[Federal Register Volume 61, Number 95 (Wednesday, May 15, 1996)]
[Notices]
[Pages 24520-24521]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-12174]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37179; File No. SR-Amex-96-11]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change and Amendment No. 1 to Proposed
Rule Change by the American Stock Exchange, Inc., To Establish a Firm
Facilitation Exemption
May 8, 1996.
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 April 9, 1996, 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.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4 (1994).
\3\ On May 2, 1996, the Amex filed Amendment No. 1 to the
proposed rule change to include within the rule text the requirement
that if the Exchange grants a facilitation exemption on the basis of
oral representations, the member organization must file the
appropriate forms and documentation substantiating the basis for the
exemption within either two business days or a period of time to be
designated by the Exchange (``Amendment No. 1''). See Letter from
Claire P. McGrath, Managing Director and Special Counsel, Derivative
Securities, Amex, to Michael Walinskas, Branch Chief, Derivatives
Regulation, Division of Market Regulation, Commission, dated May 2,
1996.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Amex proposes to amend Exchange Rules 904, 905, 904C, and 906G
to provide for an exemption from standardized equity and index and
Flexible Exchange option position and exercise limits for member firms
seeking to facilitate customer orders.
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 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. The 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Amex is proposing to establish a firm facilitation exemption
\4\ for all non-multiply-listed Exchange option classes. This exemption
would be available to the Exchange's standardized equity and index and
Flexible Exchange option classes. In addition, the firm facilitation
exemption will be twice the standard limit.
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\4\ The Commission notes that a facilitation trade is defined as
a transaction that involves crossing an order of a member firm's
public customer with an order for the member firm's proprietary
account.
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Under the proposal, the procedures set forth in Exchange Rule
950(d) Commentary .02 for crossing a customer order with a firm
facilitation order must be followed. In this regard, before a customer
order can be crossed with a firm facilitation order, the trading crowd
must be given a reasonable opportunity to participate. Moreover, only
after it has been determined that the trading crowd will not fill the
order, may the firm's customer order be crossed with the firm's
facilitation order.
The Amex notes that the firm facilitation exemption will be in
addition to and separate from the standard limit, as well as other
exemptions available under the Exchange's position limit rules. For
example, if a firm desires to facilitate customer orders in the XYZ
option
[[Page 24521]]
class, which is assumed not to be multiply-listed and also assumed to
have a 25,000 contract standard position limit, the firm may qualify
for a firm facilitation exemption of up to twice the standard limit
(50,000 contracts), as well as an equity hedge exemption of up to twice
the standard limit (50,000 contracts), in addition to the 25,000
contract standard limit. If both exemptions are allowed, the
facilitation firm may hold or control a combined position of up to
125,000 XYZ contracts on the same-side of the market.
Initially, the Exchange intends to provide the facilitation
exemption to member firms only for positions in equity options that are
solely listed on the Exchange and not for multiply-listed equity
options. The reason for this temporary limitation is to allow the
options exchanges, working through the Intermarket Surveillance Group
(``ISG''), to develop uniform procedures to assure that all market
participants at each exchange are given an opportunity to participate
in an order before a member firm is given an exemption from the
position limit rules.
Under the proposal, member firms must receive approval from the
Exchange prior to executing the facilitating order which would result
in the firm exceeding position limits. Although permission may be
obtained based on oral representations, the facilitation firm is
required to furnish to the Exchange, within two business days or such
other time period designated by the Exchange, forms and documentation
substantiating the basis for the exemption. Further, to remain
qualified for the exemption, the member firm must, within five business
days after the execution of the exempted order, hedge all exempt option
positions that have not previously been liquidated, and furnish to the
Exchange documentation reflecting the resulting hedging position. In
meeting this requirement, the facilitation firm must liquidate and
establish its customer's and its own option and stock positions or
their equivalent in an orderly fashion, and not in a manner calculated
to cause unreasonable price fluctuations or unwarranted price changes.
In addition, a facilitation firm is not permitted to use the
facilitation exemption for the purpose of engaging in index arbitrage.
Moreover, the facilitation firm is required to promptly provide to the
Exchange any information or documents requested concerning the exempted
option positions and the positions hedging them, as well as to promptly
notify the Exchange of any material change in the exempted option
positions or the hedge.
2. Statutory Basis
The Exchange 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, and dealers.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe 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
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
Because the foregoing proposed rule change: (1) does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
(3) was provided to the Commission for its review at least five
business days prior to the filing date; and (4) does not become
operative for 30 days from April 9, 1996, the date on which it was
filed, the proposed rule change has become effective pursuant to
Section 19(b)(3)(A) of the Act and Rule 19b-4(e)(6) thereunder. In
particular, the Commission believes that the proposal qualifies as a
``noncontroversial filing'' in that the proposed amendments do not
significantly affect the protection of investors or the public interest
and do not impose any significant burden on competiton. At any time
within 60 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 for the public
interest, for the protection of investors, or otherwise in furtherance
of the purposes of the Act.
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. Sec. 552, will be available for inspection and copying at
the Commission's Public Reference Section, 450 Fifth Street, NW,
Washington, DC 20549. Copies of such filing will also be available for
inspection and copying at the principal office of the Amex. All
submissions should refer to File No SR-Amex-96-11 and should be
submitted by June 5, 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) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-12174 Filed 5-14-96; 8:45 am]
BILLING CODE 8010-01-M
