[Federal Register Volume 64, Number 26 (Tuesday, February 9, 1999)]
[Notices]
[Pages 6405-6409]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3032]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41011; File No. SR-Amex-98-38]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change and Amendment No.
1 Thereto by the American Stock Exchange, Inc. Relating to an
Elimination of Position and Exercise Limits for Certain Broad-Based
Index Options
February 1, 1999.
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 October 13, 1998, 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 and II below, which Items have been prepared by
the self-regulatory organization. Amex filed an amendment to the
proposed rule change on January 28, 1999.\3\ The Commission is
[[Page 6406]]
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.
\3\ See Letter to Richard Strasser, Assistant Director, Division
of Market Regulation, Commission, from Scott G. VanHatten, Legal
Counsel, Amex, dated January 27, 1999 (``Amendment No. 1'').
Amendment No. 1 deleted MidCap (MID) index options from the proposal
and requested that the proposed rule change be approved on a two-
year pilot basis. Amendment No. 1 also provided that the Exchange
may impose additional margin on accounts holding an underhedged
position in Institutional Index Options or Major Market Index
options or FLEX options on those indexes, as warranted by the
Exchange. In addition, Amendment No. 1 clarified that the 100,000
reporting threshold that XMI and XII will be subject to will also
apply to FLEX options on those indexes. Finally, Amendment No. 1
added that the Exchange will provide a report to the Commission
detailing the Exchange's experience with the program no later than
three months prior to the expiration of the two-year pilot program,
containing certain data from the first eighteen month period of the
pilot.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Amex proposes to establish a two-year pilot program eliminating
position and exercise limits for Major Market (``XMI'') and
Institutional (``XII'') broad-based index options, as well as FLEX
broad-based index options on these two indexes.\4\ The current
reporting procedures for XII,\5\ as modified by this proposal, and new
reporting requirements for XMI will serve to identify large option
holdings and information concerning the hedging of those positions.\6\
The proposal also requires the Exchange to submit a report detailing
the Exchange's experience with the program no later than three months
prior to the end of the program.\7\ Finally, the Exchange is proposing
to add text to Exchange Rule 904C to include the existing position
limits for Eurotop 100 Index options.\8\
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\4\ The current position limits for XMI and XII are 34,000 and
200,000, respectively. See Amex Rule 904C(b).
\5\ Reporting of positions in XII exceeding 45,000 contracts on
the same side of the market is currently required by Exchange Rule
904C, Commentary .03. The Exchange proposes to increase this
reporting requirement to 100,000 contracts and add the same
reporting requirement for XMI.
\6\ Exchange Rule 906C currently requires reporting of every
account holding an index option position in excess of 200 contracts.
However, the Exchange will require a second reporting requirement
for XMI and XII index options and FLEX options on those indexes for
positions in excess of 100,000 contracts which will require member
organizations to submit information to the Exchange concerning the
extent to which such positions are hedged.
\7\ See Amendment No. 1 for a discussion of additional changes
to the rule filing.
\8\ See Exchange Act Release No. 30463, 57 FR 9284 (March 17,
1992) (order approving File Nos. SR-Amex-90-25 and SR-Amex-91-01;
establishing a 25,000 position and exercise limit for Eurotop index
options). The present rule filling seeks only to codify this limit
in Amex's rules language.
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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 III 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 Exchange is proposing a two year pilot program eliminating
position and exercise limits for XMI, XII and FLEX options on those
indexes. The Exchange will continue to require that member
organizations report all index option positions exceeding 200
contracts, pursuant to Exchange Rule 906C. In addition, the Exchange is
proposing to increase the reporting requirement from 45,000 to 100,000
contracts for XII and adopt a similar reporting requirement for XMI
index options, and FLEX options on those indexes.\9\ Lastly, the
Exchange is adding text to Amex Rule 904C to state the current position
limit for Eurotop 100 Index options.
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\9\ The new reporting requirement will be for accounts holding
positions in excess of 100,000 contracts on the same side of the
market and will include, if applicable, information concerning the
extent to which such positions are hedged.
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Manipulation. The Amex believes that position and exercise limits
in broad-based index options no longer serve their stated purpose. On
the fifteenth anniversary of listed index options trading, the Exchange
believes that the size of the market underlying broad-based index
options is so large as to dispel any concerns regarding market
manipulation. To date, there has not been a single disciplinary action
involving manipulation in any broad-based index product listed on the
Exchange. The Exchange believes that its fifteen years of experience
conducting surveillance of index options and program trading activity
is sufficient to identify improper activity. The Exchange also believes
that routine oversight inspections of Amex's regulatory programs by the
Commission have not uncovered any inconsistencies or shortcomings in
the manner in which index option surveillance is conducted. These
procedures entail a daily monitoring of market movements via automated
surveillance techniques to identify unusual activity in both the
options and underlying stock basket components.
Competition. In today's market, the Exchange believes that position
and exercise limits severely hamper Amex's ability to compete with the
OTC and futures markets. Investors who trade listed options on the Amex
are placed at a serious disadvantage in comparison to the OTC market
where index options and other types of index based derivatives (e.g.,
forwards and swaps) are not subject to position and exercise limits.
Member firms continue to express concern to the Exchange that position
limits on Amex products are an impediment to their business and that
they have no choice but to move their business to the OTC market where
position limits are not an issue.
In addition, the Amex believes that the current base limits for XMI
and XII \10\ options are not adequate for the hedging needs of
institutions which engage in trading strategies differing from those
covered under the index hedge exemption policy (e.g., delta hedges, OTC
vs. listed hedges). The Amex believes that, with the elimination of
position limits for these products, staff resources could be better
utilized elsewhere.
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\10\ The base limits for XMI and XII are 34,000 and 200,000
contracts, respectively. See Amex Rule 904C(b).
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Financial requirements. The Exchange believes that financial
requirements imposed by the Exchange and by the Commission adequately
address concerns that a member or its customer may try to maintain an
inordinately large unhedged position in XMI or XII. Current margin, and
risk-based haircut methodologies serve to limit the size of positions
maintained by any one account by increasing the margin and/or capital
that a member must maintain for a large position held by itself or by
its customer. It should also be noted that the Exchange has the
authority under paragraph (d)(2)(K) of Rule 462 to impose a higher
margin requirement upon the member or member organization when the
Exchange determines a higher requirement is warranted.
FLEX Equity options. In 1997, the SEC approved the elimination of
position and exercise limits in FLEX Equity options under a two-year
pilot program.\11\ To date, there have been no adverse affects on the
market as a result of the elimination of position and exercise limits.
Member firms have commented favorably on this change and believe that
it is the first step towards eliminating position and exercise limits
in all option products. In its release approving the elimination of
FLEX equity option position and exercise limits, the Commission stated
that the elimination of position limits
[[Page 6407]]
will allow the listed options markets to better compete with the OTC
market.
\11\ Exchange Act Release No. 39032 (September 9, 1997), 62 FR
48683 (September 16, 1997).
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[T]he elimination of position and exercise limits for FLEX
equity options allows the Exchanges to better compete with the
growing OTC market in customized equity options, thereby encouraging
fair competition among brokers and exchange markets. The attributes
of the Exchanges' options markets versus an OTC market include, but
are not limited to, a centralized market center, an auction market
with posted transparent market quotations and transaction reporting,
parameters and procedures for clearance and settlement, and the
guarantee of the OCC for all contracts traded on the Exchanges.\12\
\12\ Id. at 48685. The Commission notes that approval of the
elimination of position and exercise limits for FLEX equity options
was for a two-year pilot period and was based on several other
factors including, in large part, additional safeguards adopted by
the exchanges to allow them to monitor larger options positions.
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Reporting requirements. The Exchange will require that each member
or member organization that maintains a position on the same side of
the market in excess of 100,000 contracts in XMI, XII options or FLEX
options on those indexes, for its own account or for the account of a
customer report certain information. This data would include, but would
not be limited to, the option position, whether such position is hedged
and if so, a description of the hedge and if applicable, the collateral
used to carry the position. Exchange market-makers would continue to be
exempt from this reporting requirement as market-maker information can
be accessed through the Exchange's market surveillance systems. The
Exchange proposes to establish the reporting level for XMI and FLEX
options on the XMI and XII at 100,000 contracts and to increase the
reporting level to 100,000 contracts \13\ from the current reporting
level of 45,000 for XII for the following reasons. Imposing a uniform
reporting requirement for XII, XMI and FLEX options on those indexes
will eliminate confusion. The Amex believes that an increase in the
reporting level to 100,000 contracts for XII will result in the
collection of more meaningful information. In addition, the general
reporting requirement for customer accounts that maintain a position in
excess of 200 contracts will remain at this level for broad based index
options.\14\ Last, it is important to note that the proposed 100,000
contract reporting requirement is above and beyond what is currently
required in the OTC market. NASD member firms are only required to
report index option positions in excess of 200 contracts and are not
required to report any related hedging information.
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\13\ Currently, only the XII is subject to reporting
requirements beyond those required by Exchange Rule 906C. The
Exchange would expand this revised reporting requirement to XMI and
FLEX options on the XII and XMI.
\14\ See Exchange Rule 904C, Commentary .03, XII Reporting
Requirement.
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Eurotop 100 Index options position limit. The Exchange proposes to
add text to Rule 904C to include the current position limit for Eurotop
100 Index options. Although the current position limit (25,000
contracts on the same side of the market with no more than 15,000 of
such contracts in series with the nearest expirations) was approved in
a previously submitted rule change,\15\ this limit was not included in
the text of Exchange Rule 904C. Accordingly, the Exchange is now adding
text to Rule 904C to include the existing position limit for Eurotop
100 Index options. The Exchange believes the additional text will
clarify Rule 904C and make it inclusive of and uniform for all Exchange
traded indices.
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\15\ See Exchange Act Release No. 30463, 57 FR 9284 (March 17,
1992).
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2. Statutory Basis
The basis under the Act for the proposed rule change is the
requirement under Section 6(b)(5)\16\ that an Exchange have rules that
are designed to promote just and equitable principles of trade, to
remove impediments to, and perfect the mechanism of a free and open
market and, in general, to protect investors and the public interest.
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\16\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change will impose no 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. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. 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, located at the above address.
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-98-38 and should be submitted by March 2, 1999.
IV. Commission's Findings and Order Granting Accelerated Approval
of the Proposed Rule Change
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, with the requirements of Section 6 of the Act.\17\
Specifically, the Commission believes the proposed rule change 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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\17\ See 15 U.S.C. 78f(b). In approving this rule change, the
Commission notes that it has considered the proposal's impact on
efficiency, competition, and capital formation, consistent with
Section 3 of the Act. Id at 78c(f).
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Position limits serve as a regulatory tool designed to address
potential manipulative schemes and adverse market impact surrounding
the use of options. In the past, the Commission has stated that:
Since the inception of standardized options trading, the options
exchanges have had rules imposing limits on the aggregate number of
options contracts that a member or customer could hold or exercise.
These rules are intended to prevent the establishment of 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 and for corners or
squeezes of the underlying market. In addition such limits serve to
reduce the possibility for disruption of the options market itself,
especially in illiquid options classes.\18\
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\18\ Exchange Act Release Nos. 31330 (October 16, 1992), 57 FR
48408 (October 23, 1992) (SR-Amex-92-13) (order approving an
increase in XII position and exercise limits); 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-97-11) (order approving
an increase in OEX position and exercise limits).
[[Page 6408]]
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In general, the Commission has taken a gradual, evolutionary
approach toward expansion of position and exercise limits.\19\ The
Commission has been careful to balance two competing concerns when
considering the appropriate level at which to set option position and
exercise limits. The Commission has recognized that the limits must be
sufficient to prevent investors from disrupting the market in the
component securities comprising the indexes. At the same time, the
Commission has determined that limits must not be established at levels
that are so low as to discourage participation in the options market by
institutions and other investors with substantial hedging needs or to
prevent specialists and market-makers from adequately meeting their
obligations to maintain a fair and orderly market.\20\
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\19\ This gradual approach to increasing position limits is
evident with both the XMI and XII. See Exchange Act Release Nos.
29534 (August 8, 1991), 56 FR 40449 (August 15, 1991) (order
approving SR-Amex-91-18; increasing position limits for the XMI from
17,000 to 34,000 contracts); 38313 (November 7, 1997), 62 FR 61418
(November 17, 1997) (order approving SR-Amex-97-44; increasing
position limits for the XII from 45,000 to 100,000 contracts).
\20\ See H.R. Rep. No. IFC-3, 96th Cong., 1st Sess. At 189-91
(Comm. Print 1978).
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The Commission has carefully considered the Amex's proposal. At the
outset, the Commission notes that it still believes that the
fundamental purposes of position and exercise limits are being served
by their existence. Nevertheless, the Commission believes that the
current experience with the trading of index options as well as the
surveillance capabilities of the Amex have made it permissible to
consider other, less prophylactic alternatives to regulating the index
options market while still ensuring that large positions in such index
options will not unduly disrupt the options or underlying cash markets.
At this time, the Commission believes that it is appropriate to allow
for an elimination of position and exercise limits for certain broad-
based index options on a two-year pilot basis.
The Commission believes that an elimination of position and
exercise limits for certain broad-based index options on a pilot basis
is appropriate for several reasons. Overall, the Commission believes
that the pilot will allow Amex to allocate certain of its surveillance
resources differently, focusing on enhanced reporting and surveillance
of trading to detect potential manipulation and risky positions that
may unduly affect the cash market, rather than focusing on the strict
enforcement of position limits. Although this regulatory approach
deviates from the current structure that has been in place since the
beginning of index options trading, the Commission believes that the
enhanced reporting and surveillance Amex is providing, as well as the
fact that the pilot is limited to two of Amex's most highly capitalized
and actively traded index options, provides a sound basis for approving
a two year pilot program eliminating position and exercise limits.
The Commission notes first that the proposal is limited to options
on two broad-based indexes, the XMI and XII, and FLEX options on those
indexes. The Commission believes that the enormous capitalization of
and deep, liquid markets for the underlying securities contained in
these indexes significantly reduces concerns regarding market
manipulation or disruption in the underlying market.\21\ Removing
position and exercise limits for these index options may also bring
additional depth and liquidity, in terms of both volume and open
interest, to the affected index options classes without significantly
increasing concerns regarding intermarket manipulations or disruptions
of the options or the underlying securities.
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\21\ XMI includes 20 of the largest, most widely-held stocks
across all major sectors of the U.S. market. As of January 26, 1999,
the total market capitalization for XMI was $1.9 trillion. XII is
adjusted quarterly to comprise the 75 stocks held in greatest dollar
amount among all publicly traded issues in institutional portfolios
larger than $100 million. As of January 26, 1999, the total market
capitalization for XII was $6.4 trillion.
In addition, the average daily trading volume for the underlying
components of these indexes for the six months preceding January 26,
1999, demonstrates the substantial liquidity of the index components
as a group. The average daily trading share volume underlying the
XMI is 3.2 million shares. The average daily trading share volume
underlying the XII is 4.4 million shares.
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Second, eliminating position and exercise limits for these
specified indexes should better serve the hedging needs of institutions
that engage in trading strategies different from those covered under
the index hedge exemption policy (e.g., delta hedges, OTC vs. listed
hedges). Furthermore, eliminating position and exercise limits for the
XMI and XII index options will alleviate the regulatory burdens related
to the current index hedge exemption, which involves a daily monitoring
of positions and reports to the Exchange at the current levels.
Third, the Commission believes that financial requirements imposed
by Amex and by the Commission adequately address concerns that an Amex
member or its customer may try to maintain an inordinately large
unhedged position in a broad-based index option. Current margin and
risk-based haircut methodologies serve to limit the size of positions
maintained by any one account by increasing the margin and/or capital
that a member must maintain for a large position held by itself or by
its customer.\22\ Amex also has the authority under its rules to impose
a higher margin requirement upon the member or member organization when
it determines a higher requirement is warranted.\23\ The Commission
believes that deleting the proposed margin review threshold of 100,000
contracts for XMI, XII and FLEX option on those indexes is appropriate
to avoid a possible misinterpretation that the Exchange may only impose
additional margin under Amex Rule 462 when this threshold is
reached.\24\ Monitoring accounts maintaining large positions should
provide the Exchange with the information necessary to determine
whether to impose additional margin and/or whether to assess capital
charges upon a member organization carrying the account. In addition,
the Commission's net capital rule, Rule 15c3-1 under the Exchange Act,
imposes a capital charge on members to the extent of any margin
deficiency resulting from the higher margin requirement. The
significant increases in unhedged options capital charges resulting
from the September 1997 adoption of risk-based haircuts and Amex's
margin requirements applicable to these products under Exchange rules
serves as an additional form of protection.\25\ The Commission also
notes that the OCC will serve as the counter-party guarantor in every
exchange-traded transaction.
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\22\ Exchange Act Rule 15c3-1 requires a capital charge equal to
the maximum potential loss on a broker-dealer's aggregate index
position over a +(-) 10% market move. Exchange margin rules require
margin on naked index options which are in or at-the-money equal to
a 15% move in the underlying index; and a minimum 10% charge for
naked out-of-the money contracts. At an index value of 9,000 this
approximates to a $135,000 to $90,000 requirement per each unhedged
contract.
\23\ See Amendment No. 1, and Amex Rules 462 and 904C,
Commentary .03.
\24\ Amendment No. 1 clarifies that the Exchange may impose
additional margin as it deems necessary.
\25\ See Exchange Act Release No. 38248 (February 6, 1997), 62
FR 6474 (February 12, 1997) (adopting Risk Based Haircuts); and Amex
Rule 462(d)(2)(K).
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Fourth, the Commission notes that the index options and other types
of index-based derivatives (e.g., forwards and swaps) are not subject
to position and exercise limits in the OTC market. The Commission
believes that eliminating position and exercise limits for the XMI and
XII options on a two-year pilot basis will better allow Amex to compete
with the OTC market.
[[Page 6409]]
Fifth, the Commission believes that Amex has adopted important
enhanced surveillance and reporting safeguards that will allow it to
detect and deter trading abuses arising from the elimination of
position and exercise limits for XMI and XII, and FLEX options on those
indexes. These safeguards will also allow Amex to monitor large
positions in order to identify instances of potential risk and to
assess additional margin and/or capital charges, if deemed necessary.
Specifically, Amex will subject XMI and XII, and FLEX options on those
indexes to a 100,000 contract hedge reporting requirement.\26\ Each
member or member organization that maintains a position on the same
side of the market in excess of these contract thresholds for its own
account or for the account of a customer must file a report that
includes, but is not limited to, data related to the option position,
whether such position is hedged and if so, a description of the hedge.
If applicable, the report must contain information concerning
collateral used to carry the position. Exchange market makers would
continue to be exempt from this reporting requirement. Although the new
reporting threshold is higher for XII, the new level will enable Amex
to allocate its surveillance resources on those accounts maintaining
larger, potentially riskier, positions. Amex has submitted to the
Commission a detailed description of enhanced surveillance procedures
the Exchange will implement in order to monitor accounts maintaining
large positions. The Commission also believes that Amex's new
surveillance procedures should enable the Exchange to assess and
respond to market concerns at an early stage. Although it is
inappropriate to discuss the details of Amex's enhanced surveillance
program, the Commission notes that these enhanced procedures were
critical in its determination to approve the proposed rule change.\27\
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\26\ The current hedge reporting threshold for XII is 45,000
contracts. There is currently no reporting requirement for XMI.
\27\ Disclosure of specific surveillance procedures could
provide market participants with information that could aid
potential attempts at avoiding regulatory detection of inappropriate
trading activity.
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Finally, the Commission notes the lack of any discernible problems
at existing levels. Although it is difficult to compare a market with
position limits and one without, the Commission notes that the lack of
any significant problems at existing levels, which are relatively high
for these two index options compared to other similar products, does
provide some basis for going forward with Amex's proposal. The
Commission further believes that, if problems were to occur during the
pilot period, the enhanced market surveillance of large positions
should help Amex to take the appropriate action in order to avoid any
manipulation or market risk concerns.
With regard to the eliminating of position and exercise limits for
FLEX options on the XMI and XII, the Commission believes that, given
the size and sophisticated nature of the FLEX options market for these
indexes, along with the reporting requirements, eliminating position
and exercise limits for FLEX options on the XMI and XII for a two-year
pilot period should not substantially increase manipulative concerns.
Notwithstanding the protections that have been built into Amex's
proposal, the Commission believes a prudent approach is warranted with
respect to the elimination of position limits for these indexes. In
this regard, the Commission cannot rule out the potential for adverse
effects on the securities markets for the component securities
underlying the effected broad-based indexes. To address this concern,
the Commission is approving the proposal for a two-year pilot period
and limiting the proposal to XMI and XII options, and FLEX options on
those indexes.\28\ Furthermore, three months prior to the end of the
pilot program, Amex will provide the Commission with a report detailing
the size and different types of strategies employed with respect to
positions established in those classes not subject to position limits.
In addition, the report will note whether any problems resulted due to
the no limit approach and any other information that may be useful in
evaluating the effectiveness of the pilot program.\29\ The Commission
expects that Amex will take prompt action, including timely
communication with the Commission and other marketplace self-regulatory
organizations responsible for oversight of trading in component stocks,
should any unanticipated adverse market effects develop.
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\28\ Cf. Exchange Act Release No. 30932 (September 9, 1997), 62
FR 48683 (September 16, 1997) (order approving the elimination of
position and exercise limits for FLEX equity options on a two year
pilot basis).
\29\ See Amendment No. 1.
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The Commission also believes that approval of the text being added
to Amex Rule 904C to state the current position limit for Eurotop 100
Index options is appropriate given that this change is technical in
nature.\30\
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\30\ See Exchange Release No. 30463, 57 FR 9284 (March 17, 1992)
(order approving Eurotop 100 index).
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The Commission finds good cause to approve the proposed rule filing
prior to the thirtieth day after the date of publication of notice of
filing thereof in the Federal Register. Approval of the proposed rule
change may bring additional depth and liquidity, in terms of both
volume and open interest, to the affected index options classes without
significantly increasing concerns regarding intermarket manipulations
or disruptions of the options or the underlying securities. Further,
the proposal is limited to a two year pilot and Amex has addressed the
regulatory concerns by adopting enhanced reporting and surveillance
requirements, as discussed above. The Commission also notes that it
recently approved a similar proposed rule change from the Chicago Board
Options Exchange (``CBOE''), CBOE's proposed rule change eliminated
position and exercise limits for SPX, OEX, DJX options and FLEX options
on those indexes on a two year pilot basis.\31\ CBOE's original
proposal, which was broader in that it proposed to eliminate position
and exercise limits for all broad-based index options, was published
for the entire twenty-one day comment period and generated only one
response favorable to the proposal. Although CBOE's SPX, OEX and DJX
options are not identical to Amex's XMI and XII options, these indexes
are all highly capitalized board-based indexes that have been regulated
in the same manner. Accordingly, the Commission believes that good
cause exists, consistent with Sections 6(b)(5) and 19(b) of the Act to
approve Amex's proposed rule change, as amended, on an accelerated
basis.
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\31\ See Exchange Release No. 40969, (January 22, 1999), 64 FR
4911 (February 1, 1999).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\32\ that the proposed rule change (SR-Amex-98-38) is approved, as
amended, on a two year pilot basis until February 1, 2001.
\32\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-3032 Filed 2-8-99; 8:45 am]
BILLING CODE 8010-01-M
