October 30, 2000

The Honorable David M. Walker
Comptroller General
U.S. General Accounting Office
441 G Street, N.W.
Washington, D.C. 20548

Dear Mr. Walker:

This is with further reference to my letter of September 18, 2000 regarding a recent Business Week article that questioned the quality of American Stock Exchange (Amex) issuers and, by implication, the application by Amex of its listing and regulatory screening procedures. I asked GAO to update its May 1994 report on Amex’s screening procedures.

I am transmitting copies of the October 20, 2000 responses of the chairmen of the American Stock Exchange and of the Securities and Exchange Commission to assist you in designing your audit.

The Chairman of the Amex writes that "we have taken many steps to improve the quality, integrity and reliability of our marketplace" in the two years since Amex’s acquisition by the NASD. A three-page synopsis attached to his letter discusses the enhancements that have been made to Amex’s initial and continued listing review processes and the regulatory screening process. I commend the Amex for these actions.

However, the Chairman of the SEC has submitted a disturbing memorandum from the directors of the Division of Market Regulation and of the Office of Compliance Inspections and Examinations (OCIE). It reveals that OCIE is in the process of completing an inspection of Amex’s initial and continued listing program, which began several months ago. Among other things, OCIE is examining whether and how often Amex listed companies did not meet Amex’s quantitative guidelines. The directors’ memorandum notes that, from January 1, 2000 to August 31, 2000, Amex advised the SEC that it listed 86 companies, 29 of which did not satisfy the quantitative standards set forth in section 101 of the Amex Company guide. Eleven of these noncomplying companies had previously been quoted on the controversial Over-the-Counter Bulletin Board while 18 were non-OTCBB companies. The directors’ memorandum notes that:

"It would be inconsistent with the purposes of the Exchange Act if an SRO applied its quantitative standards in an inconsistent and arbitrary manner. ... Although OCIE has not completed its inspection, these numbers indicate a need for more consistency in the application of Amex’s quantitative and qualitative listing criteria."

I share the SEC’s concerns and look forward to commencement of GAO’s work on this important market integrity issue.

Sincerely,

JOHN D. DINGELL
RANKING MEMBER

Enclosures

cc: The Honorable Tom Bliley, Chairman
Committee on Commerce

The Honorable Michael G. Oxley, Chairman
Subcommittee on Finance and Hazardous Materials

The Honorable Edolphus Towns, Ranking Member
Subcommittee on Finance and Hazardous Materials

The Honorable Arthur Levitt, Jr., Chairman
Securities and Exchange Commission

Mr. Salvatore F. Sodano, Chairman and CEO
The American Stock Exchange