[Federal Register Volume 62, Number 11 (Thursday, January 16, 1997)]
[Notices]
[Pages 2411-2415]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-1034]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38143; File No. SR-Amex-96-35]


Self-Regulatory Organizations; American Stock Exchange, Inc.; 
Order Approving Proposed Rule Change and Notice of Filing and Order 
Granting Accelerated Approval of Amendment Nos. 1 and 2 Relating to the 
Trading of Options on the Tobacco Index SM

January 8, 1997.

I. Introduction

    On October 1, 1996, the American Stock Exchange, Inc. (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change relating to the trading of 
options on The Tobacco IndexSM. The proposal was published for 
comment in the Federal Register on October 24, 1996.\3\ The Exchange 
filed an amendment (``Amendment No. 1'') \4\ to its proposal on 
November 8, 1996. The Exchange filed a second amendment (''Amendment 
No. 2'') \5\ to its proposal on December 6, 1996. No comments were 
received on the proposed rule change. This order approves the 
Exchange's proposal as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 37839 (October 17, 
1996), 61 FR 55176.
    \4\ Amendment No. 1 provides information and representations 
with respect to the proposed rule change. Letter from Claire P. 
McGrath, Managing Director and Special Counsel, Derivative 
Securities, Amex, to Ivette Lopez, Assistant Director, Office of 
Market Supervision, Division of Market Regulation, Commission, dated 
November 7, 1996.
    \5\ Amendment No. 2 provides further information and 
representations with respect to the proposed rule change. letter 
from Claire P. McGrath, Managing Director and Special Counsel, 
Derivative Securities, Amex, to Ivette Lopez, Assistant Director, 
Office of Market Supervision, Division of Market Regulation, 
Commission, dated December 5, 1996.
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II. Description of the Proposal

A. General

    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) 
that 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.

B. Composition of the Index

    The Amex proposes to trade standardized options on the Index, 
developed by the Amex, representing a portfolio of large, actively 
traded tobacco company stocks.\6\ The Index will comprise nine tobacco 
industry stocks. The components of the Index will be American Brands, 
Inc.; B.A.T. Industries P.L.C.; Dimon, Inc.; Empresas La Modernas 
(ADR); Loews Corp.; Philip Morris Companies, Inc.; RJR Nabisco Holdings 
Corporation, Inc.; UST, Inc.; and Universal Corporation.\7\ The Index 
was initialized at a level of 250 at the close of trading on August 16, 
1996. As of January 2, 1997, the Index had a value of approximately 
289. The Exchange will use an `'equal-dollar weighted'' method to 
calculate the value of the Index.\8\ The market capitalizations of the 
individual stocks in the Index as of the close of trading on August 23, 
1996 ranged from a high of $73 billion to a low of $762 million, with 
the median and average being $6.9 billion and $14 billion respectively. 
As of the close of trading on August 23, 1996, no one stock accounted 
for more than 11.50% of the Index's total weight, and the percentage 
weighting of the five largest issues in the Index accounted for 56.92% 
of the Index's value.
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    \6\ A list of securities comprising the Index, as well as listed 
shares outstanding and prices as of August 23, 1996, was submitted 
by the Exchange as Exhibit B, and is available at the principal 
office of the Amex and at the Commission.
    \7\ American brands, Inc. Plans to spin off remaining tobacco 
related business by the middle of next year. As a result of the 
spin-off the Amex anticipates that it will replace American Brands, 
Inc. in the Index with a company in the tobacco industry. Amendment 
No. 1, supra note 4.
    \8\ See infra Section II.D entitled ``Calculation of the Index'' 
for a description of this calculation method.
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C. Eligibility Standards for the Inclusion of Component Stocks in the 
Index

    The Index conforms with Exchange Rule 901C, which specifies 
criteria for inclusion of stocks in a narrow-based index on which 
standardized options will be traded on the Exchange. 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) \9\ except 
that there are only nine component securities,\10\ 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.\11\
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    \9\ 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. 
See securities Exchange Act Release No. 34157 (June 3, 1994), 59 FR 
30062 (approving substantially identical proposed rule amendments 
from the Amex, the NYSE, the Philadelphia Stock Exchange, Inc. 
(``Phlx''); the Chicago Board Options Exchange, Inc. (``CBOE''); and 
the Pacific Stock Exchange, Inc. (``PSE'') relating to narrow-based 
index options listing standards).
    \10\ Id. The generic standards require that upon the initial 
listing of narrow-based index options, the underlying index must 
include at least ten stocks. Thereafter, the index must contain at 
least nine component stocks at all times.
    \11\ Id. The generic initial listing standards require that 
component stocks comprising the top 90 percent of the index, by 
weight, must have a monthly trading volume of at least 1,000,000 
shares per month over the six months preceding the filing of the 
index with the Commission; thereafter, the component stocks must 
maintain monthly trading volume of at least 500,000 shares per 
month. The trading volume for the component stocks constituting the 
bottom 10 percent of the index, by weight, must have been at least 
500,000 shares over the same initial period; thereafter, they must 
meet an average monthly trading volume of at least 400,000 shares 
per month.
    B.A.T. Industries PLC is the one component whose minimum monthly 
trading volume was less than 400,000 shares. In February 1996, 
B.A.T. traded only 395,800 shares. During the most recent six month 
period, however, B.A.T.'s trading volume has increased, with a high 
of 6.74 million shares in August 1996, and a low of 866,500 shares 
in October 1996. Amendment No. 1, supra note 4.
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    All of the component securities meet the following eligibility 
standards: (1) all component securities are traded on the Amex, NYSE, 
or are traded through the facilities of the National Association of 
Securities Dealers Automated

[[Page 2412]]

Quotation System (``Nasdaq'') and are reported national Market System 
securities; \12\ (2) component stocks comprising the top 90 percent of 
the Index by weight have a market capitalization \13\ 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) 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; (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; \14\ and (5) 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.
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    \12\ Securities Exchange Act Release No. 34157, supra note 9. 
The generic initial listing and maintenance listing standards 
require that all component stocks be deemed ``reported securities'' 
as that term is defined in Rule 11Aa3-1 under the Act. Accordingly, 
a proposed narrow-based index currently can only comprise exchange-
listed and Nasdaq National Market System securities.
    \13\ In the case of ADRs, this represents market capitalization 
as measured by total world-wide shares outstanding.
    \14\ Amex staff have represented that all underlying stocks are 
options eligible, and all but Dimon, Inc. and UST, Inc. currently 
have options traded on them. Telephone conversation between Claire 
P. McGrath, Managing Director and Special Counsel, Derivative 
Securities, Amex, and Janet W. Russell-Hunter, Special Counsel, 
Office of Market Supervision, Division of Market Regulation, 
Commission, October 16, 1996.
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D. Calculation of the Index

    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 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, 
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, if necessary, 
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 Index 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.

E. Maintenance of the Index

    The Exchange will maintain the Index so that upon quarterly 
rebalancing (1) all component securities are traded on the Amex, NYSE, 
or traded through the facilities of the Nasdaq and are reported 
National Market System securities,\15\ (2) 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; (3) 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; (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 
300,000 shares for each of the last six months; \16\ (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; (6) 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; and (7) 
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.\17\ If the Index fails to 
satisfy any of the maintenance criteria set forth above, the Exchange 
shall, in accordance with Rule 916C, take actions which include, but 
are not limited to, prohibiting the opening for trading of any 
additional option series,\18\ 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 approved by the Commission pursuant to Section 19(b)(2) of the 
Act.
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    \15\ Amendment No. 1, supra note 4.
    \16\ Amendment No. 2, supra note 5.
    \17\ Amendment No. 1, supra note 4.
    \18\ Amendment No. 2, supra note 5. See also infra note 28.
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F. Expiration and Settlement

    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 on the last trading day 
prior to expiration. In the case of National Market securities traded 
through Nasdaq, 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.\19\
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    \19\ The Commission notes that pursuant to Article XVII, Section 
4 of the Options Clearing Corporation's (``OCC'') by-laws, OCC is 
empowered to fix an exercise settlement amount in the event it 
determines a current index value is unreported or otherwise 
unavailable. Further, OCC has the authority to fix an exercise 
settlement amount whenever the primary market for the securities 
representing a substantial part of the value of an underlying index 
is not open for trading at the time when the current index value 
(i.e., the value used for exercise settlement purposes) ordinarily 
would be determined. See Securities Exchange Act Release No. 37315 
(June 17, 1996), 61 FR 42671 (order approving SR-OCC-95-19).

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[[Page 2413]]

G. Contract Specifications

    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 (\1/10\th) 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.

H. Exchange Rules Applicable to Stock Index Options

    Because 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), Amex 
Rules 900C through 980C, which are applicable to the trading of narrow-
based index options, will apply to the trading of option contracts 
based on the Index. These rules cover issues such as surveillance, 
exercise prices,\20\ position and exercise limits,\21\ margin 
requirements,\22\ and trading halts.\23\ 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. 
Pursuant to Rule 903C(b) regarding exercise prices, 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.\24\
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    \20\ See Amex Rule 903C(b).
    \21\ See Amex Rule 904C and 905C.
    \22\ See Amex Rule 462(d)(2)(D)(iv).
    \23\ See Amex Rule 918C.
    \24\ Amex Rule 904C(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 index value, during 
the 30-day period immediately preceding the review.
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    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.

III. Findings and Conclusions

    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, with the requirements of Section 6(b)(5).\25\ Specifically, 
the Commission finds that the trading of Index options will serve to 
promote the public interest and help to remove impediments to a free 
and open securities market by providing investors with an additional 
means to hedge exposure to market risk associated with stocks in the 
tobacco industry.\26\ The trading of options in the Index, however, 
raises several issues relating to index design, customer protection, 
surveillance, and market impact. The Commission believes, for the 
reasons discussed below, that the Amex has adequately addressed these 
issues.
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    \25\ 15 U.S.C. 78f(b)(5).
    \26\ Pursuant to Section 6(b)(5) of the Act, the Commission must 
predicate approval of any new option proposal upon a finding that 
the introduction of any such new derivative instrument is in the 
public interest. Such a finding would be difficult for a derivative 
instrument that served no hedging or other economic function, 
because any benefits that might be derived by market participants 
would likely be outweighed by the potential for manipulation, 
diminished public confidence in the integrity of the markets, and 
other valid regulatory concerns. In this regard, the trading of 
listed options on the Index will provide investors with a hedging 
vehicle that should reflect the overall movement of the stocks 
representing companies in the tobacco industry in the U.S. stock 
markets.
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A. Index Design and Structure

    The Commission believes it is appropriate and consistent with the 
Act for the Exchange to designate the Index as a narrow-based index for 
the purposes of options trading. The Index comprises a limited number 
(nine) of stocks intended to track the tobacco sector of the stock 
market. Accordingly, the Commission believes it is appropriate for the 
Amex to apply its rules governing narrow-based index options to trading 
in the Index options.\27\ The Commission believes that the large market 
capitalizations, liquid markets, and relative weighings of the Index's 
component stocks significantly minimize the potential for manipulation 
of the Index.
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    \27\ See supra Section II.H.
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    First, the stocks that comprise the Index are actively traded, with 
a median and average of the minimum monthly trading volume for the six 
month period ending August 23, 1996 of 3.1 million shares and 7.6 
million shares respectively. Second, the market capitalizations of the 
stocks in the Index are very large, ranging from a high of $73 billion 
to a low of $762 million, with the median and average being $6.9 
billion and $14 billion respectively. Third, because the index is 
equal-dollar weighted, no one particular stock dominates the Index. 
Specifically, as of August 23, 1996, no one stock accounted for more 
than 11.50% of the Index's total weight, and the percentage weighting 
of the five highest weighted stocks in the Index accounted for under 
57% of the Index's value.
    Fourth, the Index will be maintained so that in addition to the 
other maintenance criteria discussed above, at each quarterly review 
and rebalancing, at least 90% of the Index's numerical index 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. The Commission believes that this requirement will ensure 
that the Index will be almost entirely made up of stocks with large 
public floats that are actively traded, thus reducing the likelihood 
that the Index could be easily manipulated by abusive trading in 
smaller stocks contained in the Index. All component stocks in the 
Index are eligible for standardized options trading, and all of the 
component stocks, other than Dimon, Inc. and UST, Inc., currently have 
standardized options trading on them.

[[Page 2414]]

    Fifth, if the Index fails to satisfy any of the maintenance 
criteria set forth above, the Exchange shall, in accordance with Rule 
916C, take actions which include, but are not limited to, prohibiting 
the opening for trading of any additional option series,\28\ 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 approved by the Commission 
pursuant to Section 19(b)(2) of the Act.
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    \28\ Other action that might be taken in consultation with 
Commission staff for failure to meet the maintenance standards would 
include the prohibition of opening transactions. See e.g. AMEX Rule 
916C.
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    Sixth, the Amex will be required to ensure that each component of 
the Index is subject to last sale reporting requirements in the U.S. 
pursuant to Rule 11Aa3-1 of the Act. This will further reduce the 
potential for manipulation in the value of the Index. Finally, the 
Commission believes that the existing mechanisms to monitor trading 
activity in the component stocks of the Index, or options on those 
stocks, will help as well as detect any illegal activity.

B. Customer Protection

    The Commission believes that a regulatory system designed to 
protect public customers must be in place before the trading of 
sophisticated financial instruments, such as Index options, can 
commence on a national securities exchange. The Commission notes that 
the trading of standardized exchange-traded options occurs in an 
environment that is designed to ensure, among other things, that: (1) 
the special risks of options are disclosed to public customers; (2) 
only investors capable of evaluating and bearing the risks of options 
trading are engaged in such trading; and (3) special compliance 
procedures are applicable to options accounts. Accordingly, because the 
Index options will be subject to the same regulatory regime as other 
standardized index options currently traded on the Amex, the Commission 
believes that adequate standards are in place to ensure the protection 
of investors in Index options.

C. Surveillance

    The Commission believes that a surveillance sharing agreement 
between an exchange proposing to list a stock index derivative product 
and the exchange(s) trading the stocks underlying the derivative 
product is an important measure for surveillance of the derivative and 
underlying securities markets. Such agreements ensure the availability 
of information necessary to detect and deter potential manipulations 
and other trading abuses, thereby making the stock index product less 
susceptible to manipulation.\29\ In this regard, the Amex, NYSE, and 
National Association of Securities Dealers, Inc., on whose markets the 
component securities of the Index trade, are all members of the 
Intermarket Surveillance Group (``ISG''), which provide for exchange of 
all necessary surveillance information.\30\ Options on the individual 
component securities also trade on markets which are ISG members.
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    \29\ See Securities Exchange Act Release No. 31243 (September 
28, 1992), 57 FR 45849.
    \30\ The ISG was formed on July 14, 1983 to, among other things, 
coordinate more effectively surveillance and investigative 
information sharing arrangements in the stock and options markets. 
See Intermarket Surveillance Group Agreement, dated July 14, 1983, 
amended January 29, 1990. The members of the ISG are: Amex; Boston 
Stock Exchange, Inc.; CBOE; Chicago Stock Exchange, Inc.; National 
Association of Securities Dealers, Inc.; NYSE; PSE; and Phlx. The 
major stock index futures exchanges, including the Chicago 
Mercantile Exchange and the Chicago Board of Trade, joined the ISG 
as affiliate members in 1990.
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D. Market Impact

    The Commission believes that the listing and trading of Index 
options on the Amex will not adversely impact the underlying securities 
markets.\31\ First, as described above, due to the ``equal dollar-
weighting'' method, no one stock or group of stocks dominates the 
Index. The quarterly rebalancing of the Index also will continue to 
ensure that domination by one or more stocks will not occur. Second, 
the component stocks generally will be actively traded, highly 
capitalized stocks. Third, all stocks comprising the Index are options 
eligible, and the maintenance standards ensure that at least 90% of the 
Index's numerical index value will continue to be options eligible. 
Fourth, the 9,000 contract position and exercise limits will serve to 
minimize potential manipulation and market impact concerns. Fifth, 
existing Amex stock index option rules and surveillance procedures will 
apply to the Index options. Sixth, the risk to investors of contra-
party non-performance will be minimized because the Index options will 
be issued and guaranteed by the Options Clearing Corporation, just like 
any other standardized option traded in the United States.
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    \31\ In addition, the Amex has represented that the Amex and the 
Options Price Reporting Authority (``OPRA'') have the necessary 
systems capacity to support this new series of index options that 
would result from the introduction of Index options. See Letter from 
Edward Cook, Jr., Managing Director, Information Technology, Amex, 
to Ivette Lopez, Assistant Director, Office of Market Supervision, 
Division of Market Regulation, Commission, dated October 30, 1996; 
Letter from Charles H. Faurot, Managing Director, Market Data 
Services, Amex, to Ivette Lopez, Assistant Director, Office of 
Market Supervision, Division of Market Regulation, Commission, dated 
November 4, 1996; Letter from Joseph P. Corrigan, Executive 
Director, OPRA, to Ivette Lopez, Assistant Director, Office of 
Market Supervision, Division of Market Regulation, Commission, dated 
November 4, 1996.
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    Finally, the Commission believes that settling expiring Index 
options based on the primary exchange regular way opening sale prices 
of component securities is reasonable and consistent with the Act. As 
noted in other contexts, valuing options for exercise settlement on 
expiration based on opening prices rather than closing prices may help 
reduce adverse effects on markets for stocks underlying options on the 
Index.\32\
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    \32\ Securities Exchange Act Release No. 30944 (July 21, 1992), 
57 FR 33376.
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    The Commission finds good cause for approving Amendment Nos. 1 and 
2 to the proposed rule change prior to the thirtieth day after the date 
of publication of notice of filing thereof in the Federal Register. 
Specifically, the amendments clarify and strengthen the proposal by 
adding maintenance criteria and providing other information about the 
Index. Furthermore, the Amex's original proposal was published in the 
Federal Register for the full 21 day comment period without any 
comments being received by the Commission. The Commission notes that, 
with the exception of the initial number of components underlying the 
Index and the trading volume of certain components, the proposal, as 
amended, satisfies the Exchange's generic narrow-based index option 
listing standards contained in Amex Rule 901C, Commentary .02. As 
discussed above, the Commission believes that accelerating approval of 
Amendment Nos. 1 and 2 will allow the Exchange to begin listing options 
on the Index without further delay in order to provide an additional 
exchange-traded hedging vehicle for investors with risk exposure to 
securities in the various technology industries.
    Based on the above, the Commission believes that the proposal is 
consistent with Section 6(b)(5) of the Act, and that good cause exists 
to approve Amendment Nos. 1 and 2 to the Amex's proposal on an 
accelerated basis.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment Nos. 1 and 2 to the proposed rule 
change. Persons making written submissions

[[Page 2415]]

should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., 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 in the 
Commission's Public 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 February 
6, 1997.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\33\ that the proposed rule change (SR-Amex-96-35), as amended, is 
approved.

    \33\ 15 U.S.C. 78s(b)(2).
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    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-1034 Filed 1-15-97; 8:45 am]
BILLING CODE 8010-01-M