[Federal Register Volume 64, Number 202 (Wednesday, October 20, 1999)]
[Notices]
[Pages 56545-56547]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27367]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41999; File No. SR-Amex-98-33]
Self-Regulatory Organizations; Notice of Filing of a Proposed
Rule Change by American Stock Exchange LLC Regarding a Pilot Program
Relating to Rule 462 (Minimum Margins) Applicable to Portfolio
Depositary Receipts and Index Fund Shares
October 13, 1999.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act),\1\ notice is hereby given that on September 18, 1998, the
American Stock Exchange LLC (``Amex'' or ``Exchange'') filed with the
Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change described in Items I, II, and III below, which
Items have been prepared by the Amex. Amex amended the proposal twice
on March 4, 1999.\2\ The Commission is publishing this notice to
solicit comments on the proposed rule change, as amended, from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ The Commission received two amendments from the Exchange
dated March 4, 1999. See Notice of Filing of Amendment No. 1 to a
Proposed Rule Change by American Stock Exchange LLC Relating to Rule
462 (Minimum Margins) Applicable to Portfolio Depository Receipts
and Index Fund shares (``Amendment No. 1'') and letter from Michael
Cavalier, Associate General Counsel, Legal & Regulatory Policy,
Exchange to Michael A. Walinskas, Deputy Associate Director,
Division of Market Regulation (``Division''), Commission
(``Amendment No. 2'').
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Amex proposes amending that portion of Exchange Rule 462
addressing the required margin for certain short index options
positions covered by positions in Portfolio Depository Receipts
(``PDRs'') or Index Fund Shares.\3\ The Exchange requests that the
proposed rule change be approved on an accelerated basis and that it be
implemented as a one-year pilot program. The text of the proposed rule
change is as follows, with [brackets] indicating words to be deleted
and italics indicating words to be added:
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\3\ PDRs are shares in a unit investment trust created under
state or other local law, whose assets are a securities portfolio.
Index Fund Shares are shares in an open-end management investment
company registered under the Investment Company Act of 1940, as
amended, whose assets are a securities portfolio.
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Minimum Margins
* * * * *
Rule 462(d)(2)(H)(iv)
No margin need be required in respect of a call index option
contract carried in a short position where there is carried for the
same account a long position in Portfolio Depositary Receipts or Index
Fund Shares as specified in Commentary .10 to this Rule, having a
market value at least equal to the aggregate current index value of the
stocks underlying the index options contracts to be covered.
No margin need be required in respect of a put index option
contract carried in a short position where there is carried for the
same account a short position in Portfolio Depositary Receipts or Index
Fund Shares as specified in Commentary .10 to this Rule, having a
market value at least equal to the aggregate current index value of the
stocks underlying the index options contracts to be covered.
The term ``aggregate current index value'' shall have the meaning
set forth in Rule 900C.
In computing margin on an existing position in Portfolio Depositary
Receipts or Index Fund Shares covering a ``short'' put or ``short''
call, the market value of such Portfolio Depositary Receipts or Index
Fund Shares to be used shall not be greater than the exercise price in
the case of a call or less than the market value of such Portfolio
Depositary Receipts or Index Fund Shares in the case of a put and the
required margin shall be increased by an unrealized loss on the short
security position.
[(iv)] (v) No change other than renumbering.
Commentary
.10 Under the provisions of subparagraph (H)(iv) of paragraph (d)(2)
of this Rule regarding margin requirements applicable to positions in
index options and Portfolio Depositary Receipts or Index Fund Shares:
(1) positions in Standard & Poor's Depositary Receipts
(``SPDRs'') shall be cover for positions in S&P 500
Index options (SPX), S&P 100 Index
[[Page 56546]]
options (OEX) or Institutional Index options (XII); (2) positions in
MidCap SPDRsTM shall be cover for positions in S&P MidCap
400 Index TM options (MID); (3) positions in DIAMONDS
TM shall be cover for positions in Dow Jones Industrials
options (DJX) or Major Market Index options (XMI); and (4) positions in
Nasdaq-100 SharesSM shall be cover for positions in Nasdaq-
100 Index options (NDX).
* * * * *
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 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 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The filing proposes to amend Amex Rule 462(d)(2)(H)(iv) and to
adopt Commentary .10 to Rule 462 to permit PDRs \4\ and Index Fund
Shares traded on the Exchange under Amex Rules 1000 and 1000A,
respectively, to serve as cover for certain short index options
positions. Specifically, proposed Rule 462(d)(2)(H)(iv) would provide
that no additional margin is required in respect of a call index option
carried in a short position where the same account is long PDRs or
Index Fund Shares as specified in proposed Commentary .10. Similarly,
no additional margin would be required in respect of a short put index
option contract where the account has a short position in PDRs or Index
Fund Shares as specified in proposed Commentary .10. In either case,
the PDR or Index Fund Shares position would be required to have a
market value at least equal to the aggregate current index value, as
defined in Amex rule 900C,\5\ of stocks underlying the index options
contracts to be covered.\6\
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\4\ ``PDR'' is a service mark of PDR Services LLC, a Delaware
limited liability company whose sole member is the American Stock
Exchange LLC.
\5\ See infra note 10 defining aggregate current index value.
\6\ Current subparagraph (iv) of Rule 462(d)(2)(H) would be
renumbered as subparagraph (v).
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In letters dated August 19, 1992, and January 14, 1993, to staffs
of the SEC and the Board of Governors of the Federal Reserve System
(``Federal Reserve''), respectively, the Exchange proposed certain
margin treatment for Standard & Poor's Depositary Receipts based on the
S&P 500 Index.\7\ The Exchange proposed that, with respect
to positions that are hedged or offset, where one leg of the position
consists of SPDRs and the other leg is an Options Clearing Corporation-
issued option on a broad-based stock index with at least a 99%
correlation with the S&P 500 Index, such position be treated as the
equivalent of covered equity options. Specifically, the Exchange
requested that no additional margin be required in respect of a short
index call position when a long position in SPDRs is carried for the
same account, and in respect of a short index put position when a short
position in SPDRs is carried for the same account. The Federal Reserve
stated that the Exchange's proposed margin requirements were compatible
with then-current Regulation T.\8\ Thereafter, the Federal Reserve took
a comparable position with respect to MidCap SPDRs,TM based
on the S&P MidCap 400 Index TM.\9\
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\7\ See letter dated August 19, 1992 from James M. McNeil, Chief
Examiner, Amex, to Sharon M. Lawson, Assistant Director, Division,
SEC; letter dated January 14, 1993 from James M. McNeil, Chief
Examiner, Amex, to Laura M. Homer, Division of Supervision and
Regulation, Federal Reserve.
\8\ See letter dated February 1, 1993 from Michael J.
Schoenfeld, Senior Securities Regulation Analyst, Federal Reserve,
to James M. McNeil, Chief Examiner, Amex.
\9\ The Amex represents that the Federal Reserve orally
confirmed this position by telephone call between James M. McNeil,
Amex and Michael Schoenfeld, Federal Reserve on May 1, 1995. In
connection with the commencement of trading in DIAMONDS
SM Trust Units, the Amex also requested confirmation from
the Federal Reserve that margin treatment of DIAMONDS would be
comparable to that for SPDRs under Regulation T. Instead of
providing such confirmation, the Federal Reserve, in its January 8,
1998 letter to the Amex regarding application of Regulation T to
DIAMONDS noted that Section 220.18 of Regulation T, (the Supplement
to Regulation T), amended effective June 1, 1997, provides that the
margin requirements for options is ``the amount or other position''
specified by the national securities exchange that trades the option
(for listed options). See letter from Scott Holz, Senior Attorney,
Federal Reserve, to James M. McNeil, Chief Examiner, Amex, dated
January 8, 1998.
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The Exchange proposes to incorporate the offsets and cover for
short index options positions to those described in the Federal
Reserve's February 1993 letter into Amex Rule 462, as well as to add
comparable treatment for positions in DJX, XMI and NDX options, as
identified in proposed new Commentary .10 to Rule 462. Proposed Rule
462(d)(2)(H)(iv) provides that no additional margin is required in
respect of a call index option contract carried in a short position
where there is carried for the same account a long position in PDRs or
Index Fund Shares as specified in Commentary .10 that has a market
value at least equal to the aggregate current index value of the stocks
underlying the index options contracts to be covered. In addition, no
margin is required in respect of a put index options contract carried
in a short position where there is carried for the same account a short
position in PDRs or Index Fund Shares as specified in Commentary .10
that has a market value at least equal to the aggregate current index
value of the stocks underlying the index options contracts to be
covered.\10\
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\10\ Aggregate current index value'' means the ``current index
group value'' multiplied by the ``index multiplier.''
The ``current index group value'' is $1.00 multiplied by the
total of the current prices of all stocks in an index after each
stock's current price is multiplied by a factor representing that
stock's weight in the index.
The ``index multiplier'' is a number (determined when the PDR or
Index Fund Share is created) that the trading level of the
corresponding index (i.e., the Dow at 9926.2) is multiplied by to
reduce it to an appropriate trading amount. For example, when the
Dow trades at 9926.2, a DIAMONDS share trades at $99.26. Thus, the
index multiplier is .01.
See Amex Rule 900C.
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Proposed Commentary .10 to Rule 462 specifies the PDRs or Index
Fund Shares which qualify for margin treatment under Rule
462(d)(2)(H)(iv), together with the specific index options that such
PDRs or Index Fund Shares can offset or cover for margin purposes.\11\
Proposed Commentary .10 specifies that: (1) positions in Standard &
Poor's Depositary Receipts (``SPDRs'') shall
be covered for positions in S&P 500 Index options (SPX),
S&P 100 Index options (OEX) or Institutional Index options
(XII); (2) positions in MidCap SPDRsTM shall be covered for
positions in S&P MidCap 400 IndexTM options (MID); (3)
positions in DIAMONDSTM shall be cover for positions in Dow
Jones Industrial options (DJX) or Major Market Index options (XMI); and
(4) positions in Nasdaq-100 SharesSM shall be cover for
positions in Nasdaq-100 Index options (NDX). The Exchange
points out that these proposed offsets in Commentary .10 apply only to
indexes and PDRs or Index Fund Shares with a high degree of
correlation, both in performance (return on investments) and in the
collection of securities underlying such indexes, PDRs and Index Fund
shares.
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\11\ The rule does not apply to margin with respect to long or
short positions in PDRs and Index Fund Shares.
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[[Page 56547]]
The Exchange believes it is appropriate for the index options
specified in proposed Commentary .10 to be offset by the specified PDRs
because the index options and PDRs are based on the same underlying
securities, or related to indexes whose underlying securities include
all securities underlying another index (i.e., S&P 100
Index and the S&P 500 Index) or indexes that have a high
degree of overlap of securities underlying the indexes and that have
historically demonstrated a very high correlation in price changes
(i.e., the Institutional Index and the S&P 500 Index; the
Major Market Index and the Dow Jones Industrial Average). The Exchange
will propose additions to or deletions from Commentary .10 by a filing
with the Commission pursuant to Rule 19b-4.
(1) Statutory Basis
The Exchange 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) in particular in that it is designed to promote just and
equitable principles of trade, to remove impediments to and perfect the
mechanism of a free and open market and, in general, to protect
investors and the public interest.
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
The Exchange requests that the Commission grant accelerated
effectiveness to the proposed rule change pursuant to Section 19(b) of
the Act. Amex represents that the proposed rule is similar in effect to
the position taken previously by the Federal Reserve in correspondence
with Amex, as cited above, in connection with trading of PDRs on the
Exchange. Amex further requests that the proposed rule be implemented
as a one-year pilot program.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposal is
consistent with the Act. Persons making written submissions should file
six copies thereof with the Secretary, Securities and Exchange
Commission, 450 Fifth Street, NW, Washington DC 20549-0609. 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 in the Commission's
Public Reference Room, 450 Fifth Street, NW, Washington, DC. Copies of
such filing will also be available for inspection and copying at the
principal office of the Amex. Comments also may be submitted
electronically at the following E-mail address: rule-comments@sec.gov.
File Number SR-AMEX-98-33 should be included on the subject line if E-
mail is used to submit a comment letter. Electronically submitted
comment letters will be posted on the Commission's Internet web site
(http://www.sec.gov). All submissions should refer to File Number SR-
AMEX-98-33 and should be submitted by November 10, 1999.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-27367 Filed 10-19-99; 8:45 am]
BILLING CODE 8010-01-M
