[Federal Register Volume 61, Number 207 (Thursday, October 24, 1996)]
[Notices]
[Pages 55176-55178]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27301]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37839; File No. SR-Amex-96-35]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by American Stock Exchange, Inc. Relating to the Trading of
Options on The Tobacco Index SM
October 17, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934, 15 U.S.C. 78s(b)(1), notice is hereby given that on October 1,
1996, the American 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
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
[[Page 55177]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Amex proposes to trade options on The Tobacco Index SM
(``Index''), a new index developed by the Amex composed of tobacco
company stocks (or American Depositary Receipts (``ADRs'') thereon)
which are traded on the Amex and the New York Stock Exchange
(``NYSE''). In addition, the Amex proposes to amend Rule 901C,
Commentary .01, to reflect that 90% of the Index's numerical value will
be accounted for by stocks that meet the current criteria and
guidelines set forth in Rule 915.
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 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 Exchange is proposing to trade standardized options on the
Index, an equal-dollar weighted index developed by the Amex,
representing a portfolio of large, actively traded tobacco company
stocks.
a. Eligibility Standards for Index Components. The Index conforms
with Exchange Rule 901C, which specifies criteria for inclusion of
stocks in an index on which standardized options will be traded. In
addition, the Index conforms to most of the criteria set forth in Rule
901C, Commentary .02 (which provides for the commencement of trading of
options on an index thirty days after the date of filing) except that
there are only nine component securities, and that four (or 44%) of the
components have a minimum monthly volume during the preceding six
months of less than 1,000,000 shares, with one component having traded
less than 500,000 shares in at least one of the last six months. All of
the component securities meet the following eligibility standards: (1)
All component securities are traded on the Amex or NYSE; (2) component
stocks comprising the top 90 percent of the Index by weight have a
market capitalization \1\ of at least $75 million, and those component
stocks constituting the bottom 10 percent of the Index by weight have a
market capitalization of at least $50 million; (3) foreign country
securities or ADRs thereon that are not subject to comprehensive
surveillance agreements do not in the aggregate represent more than 20%
of the weight of the Index; and (4) at least 90% of the Index's
numerical value and at least 80% of the total number of component
securities is accounted for by stocks that meet the current criteria
and guidelines set forth in Rule 915.
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\1\ In the case of ADRs, this represents market capitalization
as measured by total world-wide shares outstanding.
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b. Index Calculation. The Index is calculated using an ``equal-
dollar weighting'' methodology. The following is a description of how
equal-dollar weighting calculation method works. As of the market close
on August 16, 1996, a portfolio of tobacco company stocks was
established representing an investment of approximately $100,000 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 the benchmark value of 250.00 at the close of trading on August
16, 1996. Quarterly thereafter, 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 is made at the
rebalancing to ensure continuity of the Index's value. The newly
adjusted portfolio becomes the basis for the Index's value on the first
trading day following the quarterly adjustment.
As noted above, the number of shares of each component stock in the
Index portfolio remain fixed between quarterly review 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 a merger or 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 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.
Similar to other stock index values published by the Exchange, the
value of the Index will be calculated continuously and disseminated
every 15 seconds over the Consolidated Tape Association's Network B.
c. Maintenance of the Index. The Exchange will maintain the Index
so that upon quarterly rebalancing (1) the total number of component
securities will not increase or decrease by more than 33\1/3\% from the
number of components in the Index at the time of its initial listing
and in no event will the Index have less than nine components; (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 will have a
minimum market capitalization of $50 million; (3) at least 90% of the
Index's numerical index value and at least 80% of the total number of
component securities individually will meet the then current criteria
for standardized option trading set forth in Exchange Rule 915; (4)
stocks constituting 85% of the Index have a monthly trading volume of
at least 500,000 shares for each of the last six months and those
stocks constituting 15% of the Index have a monthly trading volume of
at least 250,000 shares for each of the last six months; and (5) no
single component will represent more than 25% of the weight of the
Index and the five highest weighted components will represent no more
than 60% of the Index at each quarterly rebalancing.
The Exchange shall not open for trading any additional option
series should the Index fail 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 options on the Index has been
[[Page 55178]]
approved by the Commission pursuant to Section 19(b)(2) of the Act.
d. Expiration and Settlement. The proposed options on the Index
will be European style (i.e., exercises permitted at expiration only),
and cash settled. Standard option trading hours (9:30 a.m. to 4:10 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 an expiring option
series will normally be the second to 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 the two additional calendar
months in the February cycle. In addition, longer term option series
having up to thirty-six months to expiration may be traded. In lieu of
such long-term options on a full value Index level, the Exchange may
instead list long-term, reduced value put and call options based on
one-tenth (1/10th) 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 would 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 and
all options will have European style exercise. 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 9,000 contracts on the same side of the
market, then the position limit for the reduced value options will be
90,000 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 component stocks. In the case of securities
traded through the NASDAQ system, the first reported regular way sale
price will be used. If any component stock 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.
e. 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 options on the Index. The Index is deemed
to be a Stock Index Option under Rule 901C(a) and a Stock Index
Industry Group under Rule 900C(b)(1). With respect to Rule 903C(b), the
Exchange proposes to list near-the-money 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 Rule 904C(c) will result in a position limit of
9,000 contracts with respect to options on this Index.
2. Basis
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, 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 Amex does not believe 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
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 Amex 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, 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 in 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 Amex. All
submissions should refer to the File No. SR-Amex-96-35 and should be
submitted by November 14, 1996.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-27301 Filed 10-23-96; 8:45 am]
BILLING CODE 8010-01-M
