[Federal Register Volume 62, Number 8 (Monday, January 13, 1997)]
[Notices]
[Pages 1786-1788]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-688]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38123; File No. SR-Amex-96-45]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the American Stock Exchange, Inc. 
Relating to the Closing Time for Equity Options and Narrow-Based Index 
Options

January 6, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on November 22, 1996, 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

[[Page 1787]]

have been prepared by the self-regulatory organization. On December 16, 
1996, the Exchange filed Amendment No. 1 to its proposal.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The proposed rule change submitted by the Exchange would 
change the trading close for equity options to 4:02 p.m. Amendment 
No. 1 would also change to 4:02 p.m. the trading close for narrow-
based index options. See Letter from Claire P. McGrath, Amex, to 
Janice Mitnick, Division of Market Regulation, SEC, dated December 
16, 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 1, 903C, 918 and 980C to 
provide for the closing of equity option and narrow-based index option 
trading at 4:02 p.m.
    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 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

1. Purpose
    Since 1978, equity options have traded until 4:10 p.m., ten minutes 
beyond the close of trading of the underlying securities, to allow 
investors to trade options based upon the final closing prices of those 
underlying securities. In 1978, frequent delays between the time of the 
execution of the closing transaction and the appearance of the trade on 
the Consolidated Tape Association's Tape A gave rise to time lags that, 
in some instances, were as long as seven minutes after the close of 
trading at 4:00 p.m. Today, due to improvements in trading and 
reporting systems, the dissemination of closing prices is delayed at 
most one or two minutes, and only in unusual market conditions are any 
significant time lags encountered. Another reason for extending equity 
option trading until 4:10 p.m., cited in 1978, was to give options 
participants additional time to digest the impact of news announcements 
by companies and government agencies who oftentimes released such news 
at 4:00 p.m. or shortly thereafter.
    While the Exchange expressed reservations regarding the move to 
4:10 p.m., it ultimately acceded to the industry's consensus that such 
a close was appropriate. Although the Exchange has made efforts to 
encourage companies and others to withhold significant news 
announcements until after the close of option trading, occasionally 
such announcements are released between 4:00 and 4:10 p.m., and 
dramatically impact the trading of equity and narrow-based index 
options \4\ during that time period. The Exchange has not requested a 
change in the trading close for broad-based index options as it does 
not believe that a significant news announcement by the issuer of one 
component stock in a broad-based index would have a corresponding 
effect on the price of that broad-based index.\5\
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    \4\ A significant new announcement on one component of a narrow-
based index could have a decisive effect on that index. See 
Amendment No. 1.
    \5\ Id.
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    When instances of significant news releases occur prior to the 
close of option trading, the Exchange has observed that public 
customers are unable to react as quickly as professional traders, and 
accordingly lack the ability to give their brokers instructions or take 
action with regard to orders that may have been previously placed on 
the limit order book. Further, because the principal market for the 
underlying stock is closed, option specialists and market makers have 
oftentimes experienced extreme difficulty making orderly options 
markets given their inability to hedge or otherwise offset market risk 
with transactions in the underlying stock.
    Therefore, the Exchange now proposes that at 4:02 p.m., all trading 
in equity options and narrow-based index options will cease. No orders 
may be entered, modified or canceled in any equity or narrow-based 
index option series after 4:02 p.m.
    The Exchange believes a 4:02 p.m. closing time for equity options 
and narrow-based index options is necessary and appropriate given the 
improvements in dissemination of closing prices, and the limited 
ability of public customers to react to news announcements and changing 
markets in the last ten minutes of trading under the current rule. 
However, the Exchange also believes that the additional two minutes of 
options trading after the close of trading in the underlying stock will 
allow market participants to react, if necessary, to any delayed 
dissemination of closing prices.
2. Statutory Basis
    The proposed rule change furthers the objectives of 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 designed to prevent unfair 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 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

[[Page 1788]]

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 Room. Copies of such filing will also be available for 
inspection and copying at the principal office of the Exchange. All 
submissions should refer to File No. SR-Amex-96-45 and should be 
submitted by February 3, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegate authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 97-688 Filed 1-10-97; 8:45 am]
BILLING CODE 8010-01-M