[Federal Register Volume 60, Number 112 (Monday, June 12, 1995)]
[Notices]
[Pages 30907-30909]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14255]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35805; International Series Release No. 816; File No. 
SR-Amex-95-04]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change and Notice of Filing and Order Granting Accelerated Approval of 
Amendment Nos. 2 and 3 to the Proposed Rule Change by the American 
Stock Exchange, Inc. Relating to the Listing of Currency Warrants Based 
on the Mexican Peso

June 5, 1995.
    On February 8, 1995, the American Stock Exchange, Inc. (``Amex'' or 
``Exchange''), pursuant to Section 19(b)(1) of the Securities Exchange 
Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ filed with the 
Securities and Exchange Commission (``Commission'') a proposed rule 
change to permit the listing of foreign currency warrants based on the 
value of the U.S. dollar in relation to the Mexican peso (``Peso 
Warrants''). Notice of the proposal appeared in the Federal Register on 
February 17, 1995.\3\ The Exchange subsequently filed Amendment No. 1 
to the proposal on March 16, 1995. Notice of Amendment No. 1 to the 
proposal appeared in the Federal Register on March 30, 1995.\4\ No 
comment letters were received on the original proposed rule change or 
on Amendment No. 1. The Exchange then filed Amendment No. 2 to the 
proposal on May 11, 1995,\5\ and Amendment No. [[Page 30908]] 3 on May 
26, 1995.\6\ This order approves the Amex proposal, as amended by 
Amendment Nos. 2 and 3.

    \1\ 15 U.S.C. 78s(b)(1) (1988).
    \2\ 17 CFR 240.19b-4 (1994).
    \3\ See Securities Exchange Act Release No. 35363 (February 13, 
1995, 60 FR 9416.
    \4\ In Amendment No. 1, the Exchange amended the proposal to 
specify customer margin levels for the proposed currency warrants. 
See Securities Exchange Act Release No. 35524 (March 22, 1995), 60 
FR 16517.
    \5\ Amendment No. 2, as discussed herein, effectively supersedes 
Amendment No. 1 by specifying higher minimum customer margin levels 
than those proposed in Amendment No. 1. See Letter from Howard 
Baker, Senior Vice President, Derivative Securities, Amex, to Sharon 
Lawson, Assistant Director, Office of Market Supervision (``OMS''), 
Division of Market Regulation (``Division''), Commission, dated May 
11, 1995 (``Amendment No. 2'').
    \6\ In Amendment No. 3, discussed herein, the Exchange specified 
the standards the Amex will use to ensure continued adequate 
customer margin levels for short positions in Peso Warrants. See 
Letter from Clair McGarth Managing Director and Special Counsel, 
Derivative Securities, Amex, to Mike Walinskas, Branch Chief, OMS, 
Division, Commission, dated May 26, 1995 (``Amendment No. 3'').
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    Pursuant to Section 106 of the Amex Company Guide (``Guide''), the 
Exchange is now proposing to list and trade currency warrants based 
upon the value of the U.S. dollar in relation to the Mexican peso. Peso 
Warrants will be unsecured obligations of their issuers and will be 
cash-settled in U.S. dollars. Peso Warrants will be exercisable either 
throughout their life (i.e., American-style) or only immediately prior 
to their expiration date (i.e., European-style). Upon exercise, the 
holder of a Peso Warrant structured as a ``put'' will receive payment 
in U.S. dollars to the extent that the value of the Mexican peso in 
relation to the U.S. dollar has declined below a pre-stated base level. 
Conversely, upon exercise, holders of a Peso Warrant structured as a 
``call'' will receive payment in U.S. dollars to the extent that the 
value of the Mexican peso in relation to the U.S. dollar has increased 
above a pre-stated level. Peso Warrants that are ``out-of-the-money'' 
at the time of expiration will expire worthless.
    Any issue of Peso Warrants will conform to the listing guidelines 
under Section 106 of the Guide which provide that: (1) the issuer will 
have assets in excess of $100,000,000 and otherwise substantially 
exceed the size and earnings requirements in Section 101(A) of the 
Guide; (2) the term of the warrants will be from one to five years from 
the date of issuance; and (3) the minimum public distribution of such 
issues will be one million warrants, with a minimum of 400 public 
holders, and an aggregate market value of at least $4 million.\7\

    \7\ The Exchange has submitted for Commission approval, proposed 
rules governing listing requirements, and customer protection and 
margin requirements for stock index warrants, currency index 
warrants, and currency warrants. See Securities Exchange Act Release 
No. 35086 (December 12, 1994), 59 FR 65561 (December 20, 1994) 
(notice of File No. SR-Amex-94-38) (``Generic Warrant Listing 
Proposal''). If ultimately approved by the Commission, Peso Warrants 
issued subsequent to that approval will be subject to these rules. 
These rules, however, will not change the customer margin 
requirements specified herein. See Amendment no. 2, supra note 5.
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    The Amex will also require that Peso Warrants be sold only to 
customers whose accounts have been approved for options trading 
pursuant to Exchange Rule 921. The suitability standards of Exchange 
Rule 923 will apply to recommendations for opening transactions in Peso 
Warrants. Additionally, all discretionary orders in Peso Warrants must 
be approved and initialed on the day entered by a Senior Registered 
Options Principal or Registered Options Principal.\8\

    \8\ See Amex Rule 421, Commentary .02.
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    For customer margin purposes, the Exchange will set the customer 
margin ``add-on'' \9\ percentage for Peso Warrants at 18% for both 
initial and maintenance margin, with a minimum add-on for out-of-the-
money Peso Warrants of 15%.\10\ If, as a result of the Exchange's 
routine monitoring of margin adequacy (i.e., at least quarterly 
reviews), the Amex determines that a higher customer margin level would 
be appropriate, the Amex will take immediate steps to implement the 
change.\11\ If, on the other hand, the Exchange determines that a lower 
margin percentage would be appropriate as a result of the Exchange's 
periodic reviews, the Exchange will file a proposal with the Commission 
pursuant to Section 19(b) of the Act to modify the margin add-on 
percentages applicable to Peso Warrants.\12\ Anytime that the customer 
margin levels for Peso Warrants are changes, the Exchange will promptly 
notify the Exchange's membership and the public.

    \9\ For these purposes, ``add-on'' is the percentage of the 
current market value of the Mexican pesos underlying each Peso 
Warrant that the holder of a ``short'' position must pay in addition 
to the current market value of each Peso Warrant.
    \10\ See Amendment No. 2, supra note 5.
    \11\ Prior to increasing the customer margin levels, the 
Exchange should immediately contact the Commission for a 
determination as to whether a rule filing pursuant to Section 19(b) 
of the Act will be required.
    \12\ Specifically, the Exchange will review, on at least a 
quarterly basis, the frequency distributions reflecting the 
percentage price returns for the Mexican peso in relation to the 
U.S. dollar for all seven day periods during the preceding two year 
period. If the current margin add-on is not sufficient to cover the 
least 97.5% of all such seven day price returns, the Exchange will 
take steps to increase the margin level to one that will cover at 
least 97.5% of all such instances. See Amendment No. 3, supra note 
6. In no event, however, will the Exchange reduce the margin levels 
provided in Amendment No. 2 without the prior approval of the 
Commission. See Amendment No. 2, supra note 5.
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    Prior to the commencement of trading of Peso Warrants, the Exchange 
will distribute a circular to its membership calling attention to 
certain compliance responsibilities when handling transactions in Peso 
Warrants.\13\

    \13\ The circular should highlight: (1) the Peso Warrants may be 
sold only to customers with options approved accounts; (2) the 
applicable suitability requirements; (3) the standards regarding 
discretionary orders; and (4) the applicable customer margin 
requirements.
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    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, the requirements of section 6(b)(5) \14\ in that it is 
designed to protect investors and the public interest. First, the 
Commission believes that the trading of listed warrants on the Mexican 
peso should provide investors with a hedging and risk transfer vehicle 
that will reflect the overall movement of the Mexican peso in relation 
to the U.S. dollar. In this regard, Peso Warrants should provide 
investors with an efficient and effective means of managing risk 
associated with the Mexican peso.

    \14\ 15 U.S.C. 78f(b)(5) (1988).
    Second, the Exchange has proposed listing standards to provide for 
fair and orderly markets in Peso Warrants. Peso Warrants will conform 
to the listing standards in Section 106 of the Guide, which are similar 
to the standards pursuant to which currency warrants have previously 
been listed by the Amex.\15\ In addition, the Exchange will limit 
transactions in Peso Warrants to customers with options approved 
accounts and impose the Amex's suitability standards and discretionary 
account standards to transactions in Peso Warrants.

    \15\ For example, the Amex currently lists currency warrants on 
the Japanese yen and the German mark. If the Commission approves the 
Exchange's Generic Warrant Listing Proposal, Peso Warrants listed 
subsequent to that approval will be subject to the revised listing 
standards. See Generic Warrant Listing Proposal, supra note 7. The 
Commission notes that to the extent the customer margin requirements 
contained in the Generic Warrant Listing Proposal differ from those 
discussed herein for Peso Warrants, the customer margin level 
specified above will be applied.
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    Third, the Exchange has proposed adequate customer margin 
requirements. The proposed add-on margin (i.e., 18%) provides 
sufficient coverage to account for historical and potential volatility 
in the Mexican Peso in relation to the U.S. dollar. In addition, the 
Exchange must conduct periodic reviews of the volatility in the Mexican 
peso and must take immediate steps to increase the existing customer 
margin levels if the Exchange determines that the existing levels are 
no longer adequate.\16\ As a result, the Commission believes that the 
proposed customer margin levels and the review and maintenance criteria 
for those margin levels will result in adequate coverage of contract 
obligations and are designed to reduce risks arising from inadequate 
margin levels.

    \16\ See supra note 12.
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    Finally, the Exchange will prepare and distribute to its membership 
a circular describing each issue of Peso [[Page 30909]] Warrants listed 
by the Amex, calling attention to certain compliance responsibilities 
when handling transactions in Peso Warrants.\17\

    \17\ See supra note 13.
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    Based on the foregoing, the Commission believes that the listing 
and trading of Peso Warrants, within the framework described above, is 
appropriate and consistent with the Act.
    The Commission finds good cause for approving Amendment Nos. 2 and 
3 to the proposed rule change prior to the thirtieth day after the date 
of publication of notice of filing thereof in the Federal Register. 
Specifically, Amendment No. 2 realigns the customer margin requirements 
to reflect more accurately the recent volatility of the Mexican peso in 
relation to the U.S. dollar. Moreover, the Commission notes that the 
original proposal and Amendment No. 1 to the proposal were published in 
the Federal Register for the full 21-day comment period and that no 
comments were received by the Commission regarding either the original 
proposal or the lower customer margin levels proposed in Amendment No. 
1.
    Amendment No. 3 provides that the Amex will review the volatility 
of the Mexican peso in relation to the U.S. dollar on at least a 
quarterly basis and increase the applicable customer margin levels if 
appropriate. Moreover, the Amex cannot lower the customer margin levels 
from the 18% and 15% levels provided above without Commission approval 
pursuant to Section 19(b) of the Act. As discussed above, the 
Commission believes these procedures will ensure that the customer 
margin requirements for Peso Warrants are maintained at levels adequate 
to cover present and future volatility of the Mexican Peso in relation 
to the U.S. dollar.
    Based on the above and in order to allow the Amex to begin listing 
Peso Warrants without delay, the Commission believes it is consistent 
with Section 6(b)(5) of the Act to approve Amendment Nos. 2 and 3 to 
the Amex's proposal on an accelerated basis.
    Interested persons are invited to submit written data, views and 
arguments concerning Amendments Nos. 2 and 3. Persons making written 
submissions should file six copies thereof with the Secretary, 
Securities and Exchange Commission, 50 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 will also be available for 
inspection and copying at the principal office of the Amex. All 
submissions should refer to the File No. SR-Amex-95-04 and should be 
submitted by July 3, 1995.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
\18\ that the proposed rule change (File No. SR-Amex-95-04), as amended 
by Amendment Nos. 2 and 3, is approved.

    \18\ 15 U.S.C. 78S(b)(2) (1988).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\

    \19\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-14255 Filed 6-9-95; 8:45 am]
BILLING CODE 8010-01-M