[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 Inter@ctive 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 
Inter@ctive Week Internet Index (``Index''), a new stock index 
developed by the Amex and Inter@ctive 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 
Inter@ctive 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 

[[Page 45751]]
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 Inter@ctive Week, a biweekly magazine published by 
Inter@ctive 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 Inter@ctive 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 Inter@ctive 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 Inter@ctive 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 Inter@ctive 
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