[Federal Register Volume 60, Number 174 (Friday, September 8, 1995)]
[Notices]
[Pages 46876-46878]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-22240]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-36175; File No. SR-Amex-95-32]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 to the Proposed Rule Change by the American 
Stock Exchange, Inc., Relating to the Listing and Trading of Options on 
the Amex HMO Index

August 31, 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 July 31, 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 
Exchange filed with the Commission Amendment No. 1 on August 24, 
1995.\3\ The Commission is publishing this notice, as amended, 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.
    \3\ In Amendment No. 1, the Amex proposes to amend Amex Rule 
904C to provide that position and exercise limits for options on the 
HMO Index shall be 5,500 contracts of the put class and the call 
class on the same side of the market. See Letter from Claire 
McGrath, Special Counsel, Derivative Securities, Amex, to Michael 
Walinskas, Branch Chief, Office of Market Supervision (``OMS''), 
Division of Market Regulation (``Market Regulation''), Commission, 
dated August 24, 1995.
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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 for trading options on the Amex HMO 
Index (``HMO Index'' or ``Index''). 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 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 The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Section (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 purpose of the proposed rule change is to permit the Exchange 
to list and trade cash-settled, European-style \4\ stock index options 
on the HMO Index, an industry-specific index created by the Exchange.

    \4\ European-style options can only be exercised during a 
specified period before the options expire.
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Index Design

    The HMO Index \5\ consists of ten highly capitalized health care 
maintenance organization stocks and American Depository Receipts 
(``ADRs'') traded on the Amex, the New York Stock Exchange (``NYSE''), 
or through the National Association of Securities Dealers Automated 
Quotations system 

[[Page 46877]]
and are reported national market system securities (``NASDAQ/NMS'').\6\ 
The components comprising the Index ranged in capitalization from $6.9 
billion to $1.4 billion as of July 25, 1995. The total capitalization 
as of that date was $28 billion; the mean capitalization was $2.8 
billion; and the median capitalization was $1.9 billion. The largest 
component accounted for 24.70% of the total weight of the Index, and 
the five largest components accounted for 72.56% of the total weight of 
the Index. On that same date, the smallest component accounted for 
5.02% of the total weight of the Index.

    \5\ The HMO Index is a new stock index established in 1995 by 
the Amex based on health maintenance organization stocks (or ADRs 
thereon).
    \6\ The components of the Index are: United Healthcare Corp.; 
U.S. Healthcare Inc.; Humana Inc.; Wellpoint Health Networks, 
Pacificare Health Systems-B; Foundation Health Corp.; Value Health 
Inc.; Oxford Health Plans; Health Systems Intl. Inc.-A; and 
Healthsource Inc.
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Index Calculation

    The Index will be calculated by Amex or its designee on a real-time 
basis using last-sale prices and will be disseminated every 15 seconds 
by the Amex to vendors over the Consolidated Tape Association's Network 
B. If a component share is not currently being traded on its primary 
market, the most recent price at which the share traded on such market 
will be used in the Index calculation.
    The Index is calculated on ``capitalization-weighted'' basis, using 
the U.S. primary market prices for component securities, and current 
shares outstanding. For ADRs, the ADR price and total worldwide shares 
outstanding on an ADR-equivalent basis will be used. The value of the 
Index equals the current market value (based on U.S. primary market 
prices) of each of the Components in the Index divided by the current 
Index divisor. The Index divisor was initially calculated to yield a 
bench-mark value of 200.00 at the close of trading on May 31, 1995.

Maintenance

    The Index will be maintained by Amex, and pursuant to Exchange Rule 
901C(b) may at any time or from time to time substitute stocks, or 
adjust the number of stocks included in the Index, based on changing 
conditions in the HMO Industry. In the event the Exchange determines to 
change the number of Index component stocks to less than nine or 
greater than thirteen, the Exchange will submit a rule filing pursuant 
to Section 19(b) of the Act.
    Additionally, the Exchange will ensure that at least 90% of the 
stocks in the Index, by weight, individually satisfy the Exchange's 
listing and maintenance criteria applicable to listing standardized 
options thereon. Currently, the Exchange represents that all of the 
Index's components are options eligible \7\ and the subject of 
standardized options trading.

    \7\ The Amex's options listing standards, which are uniform 
among the options exchanges, provide that a security underlying an 
option must, among other things, meet the following requirements: 
(1) there must be a minimum of 7,000,000 shares of the underlying 
security which are owned by persons other than those required to 
report their security holdings under Section 16(a) of the Act; (2) 
there must a minimum of 2,000 stockholders; (3) trading volume in 
the U.S. must have been at least 2.4 million over the preceding 
twelve months; and (4) the U.S. market price must have been at least 
$7.50 for a majority of the business days during the preceding three 
calendar months. See Amex Rule 915, Commentary 01.
Expiration and Settlement

    HMO Index options will have European-style exercise and will be 
A.M.-settled index options. Standard option trading hours (9:30 a.m. to 
4:10 p.m. New York time) will apply. The proposed options on the HMO 
Index will expire on the Saturday following the third Friday of the 
expiration month. Thus, the last day for trading in an expiring series 
will be the second business day (ordinarily a Thursday) preceding the 
expiration date.
    The Index value for purposes of settling a specific HMO Index 
option 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 sale price will be 
used. As trading begins in each of the Index's component securities, 
its opening sale price is captured for use in the calculation. Once all 
the component stocks have opened, the value of the Index is determined 
and that value is used as the settlement value for the option. If any 
of the component stocks does not open for trading in its primary market 
on the last trading day before expiration, then the prior day's last 
sale price is used in the calculation.

Eligibility Standards for Index Components

    Amex Rule 901C specifies criteria for inclusion of stocks in an 
index on which options will be traded on the Exchange. In choosing 
among HMO stocks that meet the minimum criteria set forth in Rule 901C, 
the Exchange will focus on stocks that (1) have a minimum market value 
(in U.S. dollars) of at least $75 million,\8\ (2) have an average 
monthly trading volume in the U.S. markets over the previous six month 
period of not less than 1 million shares (or ADRs), and (3) are traded 
on either the NYSE, Amex (subject to limitations of Rule 901C) or 
NASDAQ. Although the stocks currently selected for inclusion in the HMO 
Index meet or surpass the above additional criteria, the Exchange 
intends these additional criteria to be guidelines only and reserves 
the right to include stocks in the Index that may not meet these 
guidelines. All Index component securities currently have market 
capitalizations in excess of $1 billion, with the largest being $6.9 
billion. Average monthly trading volume over the previous six months 
for the individual component stocks ranged from 3.5 million to 43.3 
million shares. The five most heavily weighted components account for 
approximately 73% of the total Index weight, with the largest 
representing 24.7%.

    \8\ In the case of ADRs this represents market value as measured 
by total world-wide shares outstanding.
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Exchange Rules Applicable to Stock Index Options

    Amex Rules 900C through 980C will apply to option contracts based 
on the HMO Index. These rules cover issues such as surveillance, 
exercise prices, and position limits. The Index is deemed to be a Stock 
Index Option under Amex Rule 900C(a) and a Stock Index Industry Group 
under Rule 900C(b)(1). Under Rule 903C, the Exchange intends to list up 
to three near calendar months and two additional calendar months in the 
three month intervals in the January cycle. The Exchange proposes to 
codify in Amex Rule 904C that for HMO Index options, the position limit 
will be 5,500 contracts on the same side of the market.\9\

    \9\ The Amex, selecting the 5,500 contracts position limit for 
the HMO Index, will not utilize the three tier mechanism set forth 
in Rule 904C for other narrow-based index options. See Amendment No. 
1, supra note 3.
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    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act, in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\10\ 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 perfect the mechanism of a 
free and open market and a national market system.

    \10\ 15 U.S.C. 78f(b)(5).
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(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.

[[Page 46878]]


(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, 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. 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-95-32 and should be submitted by 
September 29, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\

    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-22240 Filed 9-7-95; 8:45 am]
BILLING CODE 8010-01-M