[Federal Register Volume 60, Number 170 (Friday, September 1, 1995)]
[Notices]
[Pages 45750-45753]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21848]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36163; File No. SR-Amex-95-34]
Self-Regulatory Organizations: Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the American Stock Exchange,
Inc., Relating to the Listing of Options on the [email protected] Week
Internet Index
August 29, 1995.
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 August 23, 1995, 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.
\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 Exchange proposes to list and trade options on the Amex
[email protected] Week Internet Index (``Index''), a new stock index
developed by the Amex and [email protected] Week based on stocks (or American
Depositary Receipts (``ADRs'') thereon) of companies involved in the
fields of digital interactive services, software and hardware. In
addition, the Amex proposes to amend Rule 901C, Commentary. 01 to
reflect that 90% of the Index's numerical index value will be accounted
for by stocks that meet the current criteria and guidelines set forth
in Rule 915. The text of the proposed rule change is available at the
Office of the Secretary, the Exchange, and at the Commission.
II. Self-Regulatory Organization's Statement of Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange 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
The Amex has developed a new industry-specific index called the
[email protected] Week Internet Index, based entirely on shares of widely
held companies involved in providing interactive services, developing
and marketing digital interactive software and manufacturing digital
interactive hardware.\3\ The industries represented
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by these companies are: internet service providers, on-line service
companies, internet tool developers, multimedia publishers, networking
companies, videoconferencing companies, interactive television
companies, software technology developers and computer manufacturers.
Each of the component securities are traded on the Amex, the New York
Stock Exchange or through the facilities of the national Association of
Securities Dealers Automated Quotation system and are reported national
market system securities (``NASDAQ/NMS''). The Amex intends to trade
standardized option contracts on the newly developed Index. The
Exchange is filing this proposal pursuant to Rule 901C, Commentary.92,
which provides for the commencement of 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 approval of
generic index approval standards as outlined below.\4\
\3\ The component securities of the Index are 3Com; Acclaim
Entertainment; Activision; Adobe Systems; America Online; Avid
Technology; Bolt, Beranek & Newman; Broadband Technologies;
Broderbund Software/Learning Co.; C-Cube Microsystems; CUC
International; Cabletron; Cisco Systems; Compression Labs; Davidson
& Associates; Electronic Arts; FTP Software; H&R Block (Compuserve);
Metricom; Microtouch; NTN Communications, Inc.; Netcom On-Line
Communications; Netscape Communications; Newbridge Networks;
NetManage; Novell; Optical Data Systems; PictureTel; Qualcomm;
Sierra On-Line; Silicon Graphics, Inc.; Spectrum Holobyte; Spyglass;
Stratacom; Sun Microsystems, Inc.; and UUnet Technologies.
\4\ See Securities Exchange Act Release No. 34157 (June 3,
1994), 59 FR 30062 (June 10, 1994).
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Eligibility Standards for Index Components
Pursuant to Commentary .02 to Rule 901C, (1) All of the component
securities of the Index are listed on the New York Stock Exchange or
are NASDAQ/NMS listed, each of the component securities has a minimum
market capitalization of at least $75 million; \5\ (2) the average
monthly trading volume for each of the five highest weighted component
securities in the Index was greater than two million shares over the
previous six months; and (3) thirty of the component securities in the
Index (81.08%) have standardized options traded on them and thus have
met the initial eligibility criteria for standardized options trading
set forth in Rule 915.
\5\ In the case of ADRs, this represents market value as
measured by total world-wide shares outstanding.
In addition, thirty of the thirty-seven components in the Index
have a monthly trading volume of at least one million shares per month
during each of the six months preceding the filing of this proposal.
Three of the seven components that do not meet the above requirement,
which in the aggregate account for 1.24% of the weight of the Index,
have months in which the volume is less than one million shares, but,
the volume for those securities has never been less than 500,000 shares
in any given month. The other four components that do not meet the
monthly trading volume criteria are companies that were the subject of
initial public offerings during the last six months and, accordingly,
have not yet accumulated at least six months of trading volume data.
Each of these four components have had monthly trading volumes for the
months or partial months they have traded well in excess of one million
shares. Performance Systems International's lowest monthly trading
volume since its initial public offering was 3.3 million shares during
the month of June. Spyglass Inc.'s monthly volume was 4.1 million
shares in the month of June and 5.2 million shares in the month of
July. UUnet Technologies lowest monthly volume was 5.9 million shares
in the month of June. Netscape Communications, which went public on
August 9, 1995, has had a trading volume of 19 million shares through
August 14, 1995. The Exchange represents that three of the four
components--Netscape Communications; Performance Systems International;
and UUnet Technologies--will meet options listing standards as soon as
the ``Underwriter's Lock-up Periods'' expire and sufficient float is
available to satisfy options listing standards. Currently, Spyglass
Inc. does not have sufficient shares outstanding (5.2 million shares)
to qualify for options listing.
The four components that have less than six months of trading
volume collectively account for only 4.58% of the Index's value. The
Exchange represents that it will continually monitor the trading volume
of these four components until each security reaches its six-month
anniversary. During this period, if any one of the four components has
a monthly trading volume of less than one million shares it will be
removed from the Index. Once each component has passed its six-month
anniversary, it will be maintained in the Index in accordance with the
maintenance criteria set forth below and in Rule 902C, Commentary
.02.\6\
\6\ The Commission believes that, under the circumstances, it is
appropriate for the Amex to conclude that the component trading
volume requirements set forth in the generic narrow-based criteria
have been satisfied in the present proposal, particularly because
(1) the four components comprise only 4.58% of the Index's total
value; (2) the trading volume of the four components currently meet
and must continue to meet the required monthly trading volume
requirements set forth in the generic standards; and (3) the options
eligibility requirement contained in the generic criteria (i.e., 90%
of the index value and 80% of the total number of components must be
options eligible) has been met by the Index and provides an
additional safeguard that the Index cannot be substantially composed
of securities that have a short trading history.
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The Index is capitalization weighted and no individual component
stock in the Index represents more than 25 percent of the weight of the
Index, and the top five highest weighted stocks do not constitute more
than 50 percent of the weight of the Index.
Maintenance of the Index
The Exchange will maintain the Index in accordance with Rule 901C,
Commentary .02 so that (1) the total number component securities will
not increase or decrease by more than 33\1/3\% from the number of
components in the Index at the time of its initial listing and in no
event will the index have less than nine components; (2) component
stocks constituting the top 90% of the Index by weight, must have a
minimum market capitalization of $75 million and the component stocks
constituting the bottom 10% of the Index, by weight, must have a
minimum market capitalization of $50 million; (3) the monthly trading
volume of each component security shall be at least 500,000 shares, 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 shall be at least 400,000 shares; (4) the Index
must meet the criteria that no single component represents more than
25% of the weight of the Index and that the five highest weighted
components represents no more than 50% of the Index as of the first day
of January and July in each year; (5) the lesser of the five highest
weighted component securities in the index that in the aggregate
represent at least 30% of the total number of stocks in the Index have
an average monthly trading volume of at least one million shares over
the previous six months; and (6) 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 Exchange Rule 915.
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
[[Page 45752]]
Commission concurs in that determination.
Index Calculation
The Index is market capitalization weighted, where the Index value
is calculated by multiplying the primary exchange regular way last sale
price of each component security by its number of shares outstanding,
adding the sums and dividing by the current index divisor. The Index
divisor was initially determined to yield a benchmark value of 200 on
August 15, 1995. 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.
The Index will be calculated and maintained by the Amex. A
committee consisting of two representatives from the Amex, two
representatives from [email protected] Week, a biweekly magazine published by
[email protected] Enterprises L.L.C., and one representative from the digital
interactive industry will be available to advise the Exchange when,
pursuant to Rule 901C(b), the Exchange substitutes stocks, or adjusts
the number of stocks included in the Index, based on changing
conditions in the digital interactive industry or in the event of
certain types of corporate actions such a merger or takeover which
warrants the removal of a component security from the Index. It is
anticipated that the committee will meet on a quarterly basis to review
possible candidates for removal or inclusion in the Index. The
committee meeting will occur after the close of trading and any
determination to remove or include a component in the Index will be
publicly announced prior to the opening of trading on the following
business day. However, in the event the Exchange determines to increase
the number of Index component stocks to greater than 48 or reduce the
number of component stocks to fewer than 26, the Exchange will submit a
19b-4 filing to the Commission. In selecting securities to be included
in the Index, the Exchange, in conjunction with the committee, will be
guided by a number of factors including market value of outstanding
shares and trading activity and adherence to Rule 901C, Commentary .02.
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 4:10 p.m. New York time) will apply.
The options on the [email protected] Week Internet 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 and
all options will have European style exercise. Position limits on
reduced value long term [email protected] Week Internet Index options will be
equivalent to the position limits for regular (full value) Index
options and would be aggregated with such options (for example, if the
position limit for the full value options is 10,500 contracts on the
same side of the market, then the position limit for the reduced value
options will be 105,000 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 securities
traded through the NASDAQ system, 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 expiration, then the
prior day's last sale price will be used in the calculation.
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 [email protected] Week Internet 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 10,500 contracts with
respect to options on this Index.
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 change, 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
Because the foregoing rule change complies with the standards set
forth in the Generic Index Approval Order, it has become effective
pursuant to Section 19(b)(3)(A) of the Act. Pursuant to the Generic
Index Approval Order,\7\ the Exchange may not list the Amex [email protected]
Week Internet Index options for trading prior to 30 days after August
23, 1995, the date the proposed rule change was filed with the
Commission. 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 in the public
[[Page 45753]]
interest, for the protection of investors, or otherwise in furtherance
of the purposes of the Act.
\7\ See Securities Exchange Act Release No. 34157 (June 3,
1994), 59 FR 30062 (June 10, 1994).
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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 SR-Amex-95-34 and should be submitted by
September 22, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
\8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-21848 Filed 8-31-95; 8:45 am]
BILLING CODE 8010-01-M
