[Federal Register Volume 61, Number 207 (Thursday, October 24, 1996)]
[Notices]
[Pages 55176-55178]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27301]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37839; File No. SR-Amex-96-35]


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

October 17, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934, 15 U.S.C. 78s(b)(1), notice is hereby given that on October 1, 
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 Amex. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.

[[Page 55177]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex proposes to trade options on The Tobacco Index SM 
(``Index''), a new index developed by the Amex composed of tobacco 
company stocks (or American Depositary Receipts (``ADRs'') thereon) 
which are traded on the Amex and the New York Stock Exchange 
(``NYSE''). In addition, the Amex proposes to amend Rule 901C, 
Commentary .01, to reflect that 90% of the Index's numerical 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, 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 Amex 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 Amex 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to trade standardized options on the 
Index, an equal-dollar weighted index developed by the Amex, 
representing a portfolio of large, actively traded tobacco company 
stocks.
    a. Eligibility Standards for Index Components. The Index conforms 
with Exchange Rule 901C, which specifies criteria for inclusion of 
stocks in an index on which standardized options will be traded. In 
addition, the Index conforms to most of the criteria set forth in Rule 
901C, Commentary .02 (which provides for the commencement of trading of 
options on an index thirty days after the date of filing) except that 
there are only nine component securities, and that four (or 44%) of the 
components have a minimum monthly volume during the preceding six 
months of less than 1,000,000 shares, with one component having traded 
less than 500,000 shares in at least one of the last six months. All of 
the component securities meet the following eligibility standards: (1) 
All component securities are traded on the Amex or NYSE; (2) component 
stocks comprising the top 90 percent of the Index by weight have a 
market capitalization \1\ of at least $75 million, and those component 
stocks constituting the bottom 10 percent of the Index by weight have a 
market capitalization of at least $50 million; (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; and (4) at least 90% of the Index's 
numerical value and at least 80% of the total number of component 
securities is accounted for by stocks that meet the current criteria 
and guidelines set forth in Rule 915.
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    \1\ In the case of ADRs, this represents market capitalization 
as measured by total world-wide shares outstanding.
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    b. Index Calculation. The Index is calculated using an ``equal-
dollar weighting'' methodology. The following is a description of how 
equal-dollar weighting calculation method works. As of the market close 
on August 16, 1996, a portfolio of tobacco company stocks was 
established representing an investment of approximately $100,000 in the 
stock (rounded to the nearest whole share) of each of the companies in 
the Index. 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 250.00 at the close of trading on August 
16, 1996. Quarterly thereafter, following the close of trading on the 
third Friday of February, May, August and November, the Index portfolio 
will be adjusted by changing the number of whole shares of each 
component stock so that each company is again represented in ``equal'' 
dollar amounts. If necessary, a divisor adjustment is made at the 
rebalancing to ensure 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 remain fixed between quarterly review 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, 
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 average dollar value of 
the remaining components will be calculated and that amount invested in 
the stock of the new component to the nearest whole share. 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.
    c. 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\% 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 will 
have a minimum market capitalization of $75 million and the component 
stocks constituting the bottom 10% of the Index by weight will have a 
minimum market capitalization of $50 million; (3) at least 90% of the 
Index's numerical index value and at least 80% of the total number of 
component securities individually will meet the then current criteria 
for standardized option trading set forth in Exchange Rule 915; (4) 
stocks constituting 85% of the Index have a monthly trading volume of 
at least 500,000 shares for each of the last six months and those 
stocks constituting 15% of the Index have a monthly trading volume of 
at least 250,000 shares for each of the last six months; and (5) no 
single component will represent more than 25% of the weight of the 
Index and the five highest weighted components will represent no more 
than 60% of the Index at each quarterly rebalancing.
    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 Commission concurs in that determination or 
unless the continued listing of options on the Index has been

[[Page 55178]]

approved by the Commission pursuant to Section 19(b)(2) of the Act.
    d. Expiration and Settlement. The proposed options on the Index 
will be European style (i.e., exercises 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 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 February 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 (1/10th) 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 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 9,000 contracts on the same side of the 
market, then the position limit for the reduced value 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 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.
    e. 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 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 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 
9,000 contracts with respect to options on this Index.
2. Basis
    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 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

    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, N.W., 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, N.W., 
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 the File No. SR-Amex-96-35 and should be 
submitted by November 14, 1996.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-27301 Filed 10-23-96; 8:45 am]
BILLING CODE 8010-01-M