[Federal Register Volume 60, Number 241 (Friday, December 15, 1995)]
[Notices]
[Pages 64463-64465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30529]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36567; File No. SR-Amex-95-35]
Self-Regulatory Organizations; Order Granting Partial Approval to
a Proposed Rule Change by the American Stock Exchange, Inc., Relating
to the Members' Compliance With Position and Exercise Limits for Non-
Amex Listed Options
December 8, 1995.
On August 25, 1995, the American Stock Exchange, Inc. (``Amex'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend (1) Amex Rule 900(a),
``Applicability,'' to confirm the Exchange's enforcement authority over
Amex members' options transactions effected on another options
exchange; and (2) Amex Rules 904, ``Position Limits,'' and 905,
``Exercise Limits,'' to require Amex members who trade non-Amex listed
option contracts and who are not members of the exchange where the
options are traded to comply with the option position and exercise
limits set by the exchange where the transactions are effected.\3\ The
Amex
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subsequently filed Amendment No. 1 to the proposal.\4\
\1\ 15 U.S.C. 78s(b)(1(1988).
\2\ 17 CFR 240.19b-4 (1994).
\3\ Position limits impose a ceiling on the number of option
contracts in each class on the same side of the market (i.e.,
aggregating long calls and short puts or long puts and short calls)
that can be held or written by an investor or group of investors
acting in concert. Exercise limits prohibit an investor or group of
investors acting in concert from exercising more than a specified
number of puts or calls in a particular class within five
conservative business days.
\4\ In Amendment No. 1, the Amex indicated that it will apply
the interpretations and policies of another exchange when applying
that exchange's position and exercise limit rules to an Amex
member's transactions on that exchange. In addition, the Amex stated
that it will take disciplinary action pursuant to its own rules if
the Amex finds that an Amex member has violated the position and
exercise limit rules of another exchange. See Letter from Claire
McGrath, Managing Director and Special Counsel, Derivative
Securities, Amex, to Michael Walinskas, Branch Chief, Derivatives
Regulation, Office of Self-Regulatory Oversight, Division of Market
Regulation, Commission, dated September 19, 1995 (``Amendment No.
1'').
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Notice of the proposed rule change and Amendment No. 1 were
published for comment and appeared in the Federal Register on October
20, 1995.\5\ No comments were received on the proposal. This order
grants partial approval of the portion of the proposal amending Amex
Rules 904 and 905.\6\
\5\ Securities Exchange Act Release No. 36353 (October 10,
1995), 60 FR 54266.
\6\ In partially approving the Amex's proposal, the Commission
is not approving, at this time, the portion of the proposal
amendment Amex Rule 900(a).
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Currently, Amex Rule 904 prohibits Amex members from effecting, for
any account in which the member has an interest or for any customer
account, transactions in option contracts dealt in on the Exchange that
would exceed the Amex's established position limits. Similarly, Amex
Rule 905 prohibits members from exercising, for any account in which
the member has an interest or for any customer account, a long position
in option contracts dealt in on the Exchange that would exceed the
Amex's established exercise limits. As presently written, Amex Rules
904 and 905 apply only to option classes traded on the Amex and not to
opening transactions or exercises in option classes traded on another
options exchange. Since each options exchange has jurisdiction only
over its own members, a jurisdictional loophole exists where, for
example, an Amex member exceeds position or exercise limits on another
options exchange of which it is not a member in an option class not
listed on the Amex. Under those circumstances, the Amex could not take
disciplinary action against its member for violating the position and
exercise limit rules in an option class traded on another options
exchange. Similarly, the options exchange where the option class is
traded could not bring an action since it does not have jurisdiction
over a non-member.
In order to close this jurisdictional loophole, the Amex proposes
to extend its disciplinary jurisdiction to include members' violations
of the position and exercise limits of other options exchanges.
Specifically, the Amex proposes to amend Amex Rule 904 to prohibit Amex
members who are not members of the exchange where the options
transactions are effected from effecting, for any account in which the
Amex member has an interest or for any customer account, transactions
in option contracts that would exceed the position limits established
by the exchange where the options are traded. Similarly, the Amex
proposes to amend Exchange Rule 905 to prohibit Amex members who are
not members of the exchange where the options transactions are effected
from exercising, for any account in which the Amex member has an
interest or for any customer account, a long position in option
contracts that would exceed the exercise limits established by the
exchange where the options are traded.
The Amex notes that the proposed extension of jurisdiction will
apply only when the Amex member is not a member of the other options
exchange. In addition, the Amex will apply the applicable position and
exercise limit rules of the other exchange, as well as its
interpretations and policies.\7\.
\7\ See Amendment No. 1, supra note 4. The Commission notes that
the position and exercise limits in equity options are uniform among
all options markets.
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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.
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange, and, in
particular, the requirements of Section 6 (b) (5) \8\ in that it is
designed to prevent fraudulent and manipulative acts and practices and
to protect investors and the public interest. Specifically, the Amex
has noted that Exchange Rules 904 and 905 currently apply solely to
option contracts dealt in on the Amex and do not prohibit Amex members
from exceeding the position and exercise limits set by another exchange
for non-Amex listed option contracts. Thus, if an Amex member exceeds
the position and exercise limits of another options exchange, and the
Amex member is not a member of the exchange which lists the options,
then neither the Amex or the exchange that lists the options is able to
enforce its position and exercise limits against the Amex member. The
proposal eliminates this loophole and strengthens the Exchange's rules
by requiring an Amex member who trades non-Amex listed option contracts
on another exchange, and who is not a member of that exchange, to
comply with the option position and exercise limits set by the exchange
where the transactions are effected.\9\
\8\ 15 U.S.C. 78f(b)(5) (1988 & Supp. V 1993).
\9\ Under the proposal, the Amex will also apply the
interpretations and policies of the exchange where the options
transactions are effected. The Amex will take disciplinary action
pursuant to its own rules when it finds that an Amex member has
violated the position and exercise limit rules of another exchange.
See Amendment No. 1, supra note 4.
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As the Commission has noted in the past,\10\ options position and
exercise limits are intended to prevent the establishment of large
options positions that can be used or might create incentives to
manipulate or disrupt the underlying market so as to benefit the
options position. In particular, position and exercise limits are
designed to minimize the potential for mini-manipulations \11\ and for
corners or squeezes of the underlying market. The proposal extends the
benefits of the position and exercise limit rules to include all
exchange-traded options transactions entered into by Amex members by
bringing an Amex member's customer transactions in non-Amex exchange
listed options within the Amex's jurisdiction for position and exercise
limit purposes.
\10\ See, e.g., Securities Exchange Act Release No. 33283
(December 3, 1993), 58 FR 65204 (December 13, 1993) (order approving
File No. SR-CBOE-93-43).
\11\ Mini-manipulation is an attempt to influence, over a
relatively small range, the price movement in a stock to benefit a
previously established derivatives position.
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Finally, the Commission notes that the Amex's proposal to amend
Amex Rules 904 and 905 is identical to proposals recently approved by
the Commission.\12\
\12\ See Securities Exchange Act Release Nos. 36242 (September
18, 1995), 60 FR 49305 (September 22, 1995) (order approving File
No. SR-CBOE-95-22); 36257 (September 20, 1995), 60 FR 50228
(September 28, 1995) (order approving File No. SR-PHLX-95-31); and
36350 (October 6, 1995), 60 FR 53654 (October 16, 1995) (order
approving File No. SR-PSE-95-17).
[[Page 64465]]
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the portion of the proposed rule change (SR-Amex-95-35)
amending Amex Rules 904 and 905 is approved.
\13\ 15 U.S.C. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
\14\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-30529 Filed 12-14-95; 8:45 am]
BILLING CODE 8010-01-M
