[Federal Register Volume 62, Number 8 (Monday, January 13, 1997)]
[Notices]
[Pages 1786-1788]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-688]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38123; File No. SR-Amex-96-45]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 Thereto by the American Stock Exchange, Inc.
Relating to the Closing Time for Equity Options and Narrow-Based Index
Options
January 6, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on November 22, 1996, the American Stock Exchange, Inc. (``Amex''
or ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II
and III below, which Items
[[Page 1787]]
have been prepared by the self-regulatory organization. On December 16,
1996, the Exchange filed Amendment No. 1 to its proposal.\3\ 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.
\3\ The proposed rule change submitted by the Exchange would
change the trading close for equity options to 4:02 p.m. Amendment
No. 1 would also change to 4:02 p.m. the trading close for narrow-
based index options. See Letter from Claire P. McGrath, Amex, to
Janice Mitnick, Division of Market Regulation, SEC, dated December
16, 1996 (``Amendment No. 1'').
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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 Rules 1, 903C, 918 and 980C to
provide for the closing of equity option and narrow-based index option
trading at 4:02 p.m.
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 self-regulatory organization
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 IV below. The self-regulatory organization
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
Statutory basis for, the Proposed Rule Change
1. Purpose
Since 1978, equity options have traded until 4:10 p.m., ten minutes
beyond the close of trading of the underlying securities, to allow
investors to trade options based upon the final closing prices of those
underlying securities. In 1978, frequent delays between the time of the
execution of the closing transaction and the appearance of the trade on
the Consolidated Tape Association's Tape A gave rise to time lags that,
in some instances, were as long as seven minutes after the close of
trading at 4:00 p.m. Today, due to improvements in trading and
reporting systems, the dissemination of closing prices is delayed at
most one or two minutes, and only in unusual market conditions are any
significant time lags encountered. Another reason for extending equity
option trading until 4:10 p.m., cited in 1978, was to give options
participants additional time to digest the impact of news announcements
by companies and government agencies who oftentimes released such news
at 4:00 p.m. or shortly thereafter.
While the Exchange expressed reservations regarding the move to
4:10 p.m., it ultimately acceded to the industry's consensus that such
a close was appropriate. Although the Exchange has made efforts to
encourage companies and others to withhold significant news
announcements until after the close of option trading, occasionally
such announcements are released between 4:00 and 4:10 p.m., and
dramatically impact the trading of equity and narrow-based index
options \4\ during that time period. The Exchange has not requested a
change in the trading close for broad-based index options as it does
not believe that a significant news announcement by the issuer of one
component stock in a broad-based index would have a corresponding
effect on the price of that broad-based index.\5\
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\4\ A significant new announcement on one component of a narrow-
based index could have a decisive effect on that index. See
Amendment No. 1.
\5\ Id.
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When instances of significant news releases occur prior to the
close of option trading, the Exchange has observed that public
customers are unable to react as quickly as professional traders, and
accordingly lack the ability to give their brokers instructions or take
action with regard to orders that may have been previously placed on
the limit order book. Further, because the principal market for the
underlying stock is closed, option specialists and market makers have
oftentimes experienced extreme difficulty making orderly options
markets given their inability to hedge or otherwise offset market risk
with transactions in the underlying stock.
Therefore, the Exchange now proposes that at 4:02 p.m., all trading
in equity options and narrow-based index options will cease. No orders
may be entered, modified or canceled in any equity or narrow-based
index option series after 4:02 p.m.
The Exchange believes a 4:02 p.m. closing time for equity options
and narrow-based index options is necessary and appropriate given the
improvements in dissemination of closing prices, and the limited
ability of public customers to react to news announcements and changing
markets in the last ten minutes of trading under the current rule.
However, the Exchange also believes that the additional two minutes of
options trading after the close of trading in the underlying stock will
allow market participants to react, if necessary, to any delayed
dissemination of closing prices.
2. Statutory Basis
The proposed rule change furthers the objectives of Section 6(b) of
the Act in general, and furthers the objectives of Section 6(b)(5) in
particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and is designed to prevent unfair discrimination
between customers, issuers, brokers or dealers.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposed rule change will impose no
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
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 self-regulatory organization 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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 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
[[Page 1788]]
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 Room. 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-96-45 and should be
submitted by February 3, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegate authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 97-688 Filed 1-10-97; 8:45 am]
BILLING CODE 8010-01-M
