[Federal Register Volume 61, Number 55 (Wednesday, March 20, 1996)]
[Notices]
[Pages 11448-11451]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-6641]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36953; File No. SR-Amex-96-08]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the American Stock Exchange, Inc., Relating to the Trading of
Options on the Amex Gold BUGSSM Index
March 11, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on February
9, 1996, 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, 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.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Amex proposes to list and trade standardized options on the
Amex Gold BUGSSM Index (``Index''), a modified equal-dollar
weighted index developed by the Amex and comprised of 15 gold mining
company stocks (or American
[[Page 11449]]
Depositary Receipts (``ADRs'') thereon) which are traded on the Amex or
the New York Stock Exchange (``NYSE''). The Amex proposes to amend
Commentary .01 to Amex Rule 901C, ``Designation of Stock Index
Options,'' to indicate that 90% of the Index's numerical index value
must be accounted for by stocks which meet the then current criteria
and guidelines provided in Amex Rule 915, ``Criteria for Underlying
Securities'' and to indicate that these criteria must also be satisfied
immediately following each quarterly rebalancing.
The text of the proposal 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
(a) Purpose
The Amex proposes to trade standardized options on the Index, a
modified equal-dollar weighted index developed by the Amex,
representing a portfolio of 15 large actively traded gold mining
company stocks. The Exchange believes that an index of gold mining
stocks whose values are affected strongly by the price of gold will be
attractive to many investors. In an effort to give investors an index
with a significant exposure to the near term movements in gold prices,
the Exchange has included in the Index those gold mining companies that
do not hedge their gold production for extensive periods into the
future. According to the Amex, gold fluctuating price of gold. Only
companies that have a hedging ratio of less than 1\1/2\ years
production will be considered for inclusion in the Index.
Eligibility Standards for Index Components
The Amex states that the Index conforms with Exchange Rule 901C,
which specifies criteria for the inclusion of stocks in an index on
which standardized options will be traded. According to the Amex, the
Index also conforms to most of the criteria set forth in Amex Rule
901C, Commentary .02 (which provides for the commencement of trading of
options on an index 30 days after the date of filing), except that the
Index is calculated using a modified version of the equal-dollar
weighting method and four of the components of the Index do not meet
the six month minimum trading volume criteria.\1\ According to the
Amex, all of the Index's component securities meet the following
eligibility standards: (1) all of the Index's component securities are
traded on the Amex or the NYSE; (2) the component stocks comprising the
top 90% of the Index by weight have a market capitalization\2\ of at
least $75 million, and those component stocks constituting the bottom
10% of the Index by weight have a market capitalization of at least $50
million; and (3) foreign country securities or ADRs thereon that are
not subject to comprehensive surveillance agreements do not in the
aggregate represent more than 20% of the weight of the Index. In
addition, stocks constituting 87.34% of the Index by weight have
minimum monthly volume of one million shares during the six months
preceding the Amex's filing. Four stocks constituting 12.66% of the
Index by weight have minimum monthly volumes ranging from 429,000 to
62,000 shares during the six months preceding the Amex's filing.
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\1\ Under Amex Rule 901C, Commentary .02, the Amex may list
options on a stock industry index pursuant to Section 19(b)(3)(A)
under the Act provided that the index satisfies certain criteria.
Commentary .02 requires, among other things, that the index be
calculated based on either the capitalization weighting, price
weighting, or equal-dollar weighting methodology, and that the
trading volume for each component stock of the index in each of the
last six months be not less than 1,000,000 shares, except that for
each of the lowest weighted component securities in the index that
in the aggregate account for no more than 10% of the weight of the
index, the trading volume must be at least 500,000 shares in each of
the last six months.
\2\ In the case of ADRs, this represents market capitalization
as measured by total world-wide shares outstanding.
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Index Calculation
The Index is calculated using a modified equal-dollar weighting
methodology. Three of the Index's component companies are given higher
weightings based upon their market value. The following is a
description of how this modified equal-dollar weighting calculation
method works. As of the market close on February 5, 1996, a portfolio
of gold mining company stocks was established representing an
investment of approximately (1) $16,000 in two components in the Index;
(2) $12,000 in one of the components; (3) $2,000 in two components; and
(4) $4,300 in the remaining 12 components (rounded to the nearest whole
share). The value of the Index equals the current market value (i.e.,
based on U.S. primary market prices) of the sum of the assigned number
of shares of each of the stocks in the Index portfolio divided by the
Index divisor. The Index divisor was initially determined to yield the
benchmark value of 200.00 at the close of trading on February 5, 1996.
Each quarter thereafter, following the close of trading on the Thursday
prior to the third Friday of March, June, September, and December, the
Index portfolio will be reviewed and adjusted if any one of the three
components initially representing higher weightings in the Index value
currently represents 25 percent or more of the Index value, or if any
one of the other components initially representing lower weightings in
the Index value currently represents 5 percent or more of the Index
value. The Index portfolio will be rebalanced, if necessary, by
changing the number of whole shares of each component stock so that the
three components initially given higher weights will again represent
less than 25 percent of the Index value, and the remaining lower-
weighted components will each represent less than 5 percent of the
Index value. The Exchange has chosen to rebalance the Index following
the close of trading on the Thursday prior to the third Friday of
March, June, September and December, since it allows an option contract
to be held for up to three months without a change in the Index
portfolio while, at the same time, maintaining the equal-dollar
weighting feature of the Index. If necessary, a divisor adjustment will
be made at the rebalancing to ensure the continuity of the Index's
value. The newly adjusted portfolio becomes the basis for the Index's
value on the first trading day following the quarterly adjustment.
As noted above, the number of shares of each component stock in the
Index portfolio remains fixed between quarterly reviews except in the
event of certain types of corporate actions such as the payment of a
dividend other than an ordinary cash dividend, stock distribution,
stock split, reverse stock split, rights offering, distribution,
[[Page 11450]]
reorganization, recapitalization, or similar event with respect to the
component stocks. In a merger or consolidation of an issuer of a
component stock, if the stock remains in the Index, the number of
shares of that security in the portfolio may be adjusted, to the
nearest whole share, to maintain the component's relative weight in the
Index at the level immediately prior to the corporate action. In the
event of a stock addition or replacement, the new component stock will
be added to the Index at a weight determined by the Exchange and the
Index will be rebalanced. In all cases, the divisor will be adjusted,
if necessary, to ensure Index continuity.
Similar to other stock index values published by the Exchange, the
value of the Index will be calculated continuously and disseminated
every 15 seconds over the Consolidated Tape Association's Network B.
Maintenance of the Index
The Exchange will maintain the Index so that upon quarterly
rebalancing: (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) at least 90 percent
of the Index's numerical index value and at least 80 percent of the
total number of component securities individually will meet the then
current criteria for standardized option trading set forth in Amex Rule
915; (4) stocks constituting 85 percent of the Index have a monthly
trading volume of at least 500,000 shares for each of the last six
months; (5) 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 at each quarterly
rebalancing; and (6) in order to maintain the character of the Index,
companies whose gold production hedging policies change to greater than
1\1/2\ times annual production will be considered for removal from the
Index.
The Amex will not open for trading any additional option series if
the Index fails to satisfy any of the maintenance criteria set forth
above unless the Exchange determines that such failure is not
significant and the Commission concurs in that determination or unless
the continued listing of options on the Index has been approved by the
Commission pursuant to Section 19(b)(2) of the Act.
Expiration and Settlement
THe options on the proposed Index will be European-style (i.e.,
exercises permitted only at expiration) and cash-settled. Standard
option trading hours (9:30 a.m. to 4:10 p.m. Eastern Standard Time)
will apply. Options on the Index will expire on the Saturday following
the third Friday of the expiration month (``Expiration Friday''). The
last trading day in an expiring option series normally will 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 Amex plans to list series with expirations in the three near-
term calendar months and in the two additional calendar months in the
March cycle. In addition, the Amex may list longer term option series
having up to 36 months to expiration. In lieu of such long-term options
on a full value Index, the Amex may instead list long-term, reduced
value put and call options based on one-tenth \1/10\ the Index's full
value. In either event, the interval between expiration months for
either a full value or reduced value long-term option will not be less
than six months. The trading of any long-term Index options will be
subject to the same rules which govern the trading of all of the Amex's
index options, including sales practice rules, margin requirements, and
floor trading procedures. As noted above, all Index options will have
European-style exercise. Position limits on reduced-value long term
Index options will be equivalent to the positions limits for full value
Index options and will be aggregated with such options. For example, if
the position limit for the full value Index options is 9,000 contracts
on the same side of the market, then the position limit for the reduced
value Index options will be 90,000 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's regular
way opening sale prices for the component stocks. In the case of
securities traded through the facilities of the National Association of
Securities Dealers Automated Quotation system (``NASDAQ''), the first
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.
Exchange Rules Applicable to Stock Index Options
Amex Rules 900C, ``Applicability and Definitions,'' through 980C,
``Exercise of Stock Index Option Contracts,'' 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 Index. The Index is deemed to be a stock index option under Amex
Rule 901C(a) and a stock index industry group under Amex Rule
900C(b)(1).\3\ With respect to paragraph (b) of Amex Rule 903C,
``Series of Stock Index Options,'' the Exchange proposes to list near-
the-money 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 Exchange expects that the review required by paragraph
(c) of Amex Rule 904C, ``Position Limits,'' will result in a position
limit of 9,000 contracts for options on the Index.\4\
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\3\ Under Amex Rule 900C(b)(1), a stock index industry group is
an index of stocks representing a particular industry or related
industries.
\4\ Amex Rule 904(c) provides that the position limit for an
industry index option will be 9,000 contracts if the Amex determines
at the commencement of trading of the options that any single stock
in the underlying stock index industry group accounted, on average,
for 20% or more of the numerical index value or that any five stocks
in the group together accounted, on average, for more than 50% of
the numerical index value, but that no single stock in the group
accounted, on average, for 30% or more of the numerical index value,
during the 30-day period immediately preceding the review.
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(b) 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 trade, and is not designed to permit unfair
discrimination between customers, issuers, brokers or dealers.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Amex does not believe that the proposed rule change will impose
any burden on competition.
[[Page 11451]]
(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
Within 35 days after 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 reason for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(a) By order approve such 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, NW., Washington, DC 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 Section, 450 Fifth Street, NW.,
Washington, DC. Copies of such filing will also be available for
inspection and copying at the principal office of the above-mentioned
self-regulatory organization. All submissions should refer to the file
number in the caption above and should be submitted by April 10, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12) (1995).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-6641 Filed 3-19-96; 8:45 am]
BILLING CODE 8010-01-M
