that any additional On November 9, 2006, the American
information on respondents, including firms will register as OTC derivatives Stock Exchange LLC (‘‘Amex’’ or
through the use of automated collection dealers within the next three years. The
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‘‘Exchange’’) filed with the Securities


techniques or other forms of information staff estimates that the average amount and Exchange Commission
technology. Consideration will be given of time necessary to prepare and file the
to comments and suggestions submitted quarterly reports required by the rule is 2 Based upon an average of 4 responses per year
in writing within 60 days of this and an average of 20 hours spent preparing each
publication. 1 Form X–17A–5 (17 CFR 249.617). response.

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Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Notices 4739

(‘‘Commission’’), pursuant to Section price variation for quotations in options (far out months, etc.) while auto-quoting
19(b)(1) of the Securities Exchange Act series that are quoted at $3 per contract the more actively traded series.
of 1934 (‘‘Act’’),1 and Rule 19b–4 or greater is $0.10. Under the Penny • Monitoring. The Amex actively
thereunder,2 a proposed rule change to Pilot Program, beginning on January 26, monitors the quotation activity of its
permit certain option classes to be 2007, market participants would be able market participants. When the Exchange
quoted in pennies on a pilot basis and to begin quoting in penny increments in detects that a market participant is
to adopt a quote mitigation strategy. The certain series of option classes. disseminating significantly more quotes
proposed rule change was published for The Penny Pilot Program would than the average market participant, the
comment in the Federal Register on include the following thirteen options: Exchange contacts the market
November 20, 2006.3 The Commission Ishares Russell 2000 (IWM); NASDAQ– participant and alerts them to
received four comment letters on the 100 Index Tracking Stock (QQQQ); potentially excessive quotation activity.
proposed rule change.4 On January 18, SemiConductor Holders Trust (SMH); Often such monitoring reveals that the
2007, the Exchange filed Amendment General Electric Company (GE); market participant may have internal
No. 1 to the proposed rule change.5 The Advanced Micro Devices, Inc. (AMD), system issues or has incorrectly set
Exchange responded to the comment Microsoft Corporation (MSFT); Intel system parameters. Alerting the market
letters on January 19, 2007.6 This order Corporation (INTC); Caterpillar, Inc. participant usually leads to the market
approves the proposed rule change as (CAT); Whole Foods Market, Inc. participant to take steps to reduce the
modified by Amendment No. 1. (WFMI); Texas Instruments, Inc. (TXN); number of quotes for dissemination.
Flextronics International Ltd. (FLEX); • Holdback Timers. The Amex has
II. Description of the Proposal Sun Microsystems, Inc. (SUNW); and the systematic ability to limit the
A. Scope of the Penny Pilot Program Agilent Technologies, Inc. (A). The dissemination of quotations and other
Exchange will communicate the list of changes to the Amex Best Bid or Offer
Amex proposes to amend its rules to
options to be included in the Penny (‘‘ABBO’’) according to prescribed time
permit certain option classes to be
Pilot Program to its membership via criteria (‘‘Holdback Timer’’). For
quoted in pennies during a six-month
Regulatory Circular. instance, if there is a change in the price
pilot (‘‘Penny Pilot Program’’), which
The minimum price variation for all of a security underlying an option,
would commence on January 26, 2007.
classes included in the Penny Pilot multiple market participants may adjust
Specifically, proposed Commentary .01
Program, except for the QQQQs, would the price or size of their quotes. Rather
to Amex Rule 952 would set forth the
be $0.01 for all quotations in option than disseminating each individual
parameters of the Penny Pilot Program
series that are quoted at less than $3 per change, the Holdback Timer permits the
and note that information concerning
contract and $0.05 for all quotations in Exchange to wait until multiple market
the Penny Pilot Program will be
option series that are quoted at $3 per participants have adjusted their quotes
communicated to members via
contract or greater. The QQQQs would and then to disseminate a new
Regulatory Circular.
be quoted in $0.01 increments for all quotation. This helps to prevent the
Currently, all six options exchanges,
options series. ‘‘flickering’’ of quotations. The Amex
including Amex, quote options in nickel Amex commits to deliver a report to
and dime increments. The minimum proposes to codify the Holdback Timer
the Commission during the fourth in this rule filing. As proposed in Amex
price variation for quotations in options month of the pilot, which would be
series that are quoted at less than $3 per Rule 958A–ANTE, the Exchange will
composed of data from the first three utilize a Holdback Timer that delays
contract is $0.05 and the minimum months of trading. The report would quotation updates for no longer than
1 15 U.S.C. 78s(b)(1).
analyze the impact of penny pricing on one (1) second.
2 17 CFR 240.19b–4. market quality and options system • Delisting. The Amex commits to the
3 See Securities Exchange Act Release No. 54741 capacity. Commission that it will delist options
(November 9, 2006), 71 FR 67176.
B. Quote Mitigation Proposal with an average daily volume (‘‘ADV’’)
4 See letters to Nancy M. Morris, Secretary,
of less than 25 contracts. However, the
Commission, from Wayne Jervis, Managing Member To mitigate quote message traffic, Amex represented to the Commission
of the General Partner, Jervis Alternative Asset Amex has represented to the
Management Co. (‘‘JAAMCO’’), dated December 1, that it has been its policy to be much
2006 (‘‘JAAMCO Letter’’); from Christopher Nagy, Commission that it has already more aggressive in delisting relatively
Chair, Securities Industry and Financial Markets implemented or intends to implement inactive options, thereby eliminating the
Association (‘‘SIFMA’’) Options Committee, dated the following quote mitigation quotation traffic attendant to such
December 20, 2006 (‘‘SIFMA Letter’’); from Peter J. strategies.
Bottini, Executive Vice-President, optionsXpress, listings.
Inc. (‘‘optionsXpress’’), dated November 17, 2006 • Join Quote. The Amex, through the
(‘‘optionsXpress Letter’’); and from Patrick Sexton, ANTE system,7 provides that registered III. Discussion
Associate General Counsel, Chicago Board Options options traders (‘‘ROTs’’) may either After careful review of the proposal,
Exchange, Inc. (‘‘CBOE’’), dated December 12, 2006 stream their own quotes or join the
(‘‘CBOE Letter’’). the comment letters, and the Exchange’s
5 Amendment No. 1 proposed to replace Glamis
specialist’s disseminated quotation in response thereto, the Commission finds
Gold, which was delisted, with Agilent Tech, Inc. some or all of his assigned classes or that the proposed rule change, as
in the list of options classes permitted to be quoted series (‘‘join quote’’). In order to modified by Amendment No. 1, is
in pennies. Amendment No. 1 is technical in participate in ‘‘join quote,’’ a ROT must
nature, and the Commission is not publishing
consistent with the requirements of the
Amendment No. 1 for public comment.
be physically present in the trading Act and the rules and regulations
6 See letter to Nancy Morris, Secretary, crowd. The purpose of allowing ROTs to thereunder applicable to a national
Commission, from Jeffrey P. Burns, Vice President piggyback on specialists’ quotes is securities exchange.8 In particular, the
and General Counsel, Amex, dated January 19, partly to reduce market data traffic by Commission finds that the proposal is
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2007. On January 23, 2007, Amex supplemented its allowing ROTs to join the specialist’s
initial response by providing additional information consistent with Section 6(b)(5) of the
about its Holdback Timer. See letter to Nancy quote in the less actively traded series
Morris, Secretary, Commission, from Jeffrey P. 8 In approving this proposed rule change, the

Burns, Vice President and General Counsel, Amex, 7 SeeSecurities Exchange Act Release No. 49747 Commission has considered the proposed rule’s
dated January 23, 2007 (collectively ‘‘Exchange (May 20, 2004), 69 FR 30344 (May 27, 2004) (SR– impact on efficiency, competition, and capital
Response’’). Amex–2003–89). formation. See 15 U.S.C. 78c(f).

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4740 Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Notices

Act,9 which requires, among other mitigation strategy.12 In particular, more than, one second.15 In further
things, that the rules of an exchange be SIFMA strongly supports the adoption response to inquiry from CBOE, the
designed to promote just and equitable of the Holdback Timer mitigation Amex represented that it does not
principles of trade, to remove proposal as the most efficient means of intend to disclose the precise length of
impediments to and perfect the reducing quotation traffic. SIFMA, the timer to its members, to non-
mechanism of a free and open market however, expressed concern that the members or to the other exchanges.16
and a national market system, and, in lack of uniformity among the quote In addition, CBOE inquired whether
general, to protect investors and the mitigation proposals adopted by the the Holdback Timer will apply only to
public interest. exchanges will impose a burden on market maker quotations and asked the
The Commission believes that the member firms and cause confusion for Exchange to clarify what information
implementation of a limited six-month market participants, especially retail will be delayed by the Holdback Timer.
Penny Pilot Program by Amex and the investors. Amex clarified that the Holdback Timer
five other options exchanges will Although SIFMA urges the adoption will be applied when there is a change
provide valuable information to the of a uniform and comprehensive in the price and/or size of the security
exchanges, the Commission and others approach to quote mitigation, it does not underlying an option. The Exchange
about the impact of penny quoting in oppose Amex’s quote mitigation will wait (for a period up to one second)
the options market. In particular, the proposals. In fact, SIFMA acknowledges until multiple market participants have
Penny Pilot Program will allow analysis that certain of Amex’s proposals, such adjusted their quotes and then will
of the impact of penny quoting on: (1) as notifying members whose quote disseminate a new quotation. The
Spreads; (2) transaction costs; (3) activity suggests systems malfunctions Exchange will apply the Holdback
payment for order flow; and (4) quote or wrong settings and delisting inactive Timer to all data that it sends to
message traffic. series can contribute to quote OPRA.17 Finally, in response to CBOE’s
The Commission believes that the mitigation. SIFMA, however, expressed inquiry regarding the treatment of
thirteen options classes to be included its belief that these proposals do not go incoming marketable orders, Amex
in the penny pilot program represent a far enough to resolve the industry’s indicated that Holdback Timer only
diverse group of options classes with concerns regarding systems capacity. ‘‘addresses the dissemination of quote
varied trading characteristics. This The Commission supports efforts to changes on the Exchange not the
diversity should facilitate analyses by implement a uniform, industry-wide
the Commission, the options exchanges execution of orders.’’18 Therefore,
quote mitigation plan. It does not, incoming marketable orders sent to the
and others. The Commission also however, believe such efforts preclude
believes that the Penny Pilot Program is Exchange will automatically trade
individual exchanges from initiating against Amex’s current internal
sufficiently limited that it is unlikely to their own quote mitigation strategies.
increase quote message traffic beyond quotation that may be delayed during
The Commission does not believe that the one second holdback period.
the capacity of market participants’
Amex’s proposed quote mitigation
systems and disrupt the timely receipt IV. Conclusion
strategies will lead to confusion among
of quote information. Nevertheless,
market participants. It is therefore ordered, pursuant to
because the Commission expects that
Finally, CBOE commented that it did Section 19(b)(2) of the Act,19 that the
the Penny Pilot Program will increase
quote message traffic, the Commission is not have a fundamental objection to proposed rule change (SR–Amex–2006–
also approving the Exchange’s proposal Amex’s use of the Holdback Timer, but 106), as modified by Amendment No. 1,
to reduce the number of quotations it sought additional information be, and hereby is, approved on a six-
disseminates. concerning how the Holdback Timer month pilot basis, which will
In this regard, the commenters functions and how orders sent to Amex commence on January 26, 2007.
expressed concern about Amex’s by CBOE members or by CBOE though
For the Commission, by the Division of
proposed quote mitigation strategy.10 In linkage might be impacted by the
Market Regulation, pursuant to delegated
particular, although optionsXpress Holdback Timer.13 Specifically, CBOE authority.20
generally supported Amex’s Holdback requested additional information about
Florence E. Harmon,
Timer, it expressed concern that a the extent to which the Holdback Timer
is utilized throughout the day and Deputy Secretary.
longer holdback timer period could [FR Doc. E7–1591 Filed 1–31–07; 8:45 am]
negatively impact market quality and whether it is used uniformly in all
undermine transparency in the options option classes traded on Amex. In BILLING CODE 8011–01–P

market.11 response, Amex indicated that it intends


In addition, SIFMA recommends that to use the Holdback Timer uniformly in 15 Telephone conversation between Michael T.

all option classes.14 In addition, the Bickford, Senior Vice President, Amex, and Jennifer
all six of the option exchanges adopt a L. Colihan, Special Counsel, Cyndi N. Rodriguez,
comprehensive and uniform quote Amex committed to apply the Holdback Special Counsel, and Johnna B. Dumler, Special
Timer mechanism throughout the Counsel, Division of Market Regulation,
9 15 U.S.C. 78f(b)(5). trading day for a period of up to, but no Commission, on January 23, 2007.
16 Id.
10 JAAMCO did not comment directly on Amex’s
12 See 17 See Exchange Response, supra note 6.
proposal, but rather stated its strong support for SIFMA Letter, supra note 4.
18 Telephone conversation between Michael T.
quoting in penny increments in the options market, 13 See CBOE Letter, supra note 4.
which it believes will improve inequities in the 14 Telephone conversation between Michael T. Bickford, Senior Vice President, Amex, and Jennifer
marketplace. See JAAMCO Letter, supra note 4. Bickford, Senior Vice President, Amex, and Jennifer L. Colihan, Special Counsel, Cyndi N. Rodriguez,
11 See optionsXpress Letter, supra note 4. L. Colihan, Special Counsel, Cyndi N. Rodriguez, Special Counsel, and Johnna B. Dumler, Special
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OptionsXpress also stated its view that current Special Counsel, and Johnna B. Dumler, Special Counsel, Division of Market Regulation,
problems with the intermarket linkage will be Counsel, Division of Market Regulation, Commission, on January 23, 2007.
19 15 U.S.C. 78s(b)(2).
exacerbated in the option classes participating in Commission, on January 23, 2007. See also
the Penny Pilot Program. Id. Exchange Response, supra note 6. 20 17 CFR 200.30–3(a)(12).

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