[Federal Register Volume 61, Number 37 (Friday, February 23, 1996)]
[Notices]
[Pages 7031-7032]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-4121]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36852; File No. SR-Amex-95-38]


Self-Regulatory Organizations; American Stock Exchange, Inc.; 
Order Approving Proposed Rule Change Relating to Transactions in 
Currency Warrants by Registered Options Traders

February 15, 1996.
    On September 29, 1995, the American Stock Exchange, Inc. (``Amex'' 
or ``Exchange'') submitted to the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to provide that proprietary 
transactions executed on the Amex in currency warrants shall be 
governed by, and effected in accordance with, Amex Rule 958 (Options 
Transactions of Registered Traders).

    \1\ 15 U.S.C. Sec. 78s(b)(1) (1988 & Supp. V 1993).
    \2\ 17 CFR Sec. 240.19b-4 (1994).
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    Notice of the proposed rule change was published for comment and 
appeared in the Federal Register on December 7, 1995.\3\ No comments 
were received on the proposal. This order approves the proposal.

    \3\ See Securities Exchange Act Release No. 36535 (Nov. 30, 
1995), 60 FR 62911.
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I. Description of the Proposal

    The Amex proposes to amend Commentary .12 to Rule 111 (Restrictions 
on Registered Traders), Commentary .14 to Rule 114 (Registered Equity 
Market Makers) and Commentary .10 to Rule 958 (Options Transactions of 
Registered Traders) to provide that proprietary transactions executed 
on the Amex in currency warrants shall be governed by, and effected in 
accordance with, Rule 958.
    In 1992, the Exchange amended its rules to permit regular members 
to register as a Registered Trader under Rule 958\4\ to engage in 
supplemental market making activity in stock index warrants and certain 
other non-options derivative products. The Exchange enacted these 
changes to conform its rules to those of other markets, and to provide 
additional liquidity to the market for the Exchange's Portfolio 
Depositary Receipts and LOR SuperUnits. Due to the limited purpose of 
the 1992 rule changes, the Exchange did not seek at that time to extend 
this treatment to the trading of listed currency warrants by Registered 
Traders.

    \4\ See Securities Exchange Act Release No. 30768 (June 2, 
1992). A Registered Trader under Rule 958 is also referred to as a 
Registered Options Trade (``ROT'').
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    At present, the only traders (other than the assigned specialist) 
permitted to trade currency warrants on the Amex are Registered Equity 
Market Makers (``REMMs'') under the Exchange's equity trading rules, 
pursuant to the provisions of Rule 114 (which includes applicable 
provisions of Rule 111). Under the proposed rule changes, regular 
members wishing to engage in supplemental market making activity in 
currency warrants could register as a Registered Trader under Rule 958 
and be assigned the particular currency warrant requested (``assigned 
security''). Once registered under Rule 958, a ROT may trade the 
assigned security of his own account pursuant to the provisions of that 
Rule.
    In contrast to REMMs trading pursuant to Rules 111 and 114, Rule 
958 imposes continuous affirmative market making obligations upon 
Registered Traders.\5\ In particular, Rule 958(b) requires that 
Registered Trader transactions constitute a course of dealings 
reasonably calculated to contribute to the maintenance of a fair 

[[Page 7032]]
and orderly market and that no Registered Trader should enter into 
transactions or make bids or offers that are inconsistent with such a 
course of dealings.\6\ In recognition of this, such market makers are 
designated as specialists on the Exchange for all purposes under the 
Act (See Rule 958, Commentary .01), and are entitled to good faith 
market maker margin with respect to transactions effected on the Amex 
trading floor in these assigned securities.\7\ The Exchange anticipates 
that application of Rule 958 requirements to supplemental Exchange 
market making by its members in currency warrants will encourage 
additional competition, thereby enhancing liquidity in such securities, 
and also eliminate an anomalous regulatory disparity between currency 
and stock index warrant trading.

    \5\ Moreover, as with options and stock index warrants, the 
Exchange believes it is inappropriate to apply the stabilization 
requirements applicable to REMMs to market maker transactions in 
currency warrants (see Amex Rule 950, which excludes the application 
of Rules 111 and 114 to transactions in options).
    \6\ See also Rule 958(c) which, among other things, imposes 
additional requirements when a ROT is in the trading crowd to make 
competitive bids and offers as reasonably necessary to contribute to 
the maintenance of a fair and orderly market.
    \7\ Market maker margin for certain off-floor initiated 
transactions may also be available. See Commentary .01 to Rule 958.
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II. Discussion

    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).\8\ In particular, the 
Commission believes the proposal is consistent with the Section 6(b)(5) 
requirement that the rules of an exchange be designed to promote just 
and equitable principles of trade and not to permit unfair 
discrimination between customers, issuers, brokers, and dealers. 
Because the proposed rule change would impose specialist obligations on 
Registered Traders as specialists for the purpose of trading currency 
warrants, the Commission also believes that the proposal is consistent 
with Section 11(b) and Rule 11b-1 under the Act, which provide that the 
rules of a national securities exchange may permit members to be 
registered as specialists, subject to the requirement of maintaining 
fair and orderly markets in their specialty securities.

    \8\ 15 U.S.C. Sec. 78f(b)(5) (1982).
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    The Commission notes that the proposed rule change will conform the 
treatment of currency warrants to that of stock index warrants and 
other non-options derivative products. As a result, Registered Traders 
that trade currency warrants on the Amex under Rule 958 will assume 
continuous affirmative and negative market making obligations and be 
treated as specialists under the Act, including for margin purposes. 
This allows the extension and application of good faith margin 
treatment for such transactions, thereby helping to attract more market 
makers and liquidity in currency warrants. Furthermore, the 
stabilization requirements applicable to REMMs will not apply to a 
Registered Trader's transactions in currency warrants. Because of the 
duty imposed on Registered Traders that all such transactions must 
constitute a course of dealings reasonably calculated to contribute to 
the maintenance of a fair and orderly market, the Commission believes 
it is appropriate not to apply these provisions to Registered Traders. 
In this respect, the Commission notes that Amex Rule 127, Minimum 
Fractional Changes, will continue to apply to transactions in currency 
warrants as will Rule 958(c)(i), which addresses bid-ask differentials.
    In summary, the Commission believes that the market making 
obligations of an ROT together with the extension of good faith margin 
could help to increase the depth and liquidity of the Amex currency 
warrant market.
    It therefore is ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-Amex-95-38) is approved.

    \9\ 15 U.S.C. Sec. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\

    \10\ 17 CFR Sec. 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-4121 Filed 2-22-96; 8:45 am]
BILLING CODE 8010-01-M