[Federal Register Volume 62, Number 37 (Tuesday, February 25, 1997)]
[Notices]
[Pages 8469-8472]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-4612]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38307; File No. SR-Amex-97-04]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the American Stock Exchange,
Inc., Relating to Options on the de Jager Year 2000 Index
February 19, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on January 27, 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. Sec. 78s(b)(1) (1988).
\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 Exchange proposes to list and trade options on The de Jager
Year 2000 Index (``Index''), a new stock index developed by the Amex
and de Jager & Company based on stocks (or American Depositary Receipts
(``ADRs'') thereon) of companies whose business is expected to benefit
from the need of companies, governments, and others to address and
resolve the ``Year 2000'' problem. In addition, the Amex proposes to
amend Exchange Rule 901C, Commentary .01 to reflect that 90 percent of
the Index's numerical index value will be accounted for by stocks which
meet the current criteria and guidelines set forth in Exchange Rule
915.
II. Self-Regulatory Organization's Statement of the Propose 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 and de Jager & Company have developed a new index called
The de Jager Year 2000 Index, based entirely on shares of widely-held
companies whose business is expected to benefit from the need of
companies, governments, and others to address and resolve the ``Year
2000'' problem.\3\ The
[[Page 8470]]
``Year 2000'' problem arises because most business application software
programs (mainframe, client/server, and personal computer) written over
the past twenty-years use only two digits to specify the year, rather
than four. Therefore, on January 1, 2000, unless the software is
corrected, most computers with time-sensitive software programs will
recognize the year as ``00'' and may assume that this year is ``1900.''
This could either force the computer to shut down or lead to incorrect
calculations. de Jager & Company is a small consulting firm that,
through Peter de Jager, is solely involved in promoting awareness of
the ``Year 2000'' problem.\4\ The industries represented by these
companies include: packaged software providers; computer programming
consulting firms; and computer outsourcing services. Each of the
component securities are traded on the Amex, the New York Stock
Exchange, Inc. (``NYSE''), or through the facilities of the National
Association of Securities Dealers (``NASD'') Automated Quotation system
(``NASDAQ'') and are reported national market system securities
(``NASDAQ/NMS''). The Amex intends to trade standardized option
contracts on the newly developed Index. The Exchange is filing this
proposal pursuant to Exchange Rule 901C, Commentary .02, which provides
for the commencement of trading of options on the Index thirty days
after the date of this filing. The proposal meets all the criteria set
forth in Commentary .02 and the Commission's order approving that
rule.\5\
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\3\ The components securities in the Index include: American
Management System; Analysts International Corp.; Ciber Inc.;
Computer Associates International Inc.; Computer Horizons Corp.;
Computer Sciences Corp.; Compuware Corp.; Data Dimensions Inc.; Dun
& Bradstreet Corp; Electronic Data Systems Corp.; Information
Management Resources Inc.; Intersolv; Keane Inc.; Peoplesoft Inc.;
Platinum Technology Inc.; Sterling Software Inc.; Viasoft Inc.; and
Zitel Corp.
\4\ Mr. de Jager worked for many years in computer operations
and programming prior to becoming a speaker and writer on various
computer related issues and has recently become involved in
promoting awareness of the ``Year 2000'' problem.
\5\ See Securities Exchange Act Release No. 34157 (June 3,
1994), 59 FR 30062 (June 10, 1994) (Amex-92-35) (approval order
relating to narrow-based index options listing standards) (``Generic
Index Approval Order'').
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Eligibility Standards for Index Components
Pursuant to Commentary .02 to Exchange Rule 901C, (1) all of the
component securities of the Index are listed on the Amex, the NYSE, or
are NASDAQ/NMS listed; (2) each of the component securities has a
minimum market capitalization of at least $75 million;\6\ (3) seventeen
of the eighteen components have had a monthly trading volume of at
least one million shares during the previous six months (one component
had a monthly trading volume of 650,000 shares during the previous six
months); (4) sixteen of the component securities in the Index (84.21
percent) and 91.63 percent of the Index's numerical index value have
met the initial eligibility criteria for standardized options trading
set forth in Exchange Rule 915; (5) foreign country securities or ADRs
thereon that are not subject to comprehensive surveillance sharing
agreements do not in the aggregate represent more than 20 percent of
the weight of the Index; and (6) the Index is price-weighted, and no
individual component stock in the Index represents more than 25 percent
of the weight of the Index, and the five highest weighted component
stocks in the Index do not in the aggregate account for more than 60
percent of the weight of the Index.
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\6\ In the case of ADRs, this represents market value as
measured by total world-wide shares outstanding.
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Maintenance of the Index
The Amex will maintain the Index in accordance with Exchange Rule
901C, Commentary .02 so that the Index continues to meet the
eligibility standards set forth above, except that: (1) the total
number of component securities will not increase or decrease by more
than 33\1/3\ percent 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
percent of the Index, by weight, will have a minimum market
capitalization of $75 million, and the component stocks constituting
the bottom 10 percent of the Index, by weight, will have a minimum
market capitalization of $50 million; (3) the monthly trading volume of
each component security will be at least 500,000 shares, or for each of
the lowest weighted components in the Index that in the aggregate
account for no more than 10 percent of the weight of the Index, the
monthly trading volume will be at least 400,000 shares; (4) no single
component will represent more than 25 percent of the weight of the
Index, and the five highest weighted components will represent no more
than 60 percent of the Index as of the first day of January and July in
each year; and (5) 90 percent of the Index's numerical index value and
at least 80 percent of the total number of component securities will
meet the then current criteria for standardized option trading set
forth in Exchange Rule 915.
The Exchange will 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 the Index option has been approved by the
Commission pursuant to Section 19(b)(2) of the Act.
Index Calculation
The Index is price-weighted; the Index value corresponds to the sum
of the prices of each of the component stocks divided by the current
index divisor. The Index divisor was initially determined to yield a
benchmark value of 250 on December 31, 1996. Similar to other stock
index values published by the Exchange, the value of the Index will be
calculated continuously and disseminated every fifteen seconds over the
Consolidated Tape Association's Network B.
The Index will be calculated and maintained by the Amex. A
representative of de Jager & Company will be available to advise the
Exchange when, pursuant to Exchange Rule 901C(b), the Amex substitutes
stocks, or adjusts the number of stocks included in the Index, based on
changing conditions in the ``Year 2000'' industry or in the event of
certain types of corporate actions, such as a merger or a takeover
which warrants the removal of a component security from the Index. It
is anticipated that the Amex will consult with de Jager & Company on a
quarterly basis to review possible candidates for removal from or
inclusion in the Index.\7\ Such consultations will occur after the
close of trading and any determination to remove or to include a
component in the Index will be publicly announced prior to the opening
of trading on the following business day. However, in the event the
Exchange determines to increase the number of Index component stocks to
greater than 24 or to reduce the number of component stocks to fewer
than 12, the Exchange will submit a rule filing pursuant to Rule 19b-4
under the Act to the Commission. In selecting securities to be included
in the Index, the Exchange, in conjunction with de Jager & Company,
will be guided by a number of factors including market value of
outstanding shares and trading activity
[[Page 8471]]
and adherence to Exchange Rule 901C, Commentary .02.
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\7\ 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 de Jager Year 2000 Index,
including, but not limited to, insider trading reviews of component
securities and stockwatch monitoring. Telephone conversation between
Claire P. McGrath, Managing Director and Special Counsel,
Derivatives Securities, Amex and Matthew S. Morris, Division of
Market Regulation, Commission, on February 11, 1997.
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Expiration and Settlement
The proposed options on the Index will be European-style (i.e.,
exercises are 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 de Jager Year 200 Index will expire on the
Saturday following the third Friday of the expiration month
(``Expiration Friday''). The last trading day in an expiring options
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 additions, longer term options 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 (\1/10\th) the Index's full value. In either event, the
interval between expiration months for either a full value or reduced
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 de Jager Year 2000 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 12,000 contracts on the same-side of the
market, then the position limit for the reduced-value options will be
120,000 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.\8\
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\8\ The Commission notes that pursuant to Article XVII, Section
4 of the Options Clearing Corporation's (``OCC'') by-laws, the OCC
is empowered to fix an exercise settlement amount in the event it
determines a current index value is unreported or otherwise
unavailable. Further, the OCC has the authority to fix an exercise
settlement amount whenever the primary market for the securities
representing a substantial part of the value of the underlying index
is not open for trading at the time when the current index value
(i.e., the value used for exercise settlement purposes) ordinarily
would be determined. See Securities Exchange Act Release No. 37315
(June 17, 1996), 61 FR 32471 (June 24, 1996) (OCC-95-18).
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Exchange Rules Applicable to Stock Index Options
Exchange 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 de Jager Year 2000 Index. The Index is deemed to be a Stock Index
Option under Exchange Rule 901C(a) as well as a Stock Index Industry
Group under Exchange Rule 900C(b)(1). With respect to Exchange Rule
903C(b), the Amex proposes to list near-the-money (i.e., within ten
points above or below the current index value) 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 Amex expects that
the review required by Exchange Rule 904C(c) will result in a position
limit of 12,000 contracts with respect to options on this Index.
2. Statutory Basis
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 change, 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.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Amex 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 solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing rule change complies with the standards set
forth in the Generic Index Approval Order,\9\ it has become effective
pursuant to Section 19(b)(3)(A) of the Act. Pursuant to the Generic
Index Approval Order, the Amex may not list options for trading on the
Index prior to thirty days after January 27, 1997, the date the
proposed rule change was filed with the Commission. At any time within
sixty days of the filing of the proposed rule change, the Commission
may summarily abrogate such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act.
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\9\ See supra note 5.
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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. Sec. 552, will be available for inspection and copying at
the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such filing also will be available
for inspection and copying at the principal office of the Amex. All
submissions should refer to File No. SR-Amex-97-04 and should be
submitted by March 18, 1997.
[[Page 8472]]
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-4612 Filed 2-24-97; 8:45 am]
BILLING CODE 8010-01-M
