[Federal Register Volume 61, Number 68 (Monday, April 8, 1996)]
[Notices]
[Pages 15537-15539]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-8548]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37053; File No. SR-Amex-95-57]


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 Flexible 
Exchange Options on Specified Equity Securities

March 29, 1996.
    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 December 26, 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. On March 
18, 1996, the Exchange submitted to the Commission Amendment No. 1 to 
the proposed rule change.\3\ 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.
    \3\ The Exchange proposes to (1) set position and exercise 
limits for FLEX Equity Options that are three times the current 
position limit tiers for Non-FLEX Equity Options, (2) provide a 
guaranteed minimum right of participation for Submitting Member 
seeking to cross a public customer order in FLEX Equity Options, (3) 
provide for the settlement of FLEX Index Options in designated 
foreign currencies, and (4) amend the hours of trading so that FLEX 
Options transactions may be effected during normal Exchange options 
trading hours on any business day. 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 March 
14, 1996 (``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rules 900G through 909G to provide 
for the listing and trading of Flexible Exchange Options on equity 
securities (``FLEX Equity Options''). The Exchange also proposes to 
amend the FLEX Index Option rules (1) governing priority of bids and 
offers, and (2) to provide for the trading and settlement of such 
contracts in certain foreign currencies. The text of the proposed rule 
change is available at the Office of the Secretary, the Exchange, and 
at the Commission.

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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

    In 1993 the Exchange began trading Flexible Exchange Options 
(``FLEX Options'') on select broad-based indexes.\4\ The Exchange now 
proposes to expand its FLEX Options program to equity securities. FLEX 
Equity Options will give investors the ability to customize basic 
option features, including size, expiration date, exercise style and 
exercise price. FLEX Equity Options will give investors, especially 
large institutional investors, the benefit of Options Clearing 
Corporation (``OCC'') issuance, clearance and financial guarantee, as 
well as the ability to customize equity option contract specifications. 
The Exchange believes that the expansion of its FLEX Options program to 
equity securities will broaden the base of institutional investors that 
use options to manage their trading and investment risk.

    \4\ See Securities Exchange Act Release Nos. 32781 (August 20, 
1993), 58 FR 45360 (August 27, 1993) (approving the trading of FLEX 
Index Options on the Major Market, Institutional and MidCap 
Indexes), and 33262 (December 1, 1993), 58 FR 64622 (December 8, 
1993) (approving the trading of FLEX Index Options on the Japan 
Index).
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    Generally, the current rules governing FLEX Index Options will 
apply to FLEX Equity Options with some changes in the rules necessary 
to take into consideration the specific characteristics of FLEX Equity 
Options. In particular, the Exchange will add several new definitions 
to accommodate the trading of FLEX Equity Options, adopt specific terms 
for FLEX Equity option contracts, and revise certain rules that 
describe FLEX Options and govern their trading.
    The Exchange proposes to revise Rule 903G to make specific 
reference to FLEX Equity Options. In particular, FLEX Equity Option 
transactions will be limited to transactions in options on underlying 
securities that have been approved by the Exchange in accordance with 
Rule 915.\5\ Additionally, the terms include a maximum term of three 
years for any FLEX Equity Option contract, a minimum size of 250 
contracts for an opening transaction in a new series, and a minimum 
size of 100 contracts for an opening or closing transaction in a series 
in which there is already an open interest (or any lesser amount in a 
closing transaction that represents the entire remaining contracts). 
The terms also include the minimum size for FLEX Quotes responsive to a 
Request for Quotes as the lesser of 100 contracts or the remaining 
underlying size in a closing transaction.

    \5\ The Exchange proposes to be able to trade FLEX Options on 
any options-eligible security regardless of whether standardized 
non-FLEX options overlie that security, and regardless of whether 
such non-FLEX options trade on the Exchange.
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    It is also proposed that exercise prices and premiums for FLEX 
Equity Options will be stated in dollar amounts or percentages, with 
premiums rounded to the nearest minimum tick and exercise prices to the 
nearest one-eighth. Exercise will be by physical delivery, and the OCC 
exercise-by-exception procedures will apply.
    The Exchange is proposing position limits and exercise limits for 
FLEX Equity Options that are larger than the limits applicable to Non-
FLEX Equity Options. Position and exercise limits for FLEX Equity 
Options are set forth and compared to existing limits for non-FLEX 
Equity Options on the same underlying security.\6\

    \6\ See Amendment No. 1, supra note 3.

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      Non-FLEX equity position limit         FLEX equity position limit 
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4,500 contracts...........................  13,500 contracts.           
7,500 contracts...........................  22,500 contracts.           
10,500 contracts..........................  31,500 contracts.           
20,000 contracts..........................  60,000 contracts.           
25,000 contracts..........................  75,000 contracts.           
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    The applicable position and exercise limit tiers for Non-FLEX 
Equity Options are based on the number of outstanding shares and 
trading volume of the underlying security.\7\ This proposal does not 
alter the applicable tier criteria set forth in the Equity Option 
Position Limit Approval Orders.

    \7\ See Securities Exchange Act Release Nos. 36409 (October 23, 
1995), 60 FR 55399 (October 31, 1995) (File Nos. SR-NYSE-95-31; SR-
PSE-95-25; SR-Amex-95-42; and SR-Phlx-95-71); and 36371 (October 13, 
1995), 60 FR 54269 (October 20, 1995) (File No. SR-CBOE-95-42) 
(collectively the ``Equity Option Position Limit Approval Orders'').
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    As is currently the case for FLEX Index Options, it is proposed 
that there will be no aggregation of positions or exercises in FLEX 
Equity Options with positions or exercises in Non-FLEX Equity Options 
for purposes of the limits.
    The Exchange also proposes to amend rule 904G in order to provide a 
minimum right of participation to Exchange members who initiate 
Requests for Quotes in respect of FLEX Equity Options and indicate an 
intention to cross or act as principal on the trade. The proposed rule 
change would provide that a member who submits a Request for Quotes in 
respect of a FLEX Equity Option and indicates an intention to cross or 
act as principal on the trade, and who matches or improves the BBO 
during the BBO Improvement Interval, has a priority right to execute 
the contra side of the trade for at least twenty-five percent (25%) of 
the trade, 100 contracts or the remaining number of contracts on a 
closing transaction of less than 100 contracts.\8\

    \8\ See Amendment No. 1, supra note 3.
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    The Exchange also proposes to amend FLEX Index Option rules to 
conform to certain rules currently in place at the Chicago Board 
Options Exchange. Specifically, the Exchange proposes to amend its 
rules to provide for the trading and settlement of FLEX Index Options 
in select foreign currencies. Currently, FLEX Index Options trade and 
settle in U.S. Dollars only. The Exchange now proposes to trade and 
settle FLEX Index Options in Canadian Dollars, British Pounds, Japanese 
Yen, Deutsche Marks, Swiss Francs, French Francs, or European Currency 
Units. The Exchange believes that this change will increase the utility 
and, thus, the attractiveness of FLEX Index Options, which in turn 
should broaden the base of domestic and international institutional 
investors that use exchange--traded FLEX Index Options to manage their 
trading and investment risk.
    The Exchange believes the proposed rule change will improve the 
efficiency and transparency of the equity option markets and the 
markets in the underlying equities, and bring transactions which are 
currently subject to little or no regulatory oversight under a 
regulatory framework that is fully consistent with the regulation of 
common stock trading and reporting.
    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 trade and is not designed to permit unfair

[[Page 15539]]
discrimination between customers, issuers, brokers or dealers.

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

    The Exchange believes that the proposed rule change will impose no 
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

    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 Amex 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, 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 NW., 
Washington, D.C. 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 File No. SR-Amex-95-57 in the caption above 
and should be submitted by April 29, 1996.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\

    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-8548 Filed 4-5-96; 8:45 am]
BILLING CODE 8010-01-M