[Federal Register Volume 63, Number 87 (Wednesday, May 6, 1998)]
[Notices]
[Pages 25130-25132]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11952]
[[Page 25130]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39928; File No. SR-AMEX-98-01]
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 Flexible
Exchange Index Options
April 28, 1998.
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 January 14, 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. On March 2, 1998, the Exchange filed Amendment
No. 1 to the proposal with the Commission.\3\ The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons and to grant accelerated approval to the
proposed rule change as amended.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Letter from cott VanHatten, Legal Counsel, Derivative
Securities, Amex to Michael Walinskas, Senior Special Counsel,
Division of Market Regulation, SEC dated February 27, 1998
(``Amendment No. 1''). In Amendment No. 1, the Exchange adds
language to Rule 903G indicating that FLEX options may only be
traded on an equity or index that was previously approved for non-
FLEX trading. In addition, the Exchange represents that it will
request Commission approval before trading FLEX options on indices
not yet approved for FLEX options trading.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to expand the listing and trading of Flexible
Exchange options (``FLEX Options'') to all of the Exchange's Broad
Stock Index Groups and Stock Index Industry Groups. The text of the
proposed rule change 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 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
On August 20, 1993, the Commission, pursuant to Section 19(b)(2) of
the Act and Rule 19b-4 thereunder, approved the Exchange's
FLEXTM Options \4\ framework permitting the Exchange to list
and trade FLEX Options based on the Major Market (``XMI''),
Institutional (``XII'') and Standard & Poor's Corporation (``S&P'')
MidCap (``MID'') Indices.\5\ On December 1, 1993, the Commission
approved the listing and trading of FLEX Options on the Exchange's
Japan Index (``JPN'').\6\
---------------------------------------------------------------------------
\4\ The term ``FLEX'' is a trademark of the Chicago Board
Options Exchange, Inc.
\5\ Securities Exchange Act Release No. 32781 (August 20, 1993),
58 FR 45360 (August 27, 1993).
\6\ Securities Exchange Act Release No. 33262 (December 1,
1993), 58 FR 64622 (December 8, 1993).
---------------------------------------------------------------------------
The Exchange now proposes to expand approval for FLEX Options
trading to all of its indices, including all Broad Stock Index Groups
(other than the ones currently approved as noted above) \7\ and all
Stock Index Industry Groups.\8\
---------------------------------------------------------------------------
\7\ Amex Broad Stock Index Group Options currently consist of
the following: EUROTOP 100 Index, Hong Kong Options Index,
Institutional Index, Japan Index, Major Market Index, S&P MidCap 400
Index, Morgan Stanley Consumer Index and Morgan Stanley Cyclical
Index.
\8\ Amex Stock Index Industry Group Options currently consist of
the following: Airline Index, Gold BUGS Index, Biotechnology Index,
Computer Technology Index, de Jager Year 2000 Index, Disk Drive
Index, Interactive Week Internet Index, Mexico Index, M.S. Commodity
Related Index, M.S. Heathcare Payor Index, M.S. Healthcare Product
Index, M.S. Healthcare Provider Index, M.S. High Technology 35
Index, Natural Gas Index, The NatWest Energy Index, Networking
Index, North American Telecommunications Index, Oil Index,
Pharmaceutical Index, Securities Broker/Dealer Index and Tobacco
Index.
---------------------------------------------------------------------------
Broad Stock Index Group FLEX Options. As noted above, the Exchange
currently provides for the trading of FLEX Options on XMI, XII, MID and
JPN indices. The Exchange now proposes to expand the ability to trade
FLEX Options to include all of its Broad Stock Index Group indices,
including the EUROTOP 100, Hong Kong Option, Morgan Stanley Consumer
and Morgan Stanley Cyclical Indices. All of the Exchange's rules
applicable to FLEX Index Options will apply to the additional Broad
Stock Index Group FLEX Options. In addition, the Exchange proposes to
apply its current position and exercise limits of 200,000 contracts on
the same side of the market for FLEX Options on broad indices to FLEX
Options on the additional Broad Stock Index Group indices. The Exchange
is proposing this expansion in response to requests from market
participants to make available FLEX Options on various additional broad
indices. In addition, the Exchange believes that expansion of trading
in FLEX Options to all of its Broad Stock Index Group indices will
provide new and important trading opportunities which are currently
unavailable to market participants. Further, it will increase the
Exchange's competitiveness with the over-the-counter market place as
well as with other exchanges which have continued to expand FLEX
Options trading on indices.\9\ Rules currently in place for FLEX
Options on indices shall apply to the FLEX Options on these additional
broad indices.
---------------------------------------------------------------------------
\9\ On January 14, 1998, the Commission approved the
Philadelphia Stock Exchange's proposal to establish Rule 1079
providing for the trading of FLEX Options on equities and narrow and
broad indices. Securities Exchange Act Release No. 39549 (January
14, 1998), 63 FR 3601 (January 23, 1998). On September 3, 1997, the
Commission approved the Chicago Board Options Exchange's proposal to
list FLEX Options on the Dow Jones Industrial Average. Securities
Exchange Act Release No. 39011 (September 3, 1997), 62 FR 47841
(September 11, 1997).
---------------------------------------------------------------------------
Stock Index Industry Group FLEX Options. The Exchange also proposes
to provide for the trading of FLEX Options on all of its Stock Index
Industry Group indices (``Industry Indices''). As with its Broad Stock
Index Group indices, the Exchange has received requests to provide for
the trading of FLEX Options on its Industry Indices and believes this
expansion will provide new and important trading opportunities
currently unavailable to market participants while increasing the
Exchange's competitiveness with the over-the-counter market place and
other exchanges which have continued to expand FLEX Options trading on
their indices.
In addition to applying its existing FLEX Index Options rules to
the trading of Industry Index FLEX Options, the Exchange proposes to
establish position limits for these FLEX Options at four times the
position limits for standard options on the respective underlying
Industry Index (36,000, 48,000 and 60,000 contracts on the same side of
the market). The Exchange believes such position limits are appropriate
given the institutional nature and use of FLEX Index Options. Further,
the proposed
[[Page 25131]]
position limits are the same as those recently adopted by the
Philadelphia Stock Exchange, Inc.\10\
---------------------------------------------------------------------------
\10\ Securities Exchange Act Release No. 39549 (January 14,
1998), 63 FR 3601 (January 23, 1998).
---------------------------------------------------------------------------
Finally, the Exchange proposes to adopt $5 million Underlying
Equivalent Value as the minimum value size for opening transactions and
Request for Quotes in Stock Index Industry Group Flex Index Options for
any series with no open interest, $1 million Underlying Equivalent
Value for any series with open interest and $1 million Underlying
Equivalent Value, or the remaining Underlying Equivalent Value for a
closing transaction, whichever is less. Similar to the proposed
position limits for Stock Index Industry Group Flex Options, the
Exchange believes such minimum value sizes for opening and closing
transactions and Requests for Quotes are appropriate given the
institutional nature and use of FLEX Index Options and they are the
same minimum value sizes proposed by the Philadelphia Stock Exchange,
Inc. in its proposal to trade FLEX Options on narrow based indices.\11\
---------------------------------------------------------------------------
\11\ Id.
---------------------------------------------------------------------------
2. Statutory Basis
The basis under the Act for the proposed rule change is the
requirement under Section 6(b)(5) \12\ that an Exchange have rules that
are designed to promote just and equitable principles of trade, and is
not designed to permit unfair discrimination between customers,
issuers, brokers or dealers.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange represents that 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, 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 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-98-01 and
should be submitted by May 27, 1998.
IV. Commission's Findings and Order Granting Accelerated Approval
of 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 Sections 6(b)(5) \13\ and 11A \14\
of the Act. Specifically, consistent with Section 11A of the Act, the
proposal should encourage fair competition among brokers and dealers
and the exchange markets, by allowing the Exchange to compete more
effectively with the growing OTC market in customized index options.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f(b)(5).
\14\ 15 U.S.C. 78k-1.
---------------------------------------------------------------------------
The Commission believes that the Exchange's proposal reasonably
addresses its desire to better meet the demands of sophisticated
portfolio managers and other institutional investors who are
increasingly using the OTC market in order to satisfy their hedging
needs. Additionally, the Commission believes that the Exchange's
proposal will help promote the maintenance of a fair and orderly
market, consistent with Sections 6(b)(5) and 11A of the Act, because
the purpose of the proposal is to facilitate the extension of the
benefits of a listed exchange market to a wider variety of index
options that are more flexible than current listed options and that
currently trade OTC. The benefits of the Exchange's options 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 OCC for all contracts traded on the
Exchange.\15\
---------------------------------------------------------------------------
\15\ In approving this rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation, 15 U.S.C. 78c(f).
---------------------------------------------------------------------------
The Commission believes that the Exchange's proposal to designate
all currently approved Amex Industry and Broad Stock Group Indices as
eligible for FLEX index options trading is consistent with the Act. The
Commission notes, however, that when submitting a Section 19(b)
proposal to list and trade a new non-FLEX index options product, the
Exchange must, in the same filing, specifically propose to list and
trade the FLEX index options. If the Exchange is not prepared at that
time to seek approval for the listing of FLEX options overlying the
proposed index, then the Exchange should submit a rule filing pursuant
to Section 19(b) of the Act proposing to list and trade FLEX options on
that index at an appropriate time in the future.
In addition, the Commission believes that it is reasonable for the
Exchange to apply its existing position limit of 200,000 contracts on
the same side of the market to the additional Broad Stock Index Group
indices approved for FLEX Options trading pursuant to this proposal.
The Commission also believes that it is reasonable for the Exchange to
establish position limits for Amex Industry Index FLEX Options at four
times the position limits for standard options on the respective
underlying Industry Index (36,000, 48,000 and 60,000 contracts on the
same side of the market). The Commission notes that these position
limits are identical to those recently adopted by the Philadelphia
Stock Exchange.\16\
---------------------------------------------------------------------------
\16\ Securities Exchange Act Release No. 39549 (January 14,
1998), 63 FR 3601 (January 23, 1998).
---------------------------------------------------------------------------
Finally, the Commission believes that it is reasonable for the Amex
to require a $5 million underlying equivalent value for an opening
transaction in Amex Industry Index FLEX options.\17\ The Commission
believes that this large underlying equivalent value requirement should
help to ensure that transactions in FLEX index options remain of
substantial size and, therefore, that the product is geared to an
institutional, rather than a retail market.
---------------------------------------------------------------------------
\17\ The Commission notes that this underlying equivalent value
requirement is identical to that recently approved by the Commission
for the Philadelphia Stock Exchange. See Phlx Rule 1079(a)(8)(A)(i).
---------------------------------------------------------------------------
The Commission finds good cause for approving the proposed rule
change and Amendment No. 1 thereto prior to the thirtieth day after the
date of publication of notice thereof in the Federal Register.
Specifically, as noted above, the Exchange's proposal is substantially
similar to a recently approved proposal by the Philadelphia
[[Page 25132]]
Stock Exchange.\18\ Therefore, the Commission believes that Amendment
No. 1 does not raise any new regulatory issues.
---------------------------------------------------------------------------
\18\ See Securities Exchange Act Release No. 39549 (January 14,
1998), 63 FR 3601 (January 23, 1998). The Commission notes that this
proposal was published for the full notice and comment period during
which no comments were received.
---------------------------------------------------------------------------
Accordingly, the Commission believes, consistent with Section
6(b)(5) and Section 19(b)(2) of the Act, that good cause exists to
grant accelerated approval to the proposed rule change.\19\
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78(f(b)(5) and 78s(b)(2).
---------------------------------------------------------------------------
It Is Therefore Ordered, pursuant to Section 19(b)(2) of the
Act,\20\ that the proposed rule change (SR-AMEX-98-01) is approved.
\20\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\21\
---------------------------------------------------------------------------
\21\ 17 CFR 200.3-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-11952 Filed 5-5-98; 8:45 am]
BILLING CODE 8010-01-M
