[Federal Register Volume 61, Number 37 (Friday, February 23, 1996)]
[Notices]
[Pages 7031-7032]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-4121]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36852; File No. SR-Amex-95-38]
Self-Regulatory Organizations; American Stock Exchange, Inc.;
Order Approving Proposed Rule Change Relating to Transactions in
Currency Warrants by Registered Options Traders
February 15, 1996.
On September 29, 1995, the American Stock Exchange, Inc. (``Amex''
or ``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b) of the
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to provide that proprietary
transactions executed on the Amex in currency warrants shall be
governed by, and effected in accordance with, Amex Rule 958 (Options
Transactions of Registered Traders).
\1\ 15 U.S.C. Sec. 78s(b)(1) (1988 & Supp. V 1993).
\2\ 17 CFR Sec. 240.19b-4 (1994).
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Notice of the proposed rule change was published for comment and
appeared in the Federal Register on December 7, 1995.\3\ No comments
were received on the proposal. This order approves the proposal.
\3\ See Securities Exchange Act Release No. 36535 (Nov. 30,
1995), 60 FR 62911.
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I. Description of the Proposal
The Amex proposes to amend Commentary .12 to Rule 111 (Restrictions
on Registered Traders), Commentary .14 to Rule 114 (Registered Equity
Market Makers) and Commentary .10 to Rule 958 (Options Transactions of
Registered Traders) to provide that proprietary transactions executed
on the Amex in currency warrants shall be governed by, and effected in
accordance with, Rule 958.
In 1992, the Exchange amended its rules to permit regular members
to register as a Registered Trader under Rule 958\4\ to engage in
supplemental market making activity in stock index warrants and certain
other non-options derivative products. The Exchange enacted these
changes to conform its rules to those of other markets, and to provide
additional liquidity to the market for the Exchange's Portfolio
Depositary Receipts and LOR SuperUnits. Due to the limited purpose of
the 1992 rule changes, the Exchange did not seek at that time to extend
this treatment to the trading of listed currency warrants by Registered
Traders.
\4\ See Securities Exchange Act Release No. 30768 (June 2,
1992). A Registered Trader under Rule 958 is also referred to as a
Registered Options Trade (``ROT'').
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At present, the only traders (other than the assigned specialist)
permitted to trade currency warrants on the Amex are Registered Equity
Market Makers (``REMMs'') under the Exchange's equity trading rules,
pursuant to the provisions of Rule 114 (which includes applicable
provisions of Rule 111). Under the proposed rule changes, regular
members wishing to engage in supplemental market making activity in
currency warrants could register as a Registered Trader under Rule 958
and be assigned the particular currency warrant requested (``assigned
security''). Once registered under Rule 958, a ROT may trade the
assigned security of his own account pursuant to the provisions of that
Rule.
In contrast to REMMs trading pursuant to Rules 111 and 114, Rule
958 imposes continuous affirmative market making obligations upon
Registered Traders.\5\ In particular, Rule 958(b) requires that
Registered Trader transactions constitute a course of dealings
reasonably calculated to contribute to the maintenance of a fair
[[Page 7032]]
and orderly market and that no Registered Trader should enter into
transactions or make bids or offers that are inconsistent with such a
course of dealings.\6\ In recognition of this, such market makers are
designated as specialists on the Exchange for all purposes under the
Act (See Rule 958, Commentary .01), and are entitled to good faith
market maker margin with respect to transactions effected on the Amex
trading floor in these assigned securities.\7\ The Exchange anticipates
that application of Rule 958 requirements to supplemental Exchange
market making by its members in currency warrants will encourage
additional competition, thereby enhancing liquidity in such securities,
and also eliminate an anomalous regulatory disparity between currency
and stock index warrant trading.
\5\ Moreover, as with options and stock index warrants, the
Exchange believes it is inappropriate to apply the stabilization
requirements applicable to REMMs to market maker transactions in
currency warrants (see Amex Rule 950, which excludes the application
of Rules 111 and 114 to transactions in options).
\6\ See also Rule 958(c) which, among other things, imposes
additional requirements when a ROT is in the trading crowd to make
competitive bids and offers as reasonably necessary to contribute to
the maintenance of a fair and orderly market.
\7\ Market maker margin for certain off-floor initiated
transactions may also be available. See Commentary .01 to Rule 958.
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II. Discussion
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 particular, the
Commission believes the proposal is consistent with the Section 6(b)(5)
requirement that the rules of an exchange be designed to promote just
and equitable principles of trade and not to permit unfair
discrimination between customers, issuers, brokers, and dealers.
Because the proposed rule change would impose specialist obligations on
Registered Traders as specialists for the purpose of trading currency
warrants, the Commission also believes that the proposal is consistent
with Section 11(b) and Rule 11b-1 under the Act, which provide that the
rules of a national securities exchange may permit members to be
registered as specialists, subject to the requirement of maintaining
fair and orderly markets in their specialty securities.
\8\ 15 U.S.C. Sec. 78f(b)(5) (1982).
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The Commission notes that the proposed rule change will conform the
treatment of currency warrants to that of stock index warrants and
other non-options derivative products. As a result, Registered Traders
that trade currency warrants on the Amex under Rule 958 will assume
continuous affirmative and negative market making obligations and be
treated as specialists under the Act, including for margin purposes.
This allows the extension and application of good faith margin
treatment for such transactions, thereby helping to attract more market
makers and liquidity in currency warrants. Furthermore, the
stabilization requirements applicable to REMMs will not apply to a
Registered Trader's transactions in currency warrants. Because of the
duty imposed on Registered Traders that all such transactions must
constitute a course of dealings reasonably calculated to contribute to
the maintenance of a fair and orderly market, the Commission believes
it is appropriate not to apply these provisions to Registered Traders.
In this respect, the Commission notes that Amex Rule 127, Minimum
Fractional Changes, will continue to apply to transactions in currency
warrants as will Rule 958(c)(i), which addresses bid-ask differentials.
In summary, the Commission believes that the market making
obligations of an ROT together with the extension of good faith margin
could help to increase the depth and liquidity of the Amex currency
warrant market.
It therefore is ordered, pursuant to Section 19(b)(2) of the
Act,\9\ that the proposed rule change (SR-Amex-95-38) is approved.
\9\ 15 U.S.C. Sec. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
\10\ 17 CFR Sec. 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-4121 Filed 2-22-96; 8:45 am]
BILLING CODE 8010-01-M
