[Federal Register Volume 63, Number 88 (Thursday, May 7, 1998)]
[Notices]
[Pages 25249-25250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-12144]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39933; File No. SR-AMEX-98-15]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the American
Stock Exchange, Inc., and Amendment No. 1 Thereto Relating to a
Reduction in the Value of, and Increase in Position and Exercise Limits
for, the Institutional Index
April 30, 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 April 7, 1998, the American Stock Exchange, Inc. (the ``Amex'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the Exchange. On April
20, 1998, the Amex filed an amendment to the proposal.\3\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons and to grant accelerated
approval for the proposed rule.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See letter from Scott Van Hatten, Legal Counsel, Derivative
Securities, Amex, to Michael Walinskas, Senior Special Counsel,
Division of Market Regulation, Commission (April 20, 1998)
(``Amendment No. 1''). Amendment No. 1 specifies that on April 16,
1998, the Exchange's Board of Governors approved the submission of
the instant proposed rule change to the Commission.
---------------------------------------------------------------------------
I. Self Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Amex proposes to split the Institutional Index (the ``Index''
or ``XII'') to one-half its current value and correspondingly amend
Exchange Rule 904C to double the position and exercise limits for XII
options.
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. No
written comments were solicited or received with respect to 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 the
Statutory Basis for, the Proposed Rule Change
(1) Purpose
On August 28, 1986, the Commission granted the Exchange approval to
permit the trading of options on the Institutional Index, a broad
market index based on the 75 major stocks currently held in the highest
dollar amounts in institutional portfolios that have a market value of
more than $100 million in investment funds.\4\ Initially, the aggregate
value of the stocks contained in the Institutional Index was reduced by
a divisor to establish an index benchmark value of 250. Since its
creation, and as of the date of this filing, the level of the
Institutional Index has increased nearly fivefold from 250 to 1218.
---------------------------------------------------------------------------
\4\ Exchange Act Release No. 23573 (August 28, 1986), 51 FR
31859 (September 5, 1986).
---------------------------------------------------------------------------
As a consequence of the Index's rising value, premium levels for
the Institutional Index options have also risen. These higher premium
levels have been cited as a principal factor that has discouraged
retail investors and some small market professionals from trading these
Index options. As a result of the foregoing, the Exchange is proposing
to decrease the Institutional Index to one-half of its present value.
The Exchange believes that decreasing the Index value may make the
Index options more attractive to retail investors and other market
professionals and therefore more competitive with other products in the
marketplace.
To decrease the Index's value, the Exchange will double the divisor
used in calculating the Index. The Exchange suggests that the lower
valued Index will result in a substantial lowering of the dollar values
of options premiums for the Institutional Index contracts. The Exchange
plans to adjust outstanding series similar to the manner in which
equity options are adjusted for a 2-for-1 stock split.\5\ On the
effective date of the split ``ex-date,'' the number of outstanding
Institutional Index option contracts will be doubled and strike prices
halved. No other changes are proposed as to the components of the
Index, its method of calculation (other than the change in the
divisor), expiration style of the options or any other Index
specification.
---------------------------------------------------------------------------
\5\ Consistent with customary Exchange practice, at least two
weeks prior to the implementation of the proposed change to the
Institutional Index value and the resulting adjustments to the
outstanding Institutional Index options contracts, the Exchange will
issue an information circular to its members setting forth the
Index's current and new divisors, the manner in which the Index will
be adjusted, the adjusted contract symbols, amounts and strike
prices for outstanding XII series and the effective date of the
adjustments.
---------------------------------------------------------------------------
a. Position and Exercise Limits.
Currently, position and exercise limits for the Institutional Index
equal 100,000 contracts on the same side of the market of which no more
than 25,000 contracts may be used to realize any differential in price
between the Institutional Index and the securities underlying the
Index. Although the limitation of up to 25,000 contracts for purposes
of realizing any differential in price between the Institutional Index
and the securities underlying the Index will remain unchanged, the
Exchange proposes to double the Index's position and exercise limits to
200,000 contracts on the same side of the market. The change in
position and exercise limits will be made in conjunction with the
simultaneous reduction of the Index's value and the doubling of the
number of contracts. Accordingly, an investor who is currently at the
100,000 contract limit will, as a result of doubling the number of
contracts, automatically hold 200,000
[[Page 25250]]
contracts based on the lowered Index value. Similar to the treatment
approved concerning the recent split of the Standard & Poor's 100 Stock
Index,\6\ thus, market participants will be able to maintain their
current level of investment in XII options following the split of the
Index.
---------------------------------------------------------------------------
\6\ Exchange Act Release No. 39338 (November 19, 1997), 62 FR
63209 (November 26, 1997).
---------------------------------------------------------------------------
The new limits will be economically equivalent to the Index's
present limits in that the dollar value represented by the contracts at
the new position limit will remain the same as before the split. In
addition, the existing Index components will remain the same and
maintain their existing respective weights in the Index. Further,
existing surveillance procedures will continue to apply to the Index.
Therefore, the Exchange believes that there will be no additional
potential for manipulation of the Index or the underlying securities
resulting from the doubling of position limits in conjunction with the
halving of the Index level.
(2) Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\7\ in general, and furthers the objectives of Section 6(b)(5),\8\
in particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
---------------------------------------------------------------------------
\7\ U.S.C. 78f(b).
\8\ U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any 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. Commission's Findings and Order Granting Accelerated Approval
of the Proposed Rule Change
The Exchange has requested that the proposed rule change be given
accelerated effectiveness pursuant to Section 19(b)(2) of the Act.\9\
---------------------------------------------------------------------------
\9\ U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
After careful review, 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.
Specifically, the Commission believes that reducing the value of the
Index will serve to promote the public interest and help remove
impediments to a free and open securities market by providing a broader
range of investors with a means of hedging exposure to market risk
associated with securities representing highly capitalized companies.
Doubling the Index divisor should result in the Index options premiums
being more affordable, enabling more retail investors and other market
professionals to utilize this trading vehicle, resulting in a more
active and liquid trading environment.
The Commission also believes that Amex's adjustments to its
position and exercise limits are appropriate and consistent with the
Act. In particular the Commission believes that the position and
exercise limits are reasonable in light of the fact that the size of
the contract on the Index will be halved. Doubling the position and
exercise limits, therefore will permit market participants to maintain,
after the split of the Index, their current level of investment in XII
options.
Furthermore, the Commission believes that doubling the Index's
divisor will not have an adverse market impact or make trading in Index
options susceptible to manipulation. After the split, the Index will
continue to be comprised of the same stocks with the Same weightings
and will be calculated in the same manner, except for the proposed
change in the divisor. The commission notes that the Amex's
surveillance procedures will also remain the same.
The Commission also notes that the Exchange will provide notice of
the proposed changes to the Index and the XII contracts to its
membership through an information circular.\10\
---------------------------------------------------------------------------
\10\ See supra note 5.
---------------------------------------------------------------------------
The Commission believes that the Amex information circular will
provide adequate notice to market participants regarding this change to
Index value and the XII contract prior to its implementation.
The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication of
notice of filing thereof in the Federal Register. Accelerating approval
of this proposal will extend the noted benefits of the proposal as
quickly as possible to market participants. The Commission further
believes that the proposed change of the Index's divisor does not
substantially change the character of the Index options as approved by
the Commission on August 28, 1986,\11\ and otherwise does not raise any
new or unique regulatory issues. Accordingly, the Commission believes
it is consistent with Sections 19(b)(2)\12\ and 6(b)(5)\13\ of the Act
to approve the proposed rule change on an accelerated basis.
---------------------------------------------------------------------------
\11\ See supra note 4.
\12\ 15 U.S.C. 78s(b)(2).
\13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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 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. 552, will be available for inspection and copying in the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 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 the file number in the caption above and
should be submitted by May 28, 1998.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\14\ that the proposed rule change (SR-Amex-98-15) is hereby
approved on an accelerated basis.
\14\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\15\
---------------------------------------------------------------------------
\15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Jonathan G. Katz,
Secretary.
[FR Doc. 98-12144 Filed 5-6-98; 8:45]
BILLING CODE 8010-01-M
