[Federal Register Volume 64, Number 15 (Monday, January 25, 1999)]
[Notices]
[Pages 3727-3730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-1607]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40955; File No. SR-Amex-98-47]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the American Stock Exchange,
Inc., Relating to the Listing and Trading of Options on the Internet
Commerce Index
January 19, 1999.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on December
21, 1998, the American Stock Exchange LLC (``Amex'' on ``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.\1\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ On December 21, 1998, the Amex replaced the filing's
original Exhibit B, which lists the component securities of the
Computer Hardware Index, with a new Exhibit B, which lists the
component securities of the Internet Commerce Index. See Letter from
Scott G. Van Hatten, Legal Counsel, Derivative Securities, Amex, to
Yvonne Fraticelli, SEC, dated December 21, 1998. In addition, the
Amex replaced the filing's original cover letter with a new cover
letter indicating that the Amex is filing the proposal pursuant to
Section 19(b)(3)(A) of the Act. See Letter from Scott G. Van Hatten,
Legal Counsel, Derivative Securities, to Richard Strasser, Assistant
Director, Division of Market Regulation (``Division''), SEC, dated
December 18, 1998.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Amex proposes to list and trade European-style, cash-settled
options on the Internet Commerce Index (``Index''), an equal-dollar
weighted, A.M.-settled new index developed by the Amex
[[Page 3728]]
based on the stocks of companies engaged in commerce conducted over the
Internet.\2\ In addition, the Amex proposes to amend Amex Rule 901C,
``Designation of Stock Index Options,'' Commentary .01, to indicate
that 90% of the Index's numerical index value must be accounted for by
stocks which meet the current criteria and guidelines set forth in Amex
Rule 915, ``Criteria for Underlying Securities.'' In addition,
Commentary .01, as amended, indicates that these criteria must also be
satisfied immediately following each quarterly rebalancing.
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\2\ In accordance with the Generic Index Approval Order, the
Amex submitted a pre-filing on December 10, 1998. See Generic Index
Approval Order, infra note 3.
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The Amex is filing their proposal pursuant to Amex Rule 901C,
Commentary .02, which provides for the commencement of trading of
options on the Index 30 days after the date of this filing. The Amex
believes that the proposal meets all of the criteria set forth in Amex
Rule 901C, Commentary .02, and the Commission's order approving Amex
Rule 901C, Commentary .02 (``Generic Index Approval Order'').\3\
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\3\ See Securities Exchange Act Release No. 34157 (June 3,
1994), 59 FR 30062 (June 10, 1994) (order approving File Nos. SR-
Amex-92-35; SR-CBOE-93-59; SR-NYSE-94-17; SR-PSE-94-07; and SR-PHLX-
94-10). The Generic Index Approval Order established generic listing
standards for options on narrow-based indexes and adopted
streamlined procedures for introducing trading in options satisfying
the generic listing standards.
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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 Amex included statements
concerning the purpose of the 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 Amex 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
(a) Purpose
The Amex proposes to trade options on its newly developed Index,
which is based entirely on the shares of companies engaged in commerce
conducted over the Internet. The companies in the Index generate all or
a significant portion of their revenues from commerce conducted over
the Internet or have as a corporate goal the generation of all or a
significant portion of their revenues from commerce conducted over the
Internet. Often the share prices of companies, similar to those in the
Index, that generate all or a significant portion of their revenues
from commerce conducted over the Internet have been relatively
volatile. Accordingly, options on the Index are designed to provide
investors with an investment vehicle to participate in or hedge against
this volatility, and decrease the risk involved in selecting individual
stocks.
The Amex is filing this proposal pursuant to Amex Rule 901C,
Commentary .02, which provides for the commencement of the trading of
options on the Index 30 days after the date of this filing. The Amex
believes that the proposal meets all of the criteria set forth in Amex
Rule 901C, Commentary .02, and in the Generic Index Approval Order.\4\
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\4\ See note 3, supra.
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Eligibility Criteria For Index Components. In accordance with the
requirements of Amex Rule 901C, Commentary .02: (1) each of the
component securities of the Index has a minimum market capitalization
of at least $75 million and has a trading volume in each of the last
six months of not less that 1,000,000 shares; (2) at lease 90% of the
Index's numerical index value and at least 80% of the total number of
component securities meet the current criteria for standardized option
trading set forth in Exchange Rule 915 (in fact, all but one of the
component securities in the Index currently underlie standardized
options); (3) the Index contains no American Depositary Receipts
(``ADRs''); (4) all of the component stocks of the Index are listed on
the Amex or the New York Stock Exchange (``NYSE''), or are traded
through the facilities of the Nasdaq and are reported National Market
securities (``Nasdaq/NNM''); and (5) no component security represents
more than 25% of the weight of the index, and the five highest weighted
component securities in the Index do not in the aggregate account for
more than 60% of the weight of the Index.
Index Calculation. The Index will be calculated using an ``equal-
dollar weighting'' methodology designed to ensure that each of the
component securities is represented in an approximately ``equal''
dollar amount in the Index. The following is a description of the
methodology. As of the market close on December 1, 1998, a portfolio of
stocks were established representing an investment of approximately
$10,000 in the stock (rounded to the nearest whole share) of each of
the companies in the Index. The value of the Index equals the current
market value (i.e., based on U.S. primary market prices) of the sum of
the assigned number of shares of each of the stocks in the Index
portfolio divided by the Index divisor. The Index divisor was initially
determined to yield a benchmark value of 100.00 at the closing of
trading on December 1, 1998.
Maintenance of the Index. The Exchange will maintain the Index in
accordance with Amex Rule 901C, Commentary .02 so that: (1) the Index
is comprised of not less than 10 underlying stocks, and not more than
20 underlying stocks; (2) component stocks constituting the top 90% of
the Index, by weight, will have a minimum market capitalization of $75
million, and the component stocks constituting the bottom 10% of the
Index, by weight, may have a minimum market capitalization of $50
million; (3) 90% of the Index's numerical index value and at least 80%
of the total number of components will meet the then current criteria
for standardized options trading set forth in Amex Rule 915; (4)
foreign country securities or ADRs thereon that are not subject to
comprehensive surveillance agreements will not in the aggregate
represent more than 20% of the weight of the Index; (5) all of the
Index's component stocks will either be listed on the Amex, the NYSE,
or Nasdaq/NNM; (6) no component security of the Index will represent
more than 20% of the weight of the Index, and the five highest weighted
components will not in the aggregate account for more than 60% of the
Index; and (7) the trading volume of each component security shall be
at least 500,000 shares for each of the last six months, or for each of
the lowest weighted components that in the aggregate account for more
than 10% of the weight of the Index, the monthly trading volume may be
at least 400,000 shares for each of the last six months.
The Exchange shall not open for trading any additional option
series if the Index fails to satisfy any of the maintenance criteria
set forth above unless such failure is determined by the Exchange not
to be significant and the Commission concurs in that determination, or
unless the continued listing of Index options has been
[[Page 3729]]
approved by the Commission pursuant to Section 19(b)(2) of the Act.
Rebalancing. Following the close of trading on the third Friday of
February, May, August and November, the Index portfolio will be
adjusted by changing the number of whole shares of each component stock
so that each company is again represented in ``equal'' dollar amounts.
If necessary, a divisor adjustment will be made at the rebalancing to
ensure the continuity of the Index's value. The newly adjusted
portfolio will then become the basis for the Index's value on the first
trading day following the adjustment.
The number of shares of each component stock in the Index portfolio
will remain fixed between quarterly rebalancings except in the event of
certain types of corporate actions such as the payment of a dividend
other than an ordinary cash dividend, stock distribution, stock split,
reverse stock split, rights offering, distribution, reorganization,
recapitalization, or similar event with respect to the component
stocks. In the case of a merger or the consolidation of an issuer of a
component stock, if the stock remains in the Index, the number of
shares of that security in the portfolio may be adjusted to the nearest
whole share to maintain the component's relative weight in the Index at
the level immediately prior to the corporate action. In the event of a
stock addition or replacement, the average dollar value of the
remaining portfolio components will be calculated and that amount
invested in the stock of the new component, to the nearest whole share.
In all cases the divisor will be adjusted, if necessary, to ensure
Index continuity.
All stock replacements and the handling of non-routine corporate
actions will be annouced at least ten business days in advance of such
effective change, whenever possible. The Exchange will make this
information available to the public through dissemination of an
information circular.
Dissemination of Index. Similar to other stock index values which
underlie exchange-traded products, the value of the Index will be
calculated continuously and disseminated every 15 seconds over the
Consolidated Tape Association's Network B. The Amex and the Options
Price Reporting Authority (``OPRA'') represent that they have the
necessary systems capacity to handle the additional traffic of the
Index.\5\
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\5\ See Letter from Scott G. Van Hatten, Legal Counsel,
Derivative Securities, Amex, to Richard Strasser, Assistant
Director, Division, Commission, dated December 22, 1998; Letter from
Raymond L. Bell, Vice President, Market Data Services, Amex, to
Richard Strasser, Assistant Director, Division, Commission, dated
January 11, 1999; and Letter from Joe Corrigan, Executive Director,
OPRA, to Richard Strasser, Assistant Director, Division, Commission,
dated January 15, 1999.
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Expiration and Settlement. The proposed Index options will be
European-style (i.e., exercises are permitted at expiration only), and
cash settled. Standard option trading hours (9:30 a.m. to 4:02 p.m. New
York time) will apply. The options on the Index will expire on the
Saturday following the third Friday of the expiration month
(``Expiration Friday''). The last trading day in expiring option series
will normally be the second to the last business day preceding the
Saturday following the third Friday of the expiration month (normally a
Thursday). Trading in expiring options will cease at the close of
trading on the last trading day.
The Exchange plans to list options series with expirations in the
three near-term calendar months and in two additional calendar months
in the February cycle. In addition, the Amex may list flexible exchange
options (``FLEX Options'') on the Index, and longer term option series
having up to thirty-six months to expiration. In lieu of such long-term
options on a full value Index, the Exchange may instead list long-term,
reduced value put and call options based on one-tenth (\1/10\th) the
Index's full value. In either event, the interval between expiration
months for either a full value or reduced value long-term option will
not be less than six months. The trading of any long-term options will
be subject to the same rules which govern the trading of all the
Exchange's Index options, including sales practice rules, margin
requirements and floor trading procedures. Position limits on reduced
value long-term Index options will be equivalent to the position limits
for regular (full value) Index options and would be aggregated with
such options (for example, if the position limit for the full value
options is 15,000 contracts on the same side of the market, then the
position limit for the reduced value options will be 150,000 contracts
on the same side of the market).
The exercise settlement value for all of the Index's expiring
options will be calculated based upon the primary exchange regular way
opening sale prices for the Index's component stocks. In the case of
Nasdaq/NNM listed securities, the first reported regular way sale price
will be used. If any component stock of the Index does not open for
trading on its primary market on the last trading day before
expiration, then the prior day's last sale price will be used in the
calculation.
Exchange Rules Applicable to Stock Index Options. Amex Rules 900C
through 980C will apply to the trading of option contracts based on the
Index. These rules cover issues such as surveillance, exercise prices,
and position limits. Surveillance procedures currently used to monitor
trading in each of the Exchange's other index options will also be used
to monitor trading in Index options. The Index is deemed to be a stock
index option under paragraph (a) of Amex Rule 901C, ``Designation of
Stock Index Options,'' and a stock index industry group under paragraph
(b)(1) of Amex Rule 900C, ``Applicability and Definitions.'' With
respect to paragraph (b) of Amex Rule 903C, ``Series of Stock Index
Options,'' the Exchange proposes to list near-the-money (i.e., within
ten points above or below the current index value) option series on the
Index at 2\1/2\ point strike (exercise) price intervals when the value
of the Index is below 200 points. In addition, the Exchange expects
that the review required by paragraph (c) of Amex Rule 904C, ``Position
Limits,'' will result in a position limit of 15,000 contracts for
options on the Index.
(b) Basis
The Amex believes that the proposed rule change is consistent with
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, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Amex 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
Because the foregoing rule change constitutes a stated policy,
practice, or interpretation with respect to the
[[Page 3730]]
meaning, administration, or enforcement of an existing rule of the
Exchange, it has become effective pursuant to Section 19(b)(3)(A) of
the Act \6\ and subparagraph (e)(1) of Rule 19b-4 thereunder.\7\ The
Amex may not list options for trading on the Index prior to 30 days
after the date the proposed rule change was filed with the Commission.
At any time within 60 days of the filing of such proposed rule change,
the Commission may summarily abrogate such rule change if it appears to
the Commission that such action is necessary or appropriate in the
public interest, for the protection of investors, or otherwise in
furtherance of the purposes of the Act.
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\6\ 15 U.S.C. 78s(b)(3)(A).
\7\ 17 CFR 240.19b-4(e)(1).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether it 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. 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. 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-Amex-98-47 and should be submitted by February 16, 1999.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-1607 Filed 1-22-99; 8:45 am]
BILLING CODE 8010-01-M
