[Federal Register Volume 62, Number 99 (Thursday, May 22, 1997)]
[Notices]
[Pages 28081-28082]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13460]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38640; File No. SR-AMEX-96-45]
Self-Regulatory Organizations; American Stock Exchange, Inc.
Order Approving Proposed Rule Change and Amendment No. 1 and Notice of
Filing and Order Granting Accelerated Approval of Amendment No. 2
Relating to the Establishment of a 4:02 p.m. Closing Time for Equity
and Narrow-Based Index Options Trading
May 14, 1997.
I. Introduction
On November 22, 1996, the American Stock Exchange, Inc. (``Amex''
or ``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') a proposed rule change pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule
19b-4 thereunder.\2\ On December 17, 1996, the Exchange Filed Amendment
No. 1 to the rule proposal.\3\ On May 13, 1997, the Exchange filed
Amendment No. 2 to the rule proposal.\4\
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\1\ 15 U.S.C. Sec. 78s(b)(1).
\2\ 17 CFR 249.19b-4.
\3\ Letter from Claire McGrath, Managing Director and Special
Counsel, Amex, to Ivette Lopez, Assistant Director, Division of
Market Regulation, Commission, dated December 16, 1996 (``Amendment
No. 1''). Amendment No. 1 proposes to amend the closing time to 4:02
p.m. for narrow-based index options, as well as equity options.
\4\ Letter from Claire McGrath, Managing Director and Special
Counsel, Amex, to Ivette Lopez, Assistant Director, Division of
Market Regulation, Commission, dated May 13, 1997 (``Amendment No.
2''). Amendment No. 2 proposes to amend Rule 1, Commentary .02(2) to
provide that a closing rotation in non-expiring options may be held
five minutes after news of such rotation is publicly disseminated.
Currently, the rule provides for a ten minute notice period of a
closing rotation.
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Notice of the substance of the proposed rule change and Amendment
No. 1 was provided by issuance of a release \5\ and by publication in
the Federal Register.\6\ No comments were received. This order approves
the proposed rule change, as amended, and solicits comments on
Amendment No. 2.
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\5\ Securities Exchange Act Release No. 38123 (January 6, 1997).
\6\ 62 FR 1786 (January 13, 1997).
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II. Description of the Proposal
The Exchange proposes to amend Rules 1, 903C, 918 and 980C
governing the hours of trading in equity options and narrow-based index
options. Currently, the ten minute period for trading equity and
narrow-based index options after the close of the underlying stocks
allows options traders to respond to late reports of closing prices
over the consolidated tape. The proposed rule change will result in the
close of trading in equity and narrow-based index options at 4:02 p.m.
instead of the existing close of 4:10 p.m.
The Exchange also proposes to amend Rule 1, Commentary .02(2) to
provide that a closing rotation in non-expiring options may be held
five minutes after news of such rotation is publicly disseminated.
Currently, the rule provides for a ten minute notice period of a
closing rotation.
III. Discussion
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, Section 6(b)(5).\7\ Section 6(b)(5) requires, among other
things, that the rules of an exchange be designed to promote just and
equitable principles of trade, perfect the mechanism of a free and open
national market, and in general, to further investor protection and the
public interest.
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\7\ 15 U.S.C. Sec. 78f(b)(5).
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The Commission believes that it is reasonable for the Exchange to
amend its rules to close trading in equity and narrow-based index
options at 4:02 p.m., versus the existing 4:10 p.m. close. Changing the
closing time for these options to 4:02 p.m. preserves the Exchange's
stated need to continue trading options for some period of time after
the close of trading in the underlying securities. The Exchange has
stated that this two minute extension from the close of the stock
markets will allow options traders to respond to late reports of
closing prices over the consolidated tape, thereby bringing options
quotes in line with the closing price of the underlying security. Due
to improvements in the processing and reporting of transactions, the
Exchange believes that two minutes of options trading after the
underlying equities close is sufficient to bring option quotes in to
line with the closing prices of the underlying securities.
In determining an appropriate closing time, the Exchange has also
considered problems that might result when the exchange remains open
after the close of the primary exchange for the underlying stocks. The
Exchange states that a number of issuers have adopted the practice of
disseminating important corporate news after the close of trading on
the primary equity exchange in order to minimize the short-term
disruptive effect of the news on the market price of the stock by
allowing investors the opportunity to digest the significance of the
news after the markets have closed. These announcements, if made while
options markets are still trading, impact narrow-based index options,
as well as equity options, because a significant news announcement on
one component of a narrow-based index may have substantial impact on
that index. Despite the fact that most Exchange products trade until
4:10 p.m., important corporate news is often disseminated between 4:00
and 4:10 p.m. Consequently, the Exchange states that because the
principal market for the underlying stock is closed, option specialists
and market makers have experienced difficulty in making orderly options
markets due to their inability to hedge or otherwise offset market risk
with transactions in the underlying
[[Page 28082]]
equity. Further, the Exchange believes that public customers are unable
to react as quickly as professional traders to significant news
releases made prior to the close of options trading. The Exchange
states that a change in the options trading close to 4:02 p.m. would
limit the disruptive effect on Exchange products that these significant
news announcements can create.
Accordingly, the Commission finds that a closing time of 4:02 p.m.
for equity and narrow-based index options is a reasonable means to
address the Exchange's desire to balance the need for some extended
trading period with the need to prevent negative impact from issuers'
major news announcements made while only the options markets remain
open.
The Commission also finds that permitting a closing rotation in
non-expiring options five minutes after news of such rotation is
publicly disseminated is reasonable. The Exchange states that the
change from a ten minute notice period to a five minute notice period
will conform the Exchange's rule to the rules of the other exchanges,
such as the Chicago Board Options Exchange, Inc. (``CBOE'').\8\
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\8\ See SR-CBOE-96-71 (amending CBOE Rule 6.2, Interpretation
.02 to permit a five minute notice period for closing rotations).
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It is contemplated that the Exchange will implement this rule
change on or about June 23, 1997.\9\
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\9\ Phone conversation between Claire McGrath, Exchange and
Janice Mitnick, Commission, on May 14, 1997.
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The Commission finds good cause for approving Amendment No. 2 to
the filing prior to the 30th day after the date of publication of the
notice of the filing. Amendment No. 2 serves to conform the Exchange's
proposal to other exchanges' rules. Accordingly, the Commission
believes there is good cause, consistent with Sections 6(b)(5) and
19(b)(2) of the Act, to approve Amendment No. 2 to the proposal on an
accelerated basis.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning Amendment No. 2. 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 in the Commission's Public Reference Room. 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-96-45, and should be submitted by June 12, 1997.
V. Conclusion
For the reasons discussed above, the Commission finds that the
proposal is consistent with the Act, and, in particular, Section 6 of
the Act.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-Amex-96-45) is approved.
\10\ 15 U.S.C. Sec. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 97-13460 Filed 5-21-97; 8:45 am]
BILLING CODE 8010-01-M
