[Federal Register Volume 62, Number 221 (Monday, November 17, 1997)]
[Notices]
[Pages 61418-61419]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-30131]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38313; File No. SR-Amex-97-44]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by American Stock Exchange, Inc. Relating to Institutional Index
Options
November 7, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on November 4, 1997, 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 have been prepared by the
self-regulatory organization. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Amex proposes to increase both position and exercise limits for
its Institutional Index Options (``XII''). In addition, the Exchange
proposes to increase the firm facilitation exemption for XII. 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
The Amex proposes to increase XII position and exercise limits to
100,000 contracts on the same side of the market. Existing Exchange
rules provide for XII position and exercise \3\ limits of 45,000
contracts of the same side of the market of which no more than 25,000
contracts may be used for purposes of realizing any differential in
price between XII and the securities underlying XII. In July of 1992,
the Exchange increased position and exercise limits for XII to their
current levels.\4\ Since that time, options on XII continue to be
traded primarily by institutional and professional investors and member
firms, each often needing to hedge large asset quantities. However,
institutional use of XII options to hedge large asset quantities has
been limited as
[[Page 61419]]
a result of existing XII position limits causing XII users to use other
less restrictive products and over-the-counter products in order to
meet their hedging needs.
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\3\ The exercise limit for XII, which is equal to XII's position
limit, is determined under Exchange Rules 905C and 905.
\4\ See Exchange Act Release No. 31330 (Oct. 16, 1992) 57 FR
30516 (Oct. 23, 1992).
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The Exchange believes that increasing the position and exercise
limits for XII options to 100,000 contracts will allow increased
institutional use of XII and allow it to be more competitive with
alternative products. In addition, an increase in XII position and
exercise limits will benefit not only the beneficiaries of assets
managed by various institutions, but also the marketplace in general
through increased liquidity.
Increasing the XII firm facilitation exemption from 100,000
contracts to 400,000 contracts in necessary to accommodate the needs of
investors as well as market participants and should not substantially
increase concerns regarding the potential for manipulation and other
trading abuses.\5\ In addition, the proposed ruled change will further
enhance the potential depth and liquidity of the options market as well
as the underlying markets by providing Exchange members greater
flexibility in executing large customer orders, while the Exchange's
existing safeguards applicable to current facilitation exemptions
continue to serve to minimize any potential disruption or manipulation
concerns.
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\5\ The Exchange notes that the XII firm facilitation exemption
is in addition to the standard limit and other exemptions under
Exchange rules, commentaries and policies.
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These proposed changes are intended to result in little or no
attendant risk to the marketplace as XII is composed of seventy-five of
the most widely-held stocks in institutional portfolios that have a
market value of more than one hundred million in investment funds.\6\
Thus the component issues are extremely liquid and the overall index
less volatile than individual stocks. Lastly, XII options are European-
style and therefore can only be exercised at expiration.
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\6\ To qualify for inclusion in XII, stocks must be held by a
minimum of 200 of the reporting institutions filing Section 23(f)
reports and must have traded at least 7 million shares in each of
the two preceding calendar quarters.
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To enhance its ability to monitor unhedged positions, the Amex will
add a reporting requirement (new Commentary .03 to Exchange Rule 904C)
for accounts having a position in excess of 45,000 a.m.-settled,
European-style XII option contracts on the same-side of the market.
Specifically, new Commentary .03 to Exchange Rule 904C states that if a
member or member organization, other than an Exchange Specialist or
Registered Options Trader, maintains a position in excess of 45,000
a.m.-settled, European-style XII option contracts on the same-side of
the market on behalf of its own account or for the account of a
customer, it must report information as to whether those positions are
hedged and provide documentation as to how such contracts are hedged,
in the manner and form required by the Exchange. In addition, to
address the Commission's concerns with respect to the ability of the
Exchange to monitor customer accounts that maintain large unhedged
positions, the Amex will add a margin and clearing firm requirement.
Pursuant to new Commentary. 04 to Exchange Rule 904C, whenever the
Exchange determines that additional margin is warranted in light of the
risks associated with an under-hedged option position in excess of
45,000 contracts, the Exchange may impose additional margin upon the
account maintaining such under-hedged position, or assess capital
charges upon the clearing firm carrying the account to the extent of
any margin deficiency resulting from the higher margin requirement.
2. Statutory Basis
The Exchange represents that the proposed rule change is consistent
with Section 6(b)(5) of the Act \7\ 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.
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\1\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any inappropriate 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 either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35-days of the 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 the 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 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-97-44 and
should be submitted by December 8, 1997.
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. 97-30131 Filed 11-14-97; 8:45 am]
BILLING CODE 8010-01-M
