[Federal Register Volume 62, Number 99 (Thursday, May 22, 1997)]
[Notices]
[Pages 28081-28082]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13460]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38640; File No. SR-AMEX-96-45]


Self-Regulatory Organizations; American Stock Exchange, Inc. 
Order Approving Proposed Rule Change and Amendment No. 1 and Notice of 
Filing and Order Granting Accelerated Approval of Amendment No. 2 
Relating to the Establishment of a 4:02 p.m. Closing Time for Equity 
and Narrow-Based Index Options Trading

May 14, 1997.

I. Introduction

    On November 22, 1996, the American Stock Exchange, Inc. (``Amex'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') a proposed rule change pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 
19b-4 thereunder.\2\ On December 17, 1996, the Exchange Filed Amendment 
No. 1 to the rule proposal.\3\ On May 13, 1997, the Exchange filed 
Amendment No. 2 to the rule proposal.\4\
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    \1\ 15 U.S.C. Sec. 78s(b)(1).
    \2\ 17 CFR 249.19b-4.
    \3\ Letter from Claire McGrath, Managing Director and Special 
Counsel, Amex, to Ivette Lopez, Assistant Director, Division of 
Market Regulation, Commission, dated December 16, 1996 (``Amendment 
No. 1''). Amendment No. 1 proposes to amend the closing time to 4:02 
p.m. for narrow-based index options, as well as equity options.
    \4\ Letter from Claire McGrath, Managing Director and Special 
Counsel, Amex, to Ivette Lopez, Assistant Director, Division of 
Market Regulation, Commission, dated May 13, 1997 (``Amendment No. 
2''). Amendment No. 2 proposes to amend Rule 1, Commentary .02(2) to 
provide that a closing rotation in non-expiring options may be held 
five minutes after news of such rotation is publicly disseminated. 
Currently, the rule provides for a ten minute notice period of a 
closing rotation.
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    Notice of the substance of the proposed rule change and Amendment 
No. 1 was provided by issuance of a release \5\ and by publication in 
the Federal Register.\6\ No comments were received. This order approves 
the proposed rule change, as amended, and solicits comments on 
Amendment No. 2.
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    \5\ Securities Exchange Act Release No. 38123 (January 6, 1997).
    \6\ 62 FR 1786 (January 13, 1997).
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II. Description of the Proposal

    The Exchange proposes to amend Rules 1, 903C, 918 and 980C 
governing the hours of trading in equity options and narrow-based index 
options. Currently, the ten minute period for trading equity and 
narrow-based index options after the close of the underlying stocks 
allows options traders to respond to late reports of closing prices 
over the consolidated tape. The proposed rule change will result in the 
close of trading in equity and narrow-based index options at 4:02 p.m. 
instead of the existing close of 4:10 p.m.
    The Exchange also proposes to amend Rule 1, Commentary .02(2) to 
provide that a closing rotation in non-expiring options may be held 
five minutes after news of such rotation is publicly disseminated. 
Currently, the rule provides for a ten minute notice period of a 
closing rotation.

III. Discussion

    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, Section 6(b)(5).\7\ Section 6(b)(5) requires, among other 
things, that the rules of an exchange be designed to promote just and 
equitable principles of trade, perfect the mechanism of a free and open 
national market, and in general, to further investor protection and the 
public interest.
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    \7\ 15 U.S.C. Sec. 78f(b)(5).
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    The Commission believes that it is reasonable for the Exchange to 
amend its rules to close trading in equity and narrow-based index 
options at 4:02 p.m., versus the existing 4:10 p.m. close. Changing the 
closing time for these options to 4:02 p.m. preserves the Exchange's 
stated need to continue trading options for some period of time after 
the close of trading in the underlying securities. The Exchange has 
stated that this two minute extension from the close of the stock 
markets will allow options traders to respond to late reports of 
closing prices over the consolidated tape, thereby bringing options 
quotes in line with the closing price of the underlying security. Due 
to improvements in the processing and reporting of transactions, the 
Exchange believes that two minutes of options trading after the 
underlying equities close is sufficient to bring option quotes in to 
line with the closing prices of the underlying securities.
    In determining an appropriate closing time, the Exchange has also 
considered problems that might result when the exchange remains open 
after the close of the primary exchange for the underlying stocks. The 
Exchange states that a number of issuers have adopted the practice of 
disseminating important corporate news after the close of trading on 
the primary equity exchange in order to minimize the short-term 
disruptive effect of the news on the market price of the stock by 
allowing investors the opportunity to digest the significance of the 
news after the markets have closed. These announcements, if made while 
options markets are still trading, impact narrow-based index options, 
as well as equity options, because a significant news announcement on 
one component of a narrow-based index may have substantial impact on 
that index. Despite the fact that most Exchange products trade until 
4:10 p.m., important corporate news is often disseminated between 4:00 
and 4:10 p.m. Consequently, the Exchange states that because the 
principal market for the underlying stock is closed, option specialists 
and market makers have experienced difficulty in making orderly options 
markets due to their inability to hedge or otherwise offset market risk 
with transactions in the underlying

[[Page 28082]]

equity. Further, the Exchange believes that public customers are unable 
to react as quickly as professional traders to significant news 
releases made prior to the close of options trading. The Exchange 
states that a change in the options trading close to 4:02 p.m. would 
limit the disruptive effect on Exchange products that these significant 
news announcements can create.
    Accordingly, the Commission finds that a closing time of 4:02 p.m. 
for equity and narrow-based index options is a reasonable means to 
address the Exchange's desire to balance the need for some extended 
trading period with the need to prevent negative impact from issuers' 
major news announcements made while only the options markets remain 
open.
    The Commission also finds that permitting a closing rotation in 
non-expiring options five minutes after news of such rotation is 
publicly disseminated is reasonable. The Exchange states that the 
change from a ten minute notice period to a five minute notice period 
will conform the Exchange's rule to the rules of the other exchanges, 
such as the Chicago Board Options Exchange, Inc. (``CBOE'').\8\
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    \8\ See SR-CBOE-96-71 (amending CBOE Rule 6.2, Interpretation 
.02 to permit a five minute notice period for closing rotations).
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    It is contemplated that the Exchange will implement this rule 
change on or about June 23, 1997.\9\
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    \9\ Phone conversation between Claire McGrath, Exchange and 
Janice Mitnick, Commission, on May 14, 1997.
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    The Commission finds good cause for approving Amendment No. 2 to 
the filing prior to the 30th day after the date of publication of the 
notice of the filing. Amendment No. 2 serves to conform the Exchange's 
proposal to other exchanges' rules. Accordingly, the Commission 
believes there is good cause, consistent with Sections 6(b)(5) and 
19(b)(2) of the Act, to approve Amendment No. 2 to the proposal on an 
accelerated basis.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 2. 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. Sec. 552, will be available for inspection and 
copying in 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 June 12, 1997.

V. Conclusion

    For the reasons discussed above, the Commission finds that the 
proposal is consistent with the Act, and, in particular, Section 6 of 
the Act.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-Amex-96-45) is approved.

    \10\ 15 U.S.C. Sec. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 97-13460 Filed 5-21-97; 8:45 am]
BILLING CODE 8010-01-M