[Federal Register Volume 61, Number 55 (Wednesday, March 20, 1996)]
[Notices]
[Pages 11448-11451]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-6641]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36953; File No. SR-Amex-96-08]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the American Stock Exchange, Inc., Relating to the Trading of 
Options on the Amex Gold BUGSSM Index

March 11, 1996.
    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 February 
9, 1996, the American Stock Exchange, Inc. (``Amex'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. 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 Amex proposes to list and trade standardized options on the 
Amex Gold BUGSSM Index (``Index''), a modified equal-dollar 
weighted index developed by the Amex and comprised of 15 gold mining 
company stocks (or American

[[Page 11449]]

Depositary Receipts (``ADRs'') thereon) which are traded on the Amex or 
the New York Stock Exchange (``NYSE''). The Amex proposes to amend 
Commentary .01 to Amex Rule 901C, ``Designation of Stock Index 
Options,'' to indicate that 90% of the Index's numerical index value 
must be accounted for by stocks which meet the then current criteria 
and guidelines provided in Amex Rule 915, ``Criteria for Underlying 
Securities'' and to indicate that these criteria must also be satisfied 
immediately following each quarterly rebalancing.
    The text of the proposal is available at the Office of the 
Secretary, 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 self-regulatory organization 
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 self-regulatory organization 
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

(a) Purpose
    The Amex proposes to trade standardized options on the Index, a 
modified equal-dollar weighted index developed by the Amex, 
representing a portfolio of 15 large actively traded gold mining 
company stocks. The Exchange believes that an index of gold mining 
stocks whose values are affected strongly by the price of gold will be 
attractive to many investors. In an effort to give investors an index 
with a significant exposure to the near term movements in gold prices, 
the Exchange has included in the Index those gold mining companies that 
do not hedge their gold production for extensive periods into the 
future. According to the Amex, gold fluctuating price of gold. Only 
companies that have a hedging ratio of less than 1\1/2\ years 
production will be considered for inclusion in the Index.
Eligibility Standards for Index Components
    The Amex states that the Index conforms with Exchange Rule 901C, 
which specifies criteria for the inclusion of stocks in an index on 
which standardized options will be traded. According to the Amex, the 
Index also conforms to most of the criteria set forth in Amex Rule 
901C, Commentary .02 (which provides for the commencement of trading of 
options on an index 30 days after the date of filing), except that the 
Index is calculated using a modified version of the equal-dollar 
weighting method and four of the components of the Index do not meet 
the six month minimum trading volume criteria.\1\ According to the 
Amex, all of the Index's component securities meet the following 
eligibility standards: (1) all of the Index's component securities are 
traded on the Amex or the NYSE; (2) the component stocks comprising the 
top 90% of the Index by weight have a market capitalization\2\ of at 
least $75 million, and those component stocks constituting the bottom 
10% of the Index by weight have a market capitalization of at least $50 
million; and (3) foreign country securities or ADRs thereon that are 
not subject to comprehensive surveillance agreements do not in the 
aggregate represent more than 20% of the weight of the Index. In 
addition, stocks constituting 87.34% of the Index by weight have 
minimum monthly volume of one million shares during the six months 
preceding the Amex's filing. Four stocks constituting 12.66% of the 
Index by weight have minimum monthly volumes ranging from 429,000 to 
62,000 shares during the six months preceding the Amex's filing.
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    \1\ Under Amex Rule 901C, Commentary .02, the Amex may list 
options on a stock industry index pursuant to Section 19(b)(3)(A) 
under the Act provided that the index satisfies certain criteria. 
Commentary .02 requires, among other things, that the index be 
calculated based on either the capitalization weighting, price 
weighting, or equal-dollar weighting methodology, and that the 
trading volume for each component stock of the index in each of the 
last six months be not less than 1,000,000 shares, except that for 
each of the lowest weighted component securities in the index that 
in the aggregate account for no more than 10% of the weight of the 
index, the trading volume must be at least 500,000 shares in each of 
the last six months.
    \2\ In the case of ADRs, this represents market capitalization 
as measured by total world-wide shares outstanding.
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Index Calculation
    The Index is calculated using a modified equal-dollar weighting 
methodology. Three of the Index's component companies are given higher 
weightings based upon their market value. The following is a 
description of how this modified equal-dollar weighting calculation 
method works. As of the market close on February 5, 1996, a portfolio 
of gold mining company stocks was established representing an 
investment of approximately (1) $16,000 in two components in the Index; 
(2) $12,000 in one of the components; (3) $2,000 in two components; and 
(4) $4,300 in the remaining 12 components (rounded to the nearest whole 
share). The value of the Index equals the current market value (i.e., 
based on U.S. primary market prices) of the sum of the assigned number 
of shares of each of the stocks in the Index portfolio divided by the 
Index divisor. The Index divisor was initially determined to yield the 
benchmark value of 200.00 at the close of trading on February 5, 1996. 
Each quarter thereafter, following the close of trading on the Thursday 
prior to the third Friday of March, June, September, and December, the 
Index portfolio will be reviewed and adjusted if any one of the three 
components initially representing higher weightings in the Index value 
currently represents 25 percent or more of the Index value, or if any 
one of the other components initially representing lower weightings in 
the Index value currently represents 5 percent or more of the Index 
value. The Index portfolio will be rebalanced, if necessary, by 
changing the number of whole shares of each component stock so that the 
three components initially given higher weights will again represent 
less than 25 percent of the Index value, and the remaining lower-
weighted components will each represent less than 5 percent of the 
Index value. The Exchange has chosen to rebalance the Index following 
the close of trading on the Thursday prior to the third Friday of 
March, June, September and December, since it allows an option contract 
to be held for up to three months without a change in the Index 
portfolio while, at the same time, maintaining the equal-dollar 
weighting feature of the Index. If necessary, a divisor adjustment will 
be made at the rebalancing to ensure the continuity of the Index's 
value. The newly adjusted portfolio becomes the basis for the Index's 
value on the first trading day following the quarterly adjustment.
    As noted above, the number of shares of each component stock in the 
Index portfolio remains fixed between quarterly reviews except in the 
event of certain types of corporate actions such as the payment of a 
dividend other than an ordinary cash dividend, stock distribution, 
stock split, reverse stock split, rights offering, distribution,

[[Page 11450]]

reorganization, recapitalization, or similar event with respect to the 
component stocks. In a merger or consolidation of an issuer of a 
component stock, if the stock remains in the Index, the number of 
shares of that security in the portfolio may be adjusted, to the 
nearest whole share, to maintain the component's relative weight in the 
Index at the level immediately prior to the corporate action. In the 
event of a stock addition or replacement, the new component stock will 
be added to the Index at a weight determined by the Exchange and the 
Index will be rebalanced. In all cases, the divisor will be adjusted, 
if necessary, to ensure Index continuity.
    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.
Maintenance of the Index
    The Exchange will maintain the Index so that upon quarterly 
rebalancing: (1) the total number of component securities will not 
increase or decrease by more than 33\1/3\ percent 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 percent of the Index by weight will have 
a minimum market capitalization of $75 million and the component stocks 
constituting the bottom 10 percent of the Index by weight will have a 
minimum market capitalization of $50 million; (3) at least 90 percent 
of the Index's numerical index value and at least 80 percent of the 
total number of component securities individually will meet the then 
current criteria for standardized option trading set forth in Amex Rule 
915; (4) stocks constituting 85 percent of the Index have a monthly 
trading volume of at least 500,000 shares for each of the last six 
months; (5) no single component will represent more than 25 percent of 
the weight of the Index and the five highest weighted components will 
represent no more than 60 percent of the Index at each quarterly 
rebalancing; and (6) in order to maintain the character of the Index, 
companies whose gold production hedging policies change to greater than 
1\1/2\ times annual production will be considered for removal from the 
Index.
    The Amex will not open for trading any additional option series if 
the Index fails to satisfy any of the maintenance criteria set forth 
above unless the Exchange determines that such failure is not 
significant and the Commission concurs in that determination or unless 
the continued listing of options on the Index has been approved by the 
Commission pursuant to Section 19(b)(2) of the Act.
Expiration and Settlement
    THe options on the proposed Index will be European-style (i.e., 
exercises permitted only at expiration) and cash-settled. Standard 
option trading hours (9:30 a.m. to 4:10 p.m. Eastern Standard Time) 
will apply. Options on the 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 normally will 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 Amex plans to list series with expirations in the three near-
term calendar months and in the two additional calendar months in the 
March cycle. In addition, the Amex may list longer term option series 
having up to 36 months to expiration. In lieu of such long-term options 
on a full value Index, the Amex 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 Index options will be 
subject to the same rules which govern the trading of all of the Amex's 
index options, including sales practice rules, margin requirements, and 
floor trading procedures. As noted above, all Index options will have 
European-style exercise. Position limits on reduced-value long term 
Index options will be equivalent to the positions limits for full value 
Index options and will be aggregated with such options. For example, if 
the position limit for the full value Index options is 9,000 contracts 
on the same side of the market, then the position limit for the reduced 
value Index options will be 90,000 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's regular 
way opening sale prices for the component stocks. In the case of 
securities traded through the facilities of the National Association of 
Securities Dealers Automated Quotation system (``NASDAQ''), the first 
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, ``Applicability and Definitions,'' through 980C, 
``Exercise of Stock Index Option Contracts,'' 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 Index. The Index is deemed to be a stock index option under Amex 
Rule 901C(a) and a stock index industry group under Amex Rule 
900C(b)(1).\3\ With respect to paragraph (b) of Amex Rule 903C, 
``Series of Stock Index Options,'' the Exchange proposes to list near-
the-money 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 paragraph 
(c) of Amex Rule 904C, ``Position Limits,'' will result in a position 
limit of 9,000 contracts for options on the Index.\4\
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    \3\ Under Amex Rule 900C(b)(1), a stock index industry group is 
an index of stocks representing a particular industry or related 
industries.
    \4\ Amex Rule 904(c) provides that the position limit for an 
industry index option will be 9,000 contracts if the Amex determines 
at the commencement of trading of the options that any single stock 
in the underlying stock index industry group accounted, on average, 
for 20% or more of the numerical index value or that any five stocks 
in the group together accounted, on average, for more than 50% of 
the numerical index value, but that no single stock in the group 
accounted, on average, for 30% or more of the numerical index value, 
during the 30-day period immediately preceding the review.
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(b) Basis
    The Amex 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, and is not designed to permit unfair 
discrimination between customers, issuers, brokers or dealers.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Amex does not believe that the proposed rule change will impose 
any burden on competition.

[[Page 11451]]

(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 after the 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 reason 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. Copies of such filing will also be available for 
inspection and copying at the principal office of the above-mentioned 
self-regulatory organization. All submissions should refer to the file 
number in the caption above and should be submitted by April 10, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12) (1995).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-6641 Filed 3-19-96; 8:45 am]
BILLING CODE 8010-01-M