[Federal Register Volume 62, Number 111 (Tuesday, June 10, 1997)]
[Notices]
[Pages 31638-31643]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15026]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38710; File No. SR-Amex-97-21]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval to Proposed Rule Change and Amendment
Nos. 1 and 2 to the Proposed Change by the American Stock Exchange,
Inc., Relating to the Adoption of Certain Margin Provisions
June 2, 1997.
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 May 21, 1997, the America Stock Exchange, Inc (``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 Amex.
The Amex submitted to the Commission Amendment No. 1 on May 30,
1997,\3\ and Amendment No, 2 on June 2, 1997.\4\ No comments were
received on the proposal. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
As discussed below, the Commission is also granting accelerated
[[Page 31639]]
approval of the proposed rule change and the amendments thereto.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4
\3\ See Letter from Claire P. McGrath, Managing Director and
Special Counsel, Amex, to Ivette Lopez, Assistant Director, Division
of Market Regulation (``Market Regulation''), Commission, dated May
30, 1997 (``Amex Amendment No. 1'').
\4\ See Letter from Claire P. McGrath, Managing Director and
Special Counsel, Amex, to Ivette Lopez, Assistant Director, Division
of Market Regulation, Commission, dated June 2, 1997 (``Amex
Amendment No. 2'').
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to amend its Rule 462 ``Minimum Margin'' to
(1) adopt options margin rules substantially similar to those that have
been in effect under Regulation T (``Regulation T'') of the Board of
Governors of the Federal Reserve System (``Federal Reserve Board'' or
``Board''); (2) conform the Amex margin rule to those margin rules of
the Chicago Board Options Exchange (``CBOE'') and the New York Stock
Exchange (``NYSE''); and (3) correct or clarify certain current
provisions of the margin rule.
The text of the proposed rule change is available at the Office of
the Secretary, Amex and at the Commission.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the 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
Item V 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
The Federal Reserve System's Regulation T, which covers the
extensions of credit by and to brokers and dealers, currently
prescribes margin requirements for options transactions. In April 1996,
the Federal Reserve Board amended Regulation T to delete certain rules
regarding options transactions in favor of rules to be adopted by the
options exchanges and approved by the Commission.\5\ This amendment to
Regulation T became effective June 1, 1997. Therefore, the Exchange
proposes to incorporate certain Regulation T requirements into its
rules so that these requirements will substantially remain in effect
after June 1, 1997. In addition, in the course of amending its rules to
accommodate the changes necessary because of the Regulation T
amendments, the Exchange has found it necessary to propose changes to
its margin rules to conform them with the rules of the CBOE and NYSE,
and also to make clarifying changes to certain existing provisions. The
following is a description of the proposed additions, amendments and
clarification to the Exchange's Rule 462.
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\5\ See 61 FR 20386 (May 6, 1996) (Federal Reserve Board's
release adopting certain changes to Regulation T).
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Rule 642, Paragraph (c)
The Exchange proposes to amend paragraph (c) which sets forth
exceptions to the initial and maintenance margin provisions to (i)
clarify that broker-dealers may require margin in excess of the amounts
specified in these rules; (ii) replace the Amex's provisions on
Exempted Securities with provisions that are consistent with the C and
the NYSE; (iii) adopt a margin treatment for non-convertible debt
securities that is consistent with the CBOE and the NYSE; (iv) amend
the margin requirement for offsets between long and short positions in
the same security from 10% to 5% of the current market value of the
``long'' securities to conform to the CBOE and NYSE provisions; (v)
adopt a treatment for a short equity call option position offset by a
warrant to purchase the underlying security in a customer margin
account (a treatment consistent with a provision of Regulation T and
requiring no margin for the position if the warrant to purchase the
underlying security does not expire on or before the expiration date of
the short call, and if the amount (if any) by which the exercise price
of the warrant exceeds the exercise price of the short call is
deposited in the account); and (vi) adopt a provision that requires
margin be deposited and maintained equal to 100% of the purchase price
of long positions in listed equity options.
Rule 462, Paragraph (d)
The Exchange is proposing to move its existing margin rule
definitions from where they were situated in Rule 462(d) (2) (C) to the
very beginning of Rule 462(d) and amend the definitions of ``current
market value'' and ``current market price'' to cover situations where
there is no closing price or where trading was halted and not reopened
before the normal end of the trading day or where the closing price was
outside the last bid and offer that was established after the closing
price. The Exchange states that, in such situations, a member
organization may use a reasonable estimate of the market value of the
security based upon the then current bids and offers in determining the
``current market value'' of a security, including an option. The
Exchange believes that this will allow member organizations to arrive
at a more reasonable estimate of the current market value in general,
and particularly where the underlying securities may be trading or
quoted in other markets or in cases where the underlying security re-
opens for trading and the options remain closed.
The provisions of subparagraph (D) dealing with the margin
requirements for puts, calls, currency warrants, currency index
warrants and stock index warrants issued, guaranteed or carried
``short'' in a customer's account is remaining the same except that the
treatment of over-the-counter (``OTC'') options has been deleted from
subparagraph (D) because the Exchange is adopting the more extensive
OTC margin provisions of the NYSE. The Exchange is also proposing the
addition of a provision that would cap the margin on listed short puts
that are out-of-the-money at a percentage of the exercise price of the
short put. The reason for this cap is that, under the general rule,
minimum margin is required equal to the options market value plus 10%
of the current market value of the equivalent units of the underlying
security for an option dealt in on the Exchange. However, as the market
value of the underlying security increases above the strike price, at
some point the put becomes farther out-of-the-money and the risk of the
position decreases. Without the cap, the margin requirement would
continue to increase at the same time that the risk of the position is
decreasing.
Rule 462, Paragraph (d)2(J)
The Exchange states that its rules and the rules of other
regulatory organizations have always distinguished the margin treatment
for specialists and market-makers from that applicable to customers and
other broker-dealers because of the unique position of specialists and
market-makers in maintaining liquid, fair and orderly markets. The
rules recognize that options specialists and market-makers must engage
in various hedging transactions to manage the risk involved in
fulfilling their role in the marketplace. Specific provisions governing
permitted offset treatment for specialists and market-makers are being
deleted from Regulation T. The Amex proposes to adopt these deleted
changes. Additionally, the Amex proposes to adopt certain offsets
permitted under the SEC's Net Capital
[[Page 31640]]
Rule 15c3-1.\6\ These offset positions would be subject to the same
``good faith'' margin treatment as currently accorded under Regulation
T and would require the clearing/carrying firm to comply with the
applicable haircut requirements of the Net Capital Rule for any cash
margin deficiency (i.e., the difference between the margin required
under Rule 462 and the amount received from the specialist or market
maker.) The proposal also incorporates the current Regulation T
definitions of the terms ``in or at the money,'' ``in the money'' and
``overlying options.'' the parameters for permitted offsets within the
``in or at the money'' definition have been expanded from one to two
``standard exercise intervals.''
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\6\ See Securities Exchange Act Release No. 38248 (February 6,
1997) 62 FR 6474 (February 12, 1997) (Final rule adopting changes to
SEC Rule 15c3-1).
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Subparagraph (d)2(J) of Rule 462 has been revised in order to
clarify the existing definition of ``good faith margin'' requirements.
Rule 462, Subparagraph (d)2(M)
A new provision has been added to incorporate the provisions
currently contained in Regulation T regarding ``exclusive designation''
that allow a customer to designate which security position in an
account to be utilized to cover the required margin at the time an
option order is entered, provided the member organization offers such a
service.
Rule 462, Subparagraph (d)2(N)
The Exchange is proposing to add a provision detailing the
circumstances under which a customer may carry short equity option in a
cash account, i.e., an account in which no credit is extended. This
provision is consistent with a provision in Regulation T and is being
added so that the Exchange's rules are more complete, thus enabling its
members to rely on such rules for all aspects of margin regulation. The
proposed rule would permit either a call option contract or a put
option contract held in a short position to be carried in a cash
account if the option is uncovered, i.e., if the account contains one
of the specified offsets.
Rule 462, Paragraph (d)10
The rules governing the margin requirements for OTC options have
been adopted from the NYSE Rule 431, except that the Exchange has made
a slight change to cap the minimum margin on OTC short puts. A chart
submitted with the filing sets forth the initial and/or maintenance
margin required for options on various types of underlying securities.
The amount of margin required is the percentage of the current market
value of the underlying component times the multiplier, if any, plus
any ``in the money amount.'' The amount of the margin required to be
maintained may be reduced for a short put or call by any ``out of the
money'' amount. The amount to which the margin required may be reduced
is set forth in a separate column. The Exchange is also proposing to
add margin treatment for related securities positions involving OTC
options held in a customer margin account. The Exchange is proposing to
add special margin treatment for covered write convertibles, covered
calls/puts, spreads, and straddles involving OTC options. The proposed
margin treatment is the same treatment that is set forth in NYSE Rule
431, except for the change to cap the minimum margin on short puts.
Rule 462, Commentary .03(c)
Finally, the Exchange is proposing to change the definition of
``cash equivalents'' found in Commentary .03(c) and defer to the
definition Regulation T since it is expected that the definition in
Regulation T will change from time to time.
(2) Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) that an exchange have rules that are
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to protect and
perfect the mechanism of a free and open market and a national market
system, and in general, to protect investors and the public interest.
The Exchange believes that the proposed rule change is consistent with
Section 6(b)(5) of the Act in that it is designed to promote just and
equitable principles of trade, and is not designed to permit unfair
discrimination between customers, issuers, brokers or dealers.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The Exchange requests that the Commission finds good cause pursuant
to Section 19(b)(2) of the Act for approving the proposed rule change
to its margin rules prior to the 30th day after publication of the
proposed rule change in the Federal Register.
IV. Commission's Findings and Order Granting Accelerated Approval
of Proposed Rule Change
After careful review of the Exchange's proposed amendments to its
margin rules, and for the reasons discussed below, the Commission
believes that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to national securities exchanges, and, in particular, with
the requirements of Section 6(b).\7\ Specifically, the Commission
believes the proposal is consistent with the Section 6(b)(5)
requirements that the rules of an exchange be designed to promote just
and equitable principles of trade, to remove impediments to and perfect
the mechanism of a free and open market and a national market system,
to prevent fraudulent and manipulative acts, and, in general, to
protect investors and the public interest.\8\
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\7\ 15 U.S.C. Sec. 78f(b).
\8\ In approving these rules, the Commission has considered the
proposed rules' impact on efficiency, competition, and capital
formation. 15 U.S.C. Sec. 78c(f).
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Rule 462, Paragraph (c)
The Exchange proposes to amend Rule 462(c) which sets forth
exceptions to the Exchange's initial and maintenance margin provisions
to (i) clarify that broker-dealers may require margin in excess of the
amounts specified in these rules; (ii) replace the Amex's provisions on
Exempted Securities with provisions that are consistent with the CBOE
and NYSE; (iii) adopt a margin treatment for non-convertible debt
securities that is consistent with the CBOE and NYSE; (iv) amend the
margin requirement for offsets between long and short positions in the
same security from 10% to 5% of the current market value of the
``long''
[[Page 31641]]
securities to conform to the CBOE and NYSE provisions; (v) adopt a
treatment for a short equity call option position offset by a warrant
to purchase the underlying security in a customer margin account (a
treatment consistent with a provision of Regulation T \9\ and requiring
no margin for the position if the warrant to purchase the underlying
security does not expire on or before the expiration date of the short
call, and if the amount (if any) by which the exercise price of the
warrant exceeds the exercise price of the short call is deposited in
the account); and (vi) adopt a provision that requires margin be
deposited and maintained equal to 100% of the purchase price of the
long positions in listed equity options.
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\9\ The Exchange notes that provision is consistent with
Regulation T, 12 CFR 220.5 (c)(3)(vi).
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The Commission agrees that maintenance margin rates established by
an Exchange are intended to set minimum margin standards for its member
organizations. The Commission believes that it is appropriate for the
Exchange to clarify that, when appropriate, its members are permitted
to require margin deposits in excess of the Exchange's minimum
requirement. The Commission notes that because maintenance margin rates
are intended to set a minimum margin standard, they should not be
construed as limiting the ability of members of the Exchange to require
margin to be deposited in excess of the minimum when appropriate.
The Exchange's proposed treatment for exempted securities would
generally lower maintenance margin rates for United States debt
securities from the existing 5%, and instead establish margin
requirements of 1% to 6% depending on the years to maturity for the
obligation. However, zero coupon bonds will be subject to a margin
requirement of 3% for bonds with five years or more to maturity, and
all other exempted securities, i.e., other than obligation of the
United States, will be subject to an initial and maintenance margin
requirement of 15% of the current market value or 7% of the principal
amount, whichever is lower.
The Commission notes that the Exchange's proposed margin treatment
for exempted securities is nearly identical to an existing NYSE
provision. When the NYSE adopted its provision, it stated that a
sliding scale would provide greater margin requirements for the more
volatile long-term securities, and reduce margin requirements as
government securities approach maturity to reflect the reduced risk in
carrying those securities. Prior to adopting the proposal, the NYSE had
also conducted an analysis of two-year historical price information for
three Treasury securities of different maturities, a short-,
intermediate-, and long-term instrument, and concluded that the
proposed margin requirements for the more volatile long-term government
instrument would provide at least a 96% confidence level that price
movements over one and two week periods would be covered.\10\
Accordingly, the Commission believes that the proposal by the Amex to
adopt the same margin rates for U.S. obligations as required by the
NYSE is reasonable and should provide member organizations with
adequate protection against adverse short-term market movements of
securities in customer margin accounts. Additionally, the Commission
believes uniform margin rates in this area will enhance efficiency in
the market place for these securities. Nevertheless, the Commission
notes that maintenance margin rates are intended to set a minimum
margin standard and should not be construed as limiting the Exchange's
ability to require margin to be deposited in excess of the minimum
margin when appropriate.
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\10\ See Securities Exchange Act Release No. 24144 (February 27,
1987) 52 FR 7245 (March 9, 1987).
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The proposed treatment of non-convertible debt securities is new to
Rule 462(c). The Exchange does not currently have a margin treatment
specifically applicable to non-convertible debt securities and has
decided to adopt the approach used by the NYSE for the sake of
uniformity and because the Exchange believes that this approach is
sensible. The Commission believes that this proposed revision does not
raise new regulatory issues and, accordingly, is appropriate.
The proposed treatment of security offset is new to Rule 462. The
Exchange is simply adopted a provision that conforms with the
established NYSE Rule 431. At the same time, the Exchange has decided
to reduce the margin for offsetting long and short positions in the
same security from 10% to 5%. Again, this is being done to ensure that
all the options SROs have similar rules.
The proposed treatment for a short listed call covered by a warrant
is new to Rule 462(c) but it is consistent with the current treatment
under Regulation T 12 CFR 220.4(b) and, accordingly, is reasonable.
The proposed treatment for long listed equity options is also new
to Rule 462(c) and its provisions essentially clarify the application
of Regulation T 12 CFR 220.18(a) to such options. Specifically, the
provision confirms that long listed equity options must be fully paid
for at the time of purchase.\11\
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\11\ The Commission notes that the Federal Reserve Board's
recent amendments to Regulation T permit SROs' rules, pursuant to
SEC-approval, to allow the extension of loan value to listed
options. See supra note 5. The current proposal, however, does not
address this issue or otherwise permit the extension of loan value
for long listed options.
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Rule 462, Paragraph (d)
The Exchange is proposing to move the definitions section of Rule
462(d) from after subparagraph 2(C) to the very beginning of Rule
462(d) and amend the definitions of ``current market value'' and
``current market price'' to cover situations where there is no closing
price or where trading was halted and not reopened before the normal
end of the trading day or where the closing price was outside the last
bid and offer that was established after the closing price. The
Commission believes that the amended definition of ``current market
value,'' and ``current market price'' is similar to the definition in
NYSE Rule 431(a)(1) and will provide useful guidance to members
especially in circumstances where trading in a security has been halted
but the OTC market is still open. The Commission believes that the
definition being adopted does not raise new or unique issues.
The Exchange proposes to add a provision that would cap the margin
on listed puts that are out-of-the-money and carried short in a
customer's account at a percentage of the exercise price of the short
put. The reason for this cap is that, under the general rule, minimum
margin is required equal to the options market value plus 10% of the
current market value of the equivalent units of the underlying security
for a listed equity option. As the market value of the underlying
security increases above the strike price, at some point the put
becomes farther out-of-the-money and the risk of the position
decreases. Without the cap, the margin requirement would continue to
increase at the same time that the risk of the position is decreasing.
The Exchange proposes to remedy the anomaly by revising the method
for calculating the minimum margin on short listed puts. Specifically,
the Exchange proposes to substitute the market value of the underlying
instrument with the put's aggregate exercise price. Under this new
method, the minimum requirement is a fixed value and, therefore, an
increasingly higher minimum requirement will not occur as the value of
the underlying rises. The Commission believes this new method for
calculating the minimum
[[Page 31642]]
margin for short listed equity options is reasonable and should result
in adequate margining for the affected positions.\12\
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\12\ The Commission notes that the new minimum margin
requirement should often result in higher margin levels for deep in-
the-money puts. This will occur because the current minimum margin
requirement for a short put is based, in part, on the underlying
instrument's value, an amount that decreases as the put becomes
deeper in-the-money. The new formula corrects this result by
requiring a minimum margin amount based in part on the aggregate
exercise value of the option, an amount that remains constant as the
value of the underlying security decreases in value.
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Rule 462, Paragraph (d)2(J)
The Exchange has also proposed to adopt specific provisions
governing permitted offset treatment for market-makers and specialists
that are being deleted from Regulation T as of June 1, 1997. The
proposed rule sets forth various permitted offset positions which may
be cleared and carried by a member organization on behalf of one or
more market-makers upon a margin basis satisfactory to the concerned
parties (``good faith'' margin). In addition, it requires that the
amount of any deficiency between the equity maintained by the market-
maker and the haircuts specified in SEC Rule 15c-1 shall be considered
as a deduction from net worth in the net capital computation of the
carrying broker.
A permitted offset position will be defined to mean, in the case of
an option in which a market-maker makes a market, a position in the
underlying instrument or other related instrument, and in the case of
other securities in which a market-maker makes a market, a position in
options overlying the securities in which a market-maker makes a
market, if the account holds the following positions: (i) A long
position in the underlying instrument offset by a short option position
which is ``in- or at-the-money;'' (ii) a short position in the
underlying instrument offset by a long option position which is ``in-
or at-the-money;'' (iii) a stock position resulting from the assignment
of a market-maker short option position; (iv) a stock position
resulting from the exercise of a market-maker long position; (v) a net
long position in a security (other than an option) in which a market-
maker makes a market; (vi) a net short position in a security (other
than an option) in which the market-maker makes a market; or (vii) an
offset position as defined in SEC Rule 15c3-1.
The six proposed offsets described in proposed Rule 462(d)2(J) (a)
to (f) codify the existing permitted offsets that were provided under
Regulation T until June 1, 1997. These offsets reflect well-recognized
market-making hedging transactions involving certain options offset
strategies involving the related underlying stock. The addition of Rule
462(d)2(J)(g), allowing any offset position defined under SEC Rule
15c3-1,\13\ constitutes a significant expansion of permitted offset
positions. According to the Exchange, the inclusion of item (g)
recognizes that options market-makers and specialists must engage in
various hedging transactions to manage the risk involved in fulfilling
their role, and, therefore, allows a member organization to clear and
carry market-maker's offset positions as defined in SEC Rule 15c3-1
upon a good faith margin basis. The Exchange has clarified its proposal
to reflect that market-makers are permitted to receive good faith
margin for all permitted offset positions only if they are effected for
market-making purposes such as hedging, reducing the risk of
rebalancing, liquidating open positions of the market-maker,
accommodating customer orders, or another similar market-making
purpose.\14\
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\13\ See supra note 6.
\14\ See Amex Amendment No. 1, supra note 3.
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The Commission believes that the proposal is a reasonable effort by
the Amex to accommodate the needs of Amex market-makers in undertaking
their market-making responsibilities as it recognizes the occasional
need for market-makers to effect transactions in their course of
dealing in options classes for which the marker-maker is not
registered. The Commission believes that this approach will not
adversely affect the depth and liquidity necessary to maintain fair and
orderly markets. The Commission expects Amex clearing firms and other
Amex members that extend margin to market-makers to implement adequate
procedures to ensure that offsets elected by market-makers are recorded
accurately and cleared into appropriate accounts. In addition, such
members should have a reasonable basis for determining that the offset
transactions satisfy the market-making requirements set forth in Amex
Rule 462(d)2(J). The Commission believes that these requirements will
ensure that transactions effected by market-makers and specialists
receiving the offset treatment are in fact directly related to their
market-making function and are not effected for speculative purposes on
a margin basis which should be available only for bona fide market-
making activity.
The Exchange indicates that its proposed definition of ``in- or at-
the-money,'' for purposes of permitted offset transactions, represents
a codification of its long standing practice of permitting the
financing of options market-makers underlying stock positions on a good
faith basis when offset on a share-for-share basis by options which are
``in- or at-the money,'' i.e., where the current market price of the
underlying security is not more than two standard exercise price
intervals below (with respect to a call option) or above (with respect
to a put option) the exercise price of the option. According to the
Exchange, the proposal represents its concurrence with the
recommendation made by the NYSE's Rule 431 Committee, and also
constitutes the Exchange's attempt at conforming its margin rules with
those of the CBOE in order to preserve a uniform treatment within the
option margin system.\15\ At this time, the Commission does not object
to the codification by the Amex of what the Commission believes to be a
longstanding industry practice.
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\15\ The Commission notes that the CBOE asserts that it has
received oral no-action relief from the Federal Reserve Board
permitting the two standard exercise price interval interpretation.
See Securities Exchange Act Release No. 38709 (June 2, 1997).
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Rule 462, Subparagraph (d)2(M)
A new provision has been added to incorporate the provisions
currently contained in Regulation T regarding ``exclusive designation''
that allow a customer to designate which security position in an
account to be utilized to cover the required margin at the time an
option order is entered, provided the member organization offers such a
service. The Exchange indicates that it is simply adopting the
provision as currently found in Regulation T, 12 CFR 220.5(c)(6).
Moreover, the Exchange indicates that the adoption of this provision is
necessary to preserve the ability of ``sophisticated customers'' to
choose and determine the most effective way to use offsetting positions
in their margin accounts.\16\ The Commission believes it is reasonable
for the Exchange to codify this Regulation T provision.
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\16\ See Amendment No. 2 supra note 4.
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Rule 462, Subparagraph (d)2(N)
The Exchange is proposing to add a provision detailing the
circumstances under which a customer may carry short equity option in a
cash account, i.e., an account in which no credit is extended. This
provision is consistent with a provision in Regulation T and is being
added so that the Exchange's rules are more complete, thus enabling its
members to rely on such rules for all aspects of margin regulation. The
proposed rule would permit either a call option contract or a put
option contract
[[Page 31643]]
held in a short position to be carried in a cash account if the option
is covered, i.e., if the account contains one of the specified offsets.
This provision is consistent with Regulation T and is being added
so that the Amex's rule is more complete, thus enabling its members to
rely on such rules for all aspects of margin regulation. The Commission
believes that the proposal is a reasonable effort by the Amex to
accommodate the needs of its market-makers and their customers.
Rule 462, Paragraph (d)10
The Exchange is proposing to add special margin treatment for
covered write convertibles, covered calls/puts, spreads, and straddles
involving OTC options. The proposed margin treatment is the same
treatment that is set forth in NYSE Rule 431, except for the change to
cap the minimum margin on short puts. The cap on the short puts is
being adopted for the same reasons applicable to listed equity options
discussed above. A chart submitted with the filing sets forth the
initial and/or maintenance margin required for options on various types
of underlying securities.
Given the near identical nature of the Amex's proposal to the
NYSE's previously approved proposal, the Commission believes that
adoption of these proposed standards is reasonable. With regard to the
cap on short put positions, the Commission believes the treatment
proposed by the Exchange is also reasonable for the same reasons set
forth regarding the identical treatment for listed positions.
The Exchange is also proposing to add margin treatment for related
securities positions involving OTC options held in a customer margin
account. The proposed treatment of related securities positions in OTC
options also is substantially similar to that of the NYSE and
accordingly does not raise new regulatory issues.\17\ The Commission
also believes that the Exchange's decision to model its margin
treatment for OTC options and related securities positions based on the
NYSE positions should help foster coordination between markets by
achieving parity between the margin requirements of the various SROs.
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\17\ See NYSE Rule 431(f)(2).
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Rule 462, Commentary .03(c)
Finally, the Exchange is proposing to change the definition of
``cash equivalents'' found in Commentary .03(c) and defer to the
definition of Regulation T since it is expected that the definition in
Regulation T will change from time to time. The Commission believes
that by adopting this approach the Exchange's definition of ``cash
equivalent'' will remain current in accordance with Regulation T.
The Commission believes that good cause exist to approve the
proposal, including Amendment Nos. 1 and 2 on accelerated basis prior
to the thirtieth day after the date of publication of the notice of
filing thereof. Certain provisions of Regulation T regarding option
market-makers and specialists permitted offsets have been deleted as of
June 1, 1997. Approval of Amex's substituting offset provisions is
necessary to ensure the continued availability of these offsets. The
other portions of the proposal are nearly identical to proposals
submitted by the CBOE (SR-CBOE-97-17) and NYSE (SR-NYSE-97-01). Those
proposals were noticed in the Federal Register\18\ with no comments
received. The Commission is approving those proposals on the same date
herewith. Amendment Nos. 1 and 2, which are also identical to
amendments filed by the CBOE and NYSE, serve to clarify and strengthen
the proposed rule filing by the Amex.
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\18\ See Securities Exchange Act Release Nos. 38501 (April 14,
1997) 62 FR 19364 (CBOE) and, 38411 (March 17, 1997) 62 FR 14174
(NYSE).
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V. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. 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.
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 at the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such filing will also be available
for inspection and copying at the principal office of the Exchange. All
submissions should refer to File No. SR-Amex-97-21 and should be
submitted by July 1, 1997.
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\19\ that the proposed rule change (SR-Amex-97-21) is hereby
approved.
\19\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 97-15026 Filed 6-9-97; 8:45 am]
BILLING CODE 8010-01-M
