[Federal Register Volume 64, Number 42 (Thursday, March 4, 1999)]
[Notices]
[Pages 10512-10515]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-5374]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41100; File No. SR-Amex-98-31]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment Nos. 1 and 2 by the American Stock Exchange LLC
Relating to Options on the Cure for Cancer Common Stock Index
February 24, 1999.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby give that
on August 14, 1998, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission '') the proposed rule change. The Exchange submitted
Amendment No. 1 to its proposal on January 28, 1999,\3\ and Amendment
No. 2 on February 24, 1999.\4\ The proposed rule change, as amended, is
described in Items I, II, and III below, which Items have been prepared
by the Exchange. 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. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, the Exchange amended its eligibility
standard for component securities by adding an additional level of
trading volume. Further, the Exchange amended its maintenance
criteria by raising the percentage of the index that must satisfy
Rule 915, clarifying that the Commission has agreed to a specific
component of the index satisfying the standard set forth in Amex
Rule 916 instead of Amex Rule 915, and specifying that 90% of the
weight of the index must have a minimum monthly trading volume of
500,000 shares and 10% of the weight of the index must have a
minimum trading volume of 350,000 shares for each of the last six
months. See Amended Rule 19b-4 Filing (``Amendment No. 1'').
\4\ In Amendment No. 2, the Exchange specified its procedure for
rebalancing the index in the event of certain types of corporate
events, raised its eligibility standard for component securities by
raising the level of trading volume required for initial
eligibility, clarified that Cell Pathways, Inc. currently satisfies
the initial options eligibility criteria of Amex Rule 915, and
clarified that the Exchange will maintain the index consistent with
its original purpose. Further, the Exchange specified that stock
replacements and the handling of non-routine corporate actions will
be announced at least ten business days in advance whenever
possible. See Letter from Scott Van Hatten, Legal Counsel, Amex, to
Richard Strasser, Assistant Director, Division of Market Regulation
(``Division''), Commission, dated February 23, 1999 (``Amendment No.
2'').
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to trade options on the Cure for Cancer
Common Stock Index (``Index''), a new index
[[Page 10513]]
developed by Amex comprising of companies engaged in the research,
creation, development and production of cancer fighting drugs,
treatments and processes.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Amex 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. Amex 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to permit the Exchange
to trade standardized options on the Index. The Index is composed of
the stocks of twelve companies engaged in the research, creation,
development and production of cancer fighting drugs, treatments and
processes. Options on the Index will provide investors with a low-cost
means to participate in the performance of the cancer research,
treatment and cure industry and to hedge against the risk of investing
in the industry.
Eligibility Standards for Index Components
Amex, as developer of the Index, is responsible for selecting and
maintaining the companies to be included in the Index. The Index
conforms with the criteria of Exchange Rule 901C for including stocks
in an index on which standardized options trade. In addition, all of
the component securities currently meet the following standard: (1)
each component has a market capitalization of at least $75 million,
except one that has a market value of at least $50 million and accounts
for no more than 10% of the weight of the Index; (2) more than 80% of
the weight of the Index is accounted for by securities each having a
trading volume of not less than 1,000,000 shares over each of the six
months and the remaining 20% of the weight of the Index is accounted
for by one component having a trading volume of not less than 850,000
shares and the other, specifically agreed to by the Commission, trading
not less than 350,000 shares over each of the six months,\5\ (3) 75% of
the Index's components and its numerical index value currently underlie
standardized options; (4) foreign country securities or American
Depositary Receipts (``ADR'') thereon are not currently represented in
the Index; (5) all component stocks are either listed on the New York
Stock Exchange (``NYSE''), Amex, or traded through the facilities of
the National Association of Securities Dealers Automated Quotation
System (``Nasdaq'') and are reported National Market System (``NMS'')
securities; and (6) no component security represents more than 25% of
the weight of the Index, and the five highest weighted component
securities in the Index do not in the aggregate account for more than
60% of the weight of the Index.
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\5\ See Amendment No. 1, supra note 3 and Amendment No.2, supra
note 4. The Amex represents that it will verify that the individual
component securities satisfy this requirement as of February 26,
1999. Telephone conversation between Scott Van Hatten, Legal
Counsel, Amex, and Terri Evans, Attorney, Division, Commission, on
February 23, 1999.
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The Exchange believes the potential for manipulation of the Index
is minimized for the following reasons: (1) no single component
dominates the Index, which is equal-dollar weighted, with each
component constituting approximately 8.3% of the Index; (2) 75% of the
value of the Index is accounted for by stocks which currently underlie
standardized options; and (3) the component stocks are substantial and
liquid, having an average market capitalization of $247.43 million, an
average of 22.39 million shares outstanding, and a six-month average
monthly trading volume of 4.9 million shares.
Index Maintenance
The Index will be maintained by the Exchange consistent with its
original purpose (i.e., to include components engaged in the research,
creation, development and production of cancer fighting drugs,
treatments and processes).\6\ The number of shares of each component
stock in the Index portfolio will remain fixed between quarterly
rebalances except in the event of certain types of corporate
actions.\7\ If necessary in order to maintain continuity of the Index,
its divisor may be adjusted to reflect certain events relating to the
component stocks. These events include, but are not limited to, stock
distributions, stock splits, reverse stock splits, spin-offs, certain
rights issuance, recapitalizations, reorganizations, and mergers and
acquisitions. All stock replacements and the handling of non-routine
corporate actions will be announced at least ten business days in
advance of such effective change, whenever possible. The Exchange will
make this information available to the public through dissemination of
an information circular.\8\
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\6\ See Amendment No. 2, supra note 4.
\7\ Id.
\8\ Id.
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The Exchange will maintain the Index so that (1) the Index is
comprised of no less than nine component securities; (2) the component
securities constituting the top 90% of the Index by weight, will have a
minimum market capitalization of $75 million and the component stocks
constituting the bottom 10% of the Index, by weight, may have a minimum
market capitalization of $50 million; (3) 75% of the Index's numerical
index value will meet the then current criteria for standardized option
trading set forth in Amex Rule 915, except that one component included
in the 75% and specifically agreed to by the Commission may meet the
then current criteria set forth in Amex Rule 916,\9\ (4) foreign
country securities or ADRs thereon that are not subject to
comprehensive surveillance agreements will not in the aggregate
represent more than 20% of the weight of the Index; (5) all component
stocks will either be listed on Amex, NYSE, or Nasdaq/NMS; and (6) each
of the component stocks shall have a minimum monthly trading volume of
at least 500,000 shares for each of the last six months, except that
for each of the lowest weighted components in the Index that in the
aggregate account for no more than 10% of the weight of the Index,
trading volume must be at least 350,000 shares for each of the last six
months.\10\
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\9\ See Amendment No. 1, supra note 3.
\10\ Id.
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The Exchange shall 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.
Index Calculation
The Index will be calculated by the Amex using an ``equal-dollar
weighted'' methodology. The following is a description of the
methodology. As of the market close on December 31, 1992, a portfolio
of stocks was established representing an investment of approximately
$100,000 in the stock (rounded to the nearest whole share) of
[[Page 10514]]
each of the companies in the index. 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 100.00 as of the close of
trading on December 31, 1992. Quarterly, following the close of trading
on the third Friday of February, May, August and November, the Index
portfolio will be adjusted by changing the number of whole shares of
each component stock so that each company is again represented in
``equal'' dollar amounts. If necessary, a divisor adjustment is made
during the rebalancing to ensure 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 remain 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,
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 of 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 to a replacement, the average dollar value of
the remaining components will be calculated and that amount invested in
the stock of the new component to the nearest whole share. 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.
Expiration and Settlement
The proposed options on the Index will be European style (i.e.,
exercises permitted at expiration only) and cash settled. Standard
option trading hours (9:30 a.m. to 4:02 p.m. (ET)) will apply. The
options on the Index will expire on the Saturday following the third
Friday of the expiration month. The last trading day in an expiring
option 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 option series with expirations in the
three near-term calendar months and in the two additional calendar
months in the March cycle. In addition, longer-term option series
having up to thirty-six months to expiration and FLEX Index options may
be traded on the Index. Instead of such long-term options on a full
value Index level, the Exchange may list long-term, reduced value put
and call options based on one-tenth (\1/10\th) of the Index's full
value. The interval between expirations 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 options, either full or reduced value, would
be subject to the same rules that 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
Europeans style exercise.
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.\11\
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\11\ The Commission notes that pursuant to Article XVII, Section
4 of the Options Clearing Corporation's (``OCC'') by-laws, OCC is
empowered to fix an exercise settlement amount in the event it
determines a current index value is unreported or otherwise
unavailable. Further, 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 an 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 42671 (order approving SR-OCC-95-19).
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Exchange Rules Applicable to Stock Index Options
Amex Rules 900C through 980C will apply to the trading of option
contracts based on the Index. These Exchange Rules cover issues such as
surveillance, exercise prices and position limits. 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). With respect to Amex Rule
903C(b), the Exchange proposes a 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 Exchange expects
that the review required by Amex Rule 904C(c) will result in a position
limit of 15,000 contracts with respect to options on this Index.
Surveillance procedures currently used to monitor trading in each of
the Exchange's other index options will also be used to monitor trading
options on the Index.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the Act
\12\ in general and furthers the objectives of Section 6(b)(5) \13\ 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.
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\12\ 15 U.S.C. 78f(b).
\13\ 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
The Exchange has neither solicited nor received written comments
with respect to the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the date of 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 reasons for so finding or (ii) as to
which the Amex 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, 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
[[Page 10515]]
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 in the Commission's
Public Reference Room in Washington, DC. 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-98-31
and should be submitted by March 25, 1999.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-5374 Filed 3-3-99; 8:45 am]
BILLING CODE 8010-01-M
