[Federal Register Volume 62, Number 169 (Tuesday, September 2, 1997)]
[Notices]
[Pages 46390-46392]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-21384]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38968; File No. SR-AMEX-97-31]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the American Stock Exchange,
Inc., Relating to Options on The Disk Drive Index
August 25, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby
given that on August 19, 1997, 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
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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The AMEX proposes to trade options on The Disk Drive Index (``the
Index''), a new stock index developed by the AMEX based on stocks, or
American Depositary Receipts (``ADRs'') thereon, of companies involved
in the design and/or manufacture of disk drives, components of disk
drives, and/or software designed to interact with disk drives. AMEX
proposes to amend its Rule 901C, Commentary .01, to provide for the
listing and trading of the Index. In addition, the AMEX proposes to
amend Rule 901C, Commentary .01, to reflect that 90 percent of the
Index's numerical index value will be accounted for by stocks that meet
the current criteria and guidelines set forth in AMEX Rule 915.
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The AMEX has developed a new index called The Disk Drive Index
(``Index''), based entirely on shares of widely held companies involved
in the design and/or manufacture of disk drives, components of disk
drives, and/or software designed to interact with disk drives. The
companies represented in the index include: Applied Magnetics Corp., a
supplier of magnetic heads for disk-drive applications; HMT
Technologies Corp., a designer and manufacturer of thin-film disks for
high-capacity computer disk drives; Hutchinson Technology, a supplier
of suspension assemblies for rigid disk drives; Iomega Corp., a
manufacturer of removable data-storage devices; Komag Inc., a
manufacturer of components for hard-disk drives, including thin-film
disks and recording heads; Quantum Corp., a manufacturer of storage
products for computer systems; Read-Rite Corp., a producer of thin-film
magnetic recording heads for hard-disk drives; Seagate Technology, a
designer of rigid, magnetic disk drives and components for computer
systems; Storage Technology, a manufacturer of information storage and
retrieval subsystems and networking products; and Western Digital
Corp., a manufacturer of hard-disk drives.\3\ The AMEX intends to trade
standardized option contracts on the newly developed Index. The AMEX is
filing this proposal pursuant to AMEX Rule 901C, Commentary .02, which
provides for the commencement of the trading of options on the Index
thirty days after the date of this filing. The proposal meets all the
criteria set forth in Commentary .02 and the Commission's order
approving that rule as outlined below.\4\
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\3\ The AMEX submitted additional information regarding the
component securities. This information is available in the
Commission's public reference room, as described in section IV
below, or at the Office of the Secretary, AMEX.
\4\ See Securities Exchange Act Release No. 34157 (June 3,
1994), 59 FR 30062 (June 10, 1994) (SR-AMEX-92-35) (approval order
relating to narrow-based index options listing standards) (``Generic
Index Approval Order'').
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Eligibility criteria for index components. Pursuant to Commentary
.02 to Rule 901C, (1) each of the component securities has a minimum
market capitalization of at least $75 million and has a trading volume
in
[[Page 46391]]
each of the last six months of not less than 1,000,000 shares; (2) at
least 90% of the Index's numerical index value and at least 80% of the
total number of component securities meet the current criteria for
standardized option trading set forth in Exchange Rule 915 (in fact,
all of the component securities in the Index currently underlie
standardized options); (3) the Index contains no ADRs; (4) all
component stocks are listed on the AMEX, the New York Stock Exchange,
or traded through the facilities of the Nasdaq stock market and are
reported National Market System securities (``Nasdaq/NMS''); and (5) 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.
Maintenance of the Index. The Exchange will maintain the Index in
accordance with AMEX Rule 901C, Commentary .02, so that, (1) the Index
is comprised of no less than nine and no more than 13 underlying
stocks; (2) component stocks 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)
90% of the Index's numerical index value and at least 80% of the total
number of component securities will meet the then current criteria for
standardized option trading set forth in AMEX Rule 915; (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, the New York Stock Exchange, or
be Nasdaq/NMS securities; (6) no component security will represent more
than 25% of the weight of the Index, and the five highest weighted
components will not in the aggregate account for more than 60% of the
Index; and (7) trading volume of each component security shall be at
least 500,000 shares for each of the last six months, or 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, the monthly
trading volume may be at least 400,000 shares for each of the last six
months.
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 Exchange will calculate the Index using an
``equal-dollar weighting'' methodology. The following is a description
of the methodology. As of the market close on November 15, 1996, a
portfolio of stocks was established representing an investment of
approximately $100,000 in the stock (rounded to the nearest whole
share) of 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 200.00
at the close of trading on November 15, 1996.\5\ Quarterly thereafter,
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.
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\5\ The Index's value at the close of trading on August 12,
1997, was 278.28.
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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 Exchange may
adjust the number of shares of that security in the portfolio, 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 or replacement, the Exchange will calculate
the average dollar value of the remaining components 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 by
the Exchange.
Expiration and settlement. The proposed options on the Index will
be European style (i.e., exercises are permitted at expiration only),
and cash settled. Standard option trading hours (9:30 a.m. to 4:02 p.m.
New York time) will apply. The options on The Disk Drive Index will
expire on the Saturday following the third Friday of the expiration
month (``Expiration Friday''). 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 options series with expirations in the
three near-term calendar months and in the two additional calendar
months in the January cycle. In addition, longer term option series
having up to thirty-six months to expiration may be traded. In lieu of
such long-term options on a full value Index level, the Exchange may
instead list long-term, reduced value put and call options based on
one-tenth (\1/10\) the Index's full value. In either event, the
interval between expiration 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 would be subject to the same rules which govern
the trading of all the Exchange's index options, including sales
practice rules, margin requirements and floor trading procedures.
Position limits on reduced value long term Disk Drive Index options
will be equivalent to the position limits for regular (full value)
Index options and would be aggregated with such options (e.g., if the
position limit for the full value options is 15,000 contracts on the
same side of the market, then the position limit for the reduced value
options will be 150,000 contracts on the same side of the market).
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 Nasdaq/NMS
listed securities, 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
[[Page 46392]]
expiration, then the prior day's last sale price will be used in the
calculation.\6\
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\6\ 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 rules cover issues such as surveillance, exercise prices,
and position limits. Surveillance procedures currently used to monitor
trading in each of the Exchange's other index options will also be used
to monitor trading in options on the Index. The Index is deemed to be a
Stock Index Option under Rule 901C(a) and a Stock Index Industry Group
under Rule 900C(b)(1). With respect to Rule 903C(b), the Exchange
proposes to 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 Rule 904C(c) will result in a position limit of 15,000 contracts
with respect to options on this Index.
2. Basis
The proposed rule change is consistent with Section 6(b) of the
Exchange 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, 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.
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. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Exchange Act. Pursuant to the Generic Index Approval
Order,\7\ the AMEX may not list options for trading on the Index prior
to 30 days after August 19, 1997.\8\ At any time within 60 days of the
filing of such proposed rule change, the Commission may summarily
abrogate such rule change if it appears to the Commission that such
action is necessary or appropriate in the public interest, for the
protection of investors, or otherwise in the furtherance of the
purposes of the Exchange Act.\9\
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\7\ See Securities Exchange Act Release No., 34157 (June 3,
1994), 59 FR 30062 (June 10, 1994) (SR-AMEX-92-35).
\8\ The AMEX represented to the Commission that it has the
necessary systems capacity to support the new series of options to
be generated by the Index. The AMEX also stated that it requested a
written representation from the Options Price Reporting Authority
(``OPRA'') confirming the adequacy of its systems capacity. The AMEX
will not permit trading of options on the index until it confirms
with the Commission that OPRA has given the AMEX a written
representation that it has the necessary systems capacity. See
Letter from Claire P. McGrath, Vice President & Special Counsel,
Derivative Securities, the AMEX, to Ivette Lopez, Assistant
Director, Office of Market Supervision, Division of Market
Regulation, Commission, dated August 18, 1997.
\9\ In approving this rule, the Commission notes that it has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
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IV. Solicitation of Comments
Interested person 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, N.W., 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 Section, 450 Fifth Street, N.W.,
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 number SR-AMEX-97-31 and should be
submitted by September 23, 1997.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-21384 Filed 8-29-97; 8:45 am]
BILLING CODE 8010-01-M
