[Federal Register Volume 60, Number 17 (Thursday, January 26, 1995)]
[Notices]
[Pages 5231-5233]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-1978]



[[Page 5231]]

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35246; International Series Release No. 773 File No. 
SR-Amex-94-60]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the American Stock Exchange, Inc. Relating to the Listing of 
Options and Long-Term Options Based on a Reduced-Value of the Deutscher 
Aktienindex (DAX)

January 19, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on December 
15, 1994, 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 Amex. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to approve for listing and trading 
standardized options and long-term options on a reduced-value of the 
Deutscher Aktienindex (``DAX Index'' or ``Index'') computed at one-
tenth of the full-value of the Index. In addition, the Amex proposes to 
amend Rule 904C(b) to provide for a position limit for standardized 
options on the Index of 25,000 contracts on the same side of the 
market, provided no more than 15,000 of such contracts are in series in 
the nearest expiration month. The text of the proposed rule change is 
available at the Office of the Secretary, the Amex, and at the 
Commission.

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 Exchange 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

    The Exchange is proposing to trade standardized options and long-
term options on a reduced-value of the DAX Index, and internationally 
recognized, capitalization-weighted\1\ index of 30 highly capitalized 
German stocks trading on the Frankfurt Stock Exchange (``FSE'').\2\ The 
stocks included in the Index are among the largest German corporations 
and their shares are among the most actively traded of German issuers. 
The DAX Index is composed of ten broad industry groups including 
chemicals, automobile manufacturers, banks, and insurance companies.

    \1\ The capitalization of a particular stock in the DAX Index is 
calculated by multiplying the price of the stock by the ``listed 
capital.'' Listed capital includes common and preferred shares and 
shares held in the corporate treasury. The Amex represents that this 
weighting method differs from the method used in calculating 
domestic capitalization-weighted indexes, which are calculated by 
multiplying the price of the stock only by the number of common 
shares.
    \2\ The components of the Index are as follows: Allianz AG 
Holdings; BASF AG; Bayer AG; Bayer Hypo/Wech; BMW; Bayer Vereinsbank 
AG; Commerzbank AG; Continental AG; Daimler-Benz AG; Beutsche 
Babcock AG; Beutsche Bank AG; Degussa AG; Dresdner Bank AG; Henkel 
KGAA-Pfd; Hoechst AG; Karstadt AG; Kaufhof Holdings AG; Lufthansa 
AG; Linde AG; Man AG; Metallgesellsch; Mannesmann AG; Preussag AG; 
RWE AG; Schering AG; Siemens AG; Thyssen AG; Veba AG; Viag AG; and 
Volkswagen AG.
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    The median capitalization of the companies in the Index as of 
December 2, 1994, was US $6.52 billion.\3\ The average market 
capitalization of these companies was US $8.78 billion as of that date. 
The market capitalizations of the individual companies in the Index 
ranged from US $740.51 million to US $32.02 billion as of December 2, 
1994. Also on that date, the largest component of the Index, Allianz AG 
Holdings, accounted for 12.15% of the total weighting of the DAX Index, 
while the smallest, Deutsche Babcock AG, accounted for 0.28% of the 
weight of the Index. The five highest weighted components of the Index 
on that date accounted for 43.69% of the total weight of the Index. 
Average daily volume in the component securities for the period from 
June 1994, through November 1994, ranged from a low of approximately 
59,408 shares to a high of 1.04 million shares, with an average daily 
trading volume for all components of the Index of approximately 338,449 
shares per day. The Index had a closing value of 2,038.5 on December 2, 
1994.

    \3\Based on the exchange rate of DM 1=US $1.5800 prevailing on 
December 2, 1994.
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    The DAX Index is maintained by the FSE in conjunction with the 
Borsen-Zeitung (an industry newspaper). To maintain continuity of the 
Index, the FSE adjusts the Index to reflect certain events relating to 
the component stocks. In addition, the composition of the DAX Index is 
reviewed periodically by the FSE. The FSE will not alter the 
composition of the DAX Index unless a stock fails to meet certain 
criteria, e.g., market capitalization and trading volume. If possible, 
a replacement stock will be selected by the FSE from the same industry 
as the stock that it is replacing.
Index Calculation
    The DAX Index is a capitalization-weighted index and is calculated 
by multiplying the price of each component security by its listed 
capital,\4\ adding those sums and dividing by the current Index 
divisor. The Index divisor was initially determined to yield a 
benchmark value of 1,000 on December 30, 1987. The divisor is adjusted 
by the FSE for the changes described above regarding Index maintenance.

    \4\See supra note 1.
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    The value of the Index is calculated every minute by the FSE from 
10:30 a.m. to 1:30 p.m. Frankfurt time (4:30 a.m. to 7:30 a.m. New York 
time)\5\ and is disseminated over Reuters News Service, among 
others.\6\ For purposes of standardized options trading, the Index 
trading value (``Trading Value'') will be one-tenth the level of the 
DAX Index as calculated and disseminated by the FSE. Thus, at the close 
of trading in December 2, 1994, the Index value was at 2,038.5, the 
Trading Value for Index options trading on the Amex would have been 
203.85.

    \5\Telephone conversation between Claire McGrath, Managing 
Director and Special Counsel, Derivative Securities, Amex, and Brad 
Ritter, Senior Counsel, Office of Market Supervision, Division of 
Market Regulation, Commission, on January 5, 1995.
    \6\The Amex represents that the FSE also operates the Integrated 
Stock Exchange Trading and Information System (``IBIS'') that is 
available to trading the 30 DAX Index components from 8:30 a.m. to 
5:00 p.m. Frankfurt time (2:30 a.m. to 11:00 a.m. New York time). 
Because trading on IBIS extends for 3\1/2\ hours after trading of 
the FSE ends and overlaps trading on the Amex for two hours (9:00 
a.m. to 11:00 a.m. New York time), the Amex will disseminate, for 
information purposes only, an Index Trading Value (as defined 
herein) based on the ``indicative DAX'' level disseminated by IBIS. 
Once trading on IBIS has concluded, the Amex will disseminate a 
closing Trading Value based on the ``indicative DAX'' level 
disseminated by IBIS. The ``indicative DAX'' as disseminated by IBIS 
will have a different ticker symbol from the DAX Index value as 
reported by the FSE.
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Options Expiration and Settlement
    The proposed options on the Trading Value of the Index are to be 
European- [[Page 5232]] style,\7\ and cash-settled. Trading hours for 
the Index options will be 9:00 a.m. to 4:15 p.m. New York time. Options 
on the Trading Value of the Index will expire on the Saturday following 
the third Friday of the expiration month (``Expiration Friday''). The 
last trading day in an option series will normally be the business day 
immediately preceding Expiration Friday of each expiration month 
(normally a Thursday) and trading in expiring options will cease at the 
close of trading on such day. The exercise settlement value for all of 
the expiring reduced-value Index options will be calculated based upon 
the closing value of the Index as determined by the FSE. The FSE 
calculates an average Index value based upon the average of ten 
separate Index levels, taken once each minute, between 1:21 p.m. and 
1:30 p.m. Frankfurt time on the day following the last day of trading 
in the expiring contracts, i.e., normally Expiration Friday. The Amex 
represents that if a component stock does not trade during this 
interval or if it fails to open for trading, the last available price 
of the stock will be used by the FSE to calculate the value of the 
Index. The Amex will then use that value to calculate the settlement 
Trading Value for the reduced-value Index options. When an option 
expiration is moved in accordance with an Exchange holiday, the last 
trading day for the expiring Index options will be the Wednesday before 
Expiration Friday and the exercise settlement value of the Index 
options will be determined at the close of the regular Thursday trading 
session on the FSE, even if the FSE is open for trading on Expiration 
Friday. If the FSE will be closed on an Expiration Friday, the last 
trading day for expiring Index options listed by the Amex will be on 
the Wednesday before Expiration Friday.

    \7\European-style options may only be exercised during a 
specified period immediately prior to expiration of the options.
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    The Exchange plans to list reduced-value Index options series with 
expirations in the three near-term calendar months and in the three 
additional calendar months in the March cycle. In addition, longer term 
reduced-value Index options series having up to 36 months to expiration 
may be traded (``Index LEAPS''). In lieu of such long-term options on 
the Trading Value of the Index, the Exchange may instead list long-term 
reduced-value options based on one-tenth of the Index's Trading Value, 
i.e., 1/100th of the value of the DAX Index as calculated by the FSE. 
The current and closing trading values of such reduced-value Index 
LEAPS will, after the initial computation, be rounded to the nearest 
one-hundredth. In either event, the interval between expiration months 
for all long-term Index options will not be less than six months.
Exchange Rules Applicable to Stock Index Options
    Amex Rules 900C through 980C will apply to the trading of 
standardized and long-term option contracts based on the DAX Index. 
These rules cover issues such as sales practices, margin requirements, 
exercise prices, position limits, and floor trading procedures. 
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 DAX Index. In order to provide an adequate mechanism 
for sharing surveillance information with respect to the Index's 
component stocks, the Amex represents that it has entered into 
discussions with representatives of the FSE and has reached preliminary 
agreement with respect to establishing an appropriate means to 
accomplish such information sharing.
    The Amex represents that the DAX Index is deemed to be a Stock 
Index Option under Rule 901C(a) and a Broad Stock Index 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) options 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 proposes to establish position limits 
for options on the reduced-value DAX Index, including Index LEAPS, 
pursuant to Rule 904C(b), of 25,000 contracts on the same side of the 
market, provided no more than 15,000 of such contracts are in series in 
the nearest term month.
    In anticipation of substantial activity in the options on this 
Index (including institutional activity), the Exchange also proposes to 
have the ability to utilize its Auto-Ex system for orders in the 
reduced-value DAX Index options of up to 50 contracts. Auto-Ex is the 
Exchange's automated execution system which provides for the automatic 
execution of market and marketable limit orders at the best bid or 
offer at the time the order is entered. The Exchange represents that 
the ability to use Auto-Ex for orders of up to 50 contracts will 
provide customers with deep, liquid markets as well as expeditious 
executions.
    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 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 Amex does not believe that the proposed rule change will impose 
any inappropriate 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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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, 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. Copies of such filing [[Page 5233]] will also be 
available for inspection and copying at the principal office of the 
Amex. All submissions should refer to File No. SR-Amex-94-60 and should 
be submitted by February 16, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\

    \8\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-1978 Filed 1-25-95; 8:45 am]
BILLING CODE 8010-01-M