[Federal Register Volume 62, Number 108 (Thursday, June 5, 1997)]
[Notices]
[Pages 30914-30918]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14687]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38693; File No. SR-Amex-97-15]


Self-Regulatory Organizations; American Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to Options on 
the NatWest Energy Index

May 29, 1997.

I. Introduction

    On March 20, 1997, the American Stock Exchange, Inc. (``Amex'' or 
``Exchange'') submitted to 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 to authorize Options on the 
NatWest Energy Index.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal 
Register on April 24, 1997.\3\ No comments were received on the 
proposal. This order approves the proposal.
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    \3\ Securities Exchange Act Release No. 38526 (Apr. 18, 1997), 
62 FR 20043 (Apr. 24, 1997).
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II. Description of the Proposal

A. General

    Amex proposes to trade options on The NatWest Energy Index 
(``Index''), a cash-settled narrow based index developed by the Amex 
and NatWest Securities Corporation (``NatWest'') based on 30 stocks (or 
ADRs thereon) of companies whose business is in various segments of the 
energy industry. In addition, the Amex proposes to amend (1) Rule 901C, 
Commentary .01 to reflect that 90% of the Index's numerical index value 
will be accounted for by stocks that meet the current criteria and 
guidelines set forth in Rule 915; and (2) Rule 902C to include the 
NatWest Energy Index in the disclaimer provisions of that rule.\4\
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    \4\ Amex Rule 902 will be amended to add subsection (g) which 
will provide, among other things, that NatWest does not guarantee 
the accuracy or completeness of the Index or any data included 
therein, nor does NatWest make any warranty, either express or 
implied, as to the results to be obtained by any person or entity 
from the use of the Index or any data included therein.
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B. Composition of the Index

    The Amex and NatWest have developed the Index based entirely on 
shares of widely held companies involved in producing and providing 
different types of energy products. The industries represented by these 
companies are domestic and international oil producers, refiners and 
transmitters, oil equipment manufacturers and drillers, and natural gas 
producers.
    The Exchange will use an ``equal dollar-weighted'' method to 
calculate the value of the Index.\5\ The Index was initialized at a 
level of 250.00 as of the close of trading on December 20, 1996.
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    \5\ 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 Exchange represents that 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 has 
met the following standards: (1) Each of the component securities is 
traded on the Amex, the New York Stock Exchange (``NYSE'') or through 
Nasdaq and are reported national market system securities; (2) each of 
the component securities has a minimum market

[[Page 30915]]

capitalization of at least $75 million;\6\ (3) each of the components 
has had a monthly trading volume of at least one million shares during 
each of the previous six months; (4) each of the component securities 
in the Index has met the initial eligibility criteria for standardized 
options trading set forth in Rule 915;\7\ (5) foreign country 
securities or ADRs thereon that are not subject to comprehensive 
surveillance sharing agreements do not in the aggregate represent more 
than 20% of the weight of the Index; and (6) no individual component 
stock in the Index represents more than 25% of the weight of the Index, 
and the top five highest weighted stocks do not constitute more than 
50% of the weight of the Index. The criteria set forth above are 
identical to the criteria established for the expedited listing of 
options on stock industry indexes pursuant to Exchange Rule 901C, 
Commentary .02.
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    \6\ In the case of ADRs, this represents market value as 
measured by total world-wide shares outstanding.
    \7\ Initial eligibility criteria include: (1) the security must 
have a minimum of 7,000,000 shares held by persons other than those 
required to report their security holdings under Section 16(a) of 
the Act; (2) there must be at least 2,000 holders of the security; 
(3) the security must have a trading volume of at least 2,400,000 
shares over the preceding twelve months; (4) the security must have 
had a share price of at least 7\1/2\ for the majority of business 
days for the last three calendar months preceding the date of 
selection; and (5) the issuer is in compliance with any applicable 
requirements of the Act.
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D. Calculation of the Index

    The Index shall be calculated by the Amex using an ``equal-dollar 
weighting'' methodology designed to ensure that each of the component 
securities is represented in an approximately ``equal'' dollar amount 
in the Index. The following is a description of how the equal-dollar 
weighting calculation method works. As of the market close on December 
20, 1996, a portfolio of stocks was established representing an 
investment of $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 a benchmark value of 250.00 
at the close of trading on December 20, 1996. Annually thereafter, 
following the close of trading on the third Friday of December, 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 annual adjustment.\8\
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    \8\ In certain circumstances, the Index will be rebalanced prior 
to the end of a calendar year. See infra Section II.E entitled 
``Maintenance of the Index.''
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    Subject to the maintenance criteria discussed below, for the Index 
the number of shares of each component stock in the Index portfolio 
remains fixed between annual 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 will 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 replacement, the dollar value of the security being 
replaced 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.
    Additionally, if at any time between annual rebalancings the top 
five stocks in the Index by weight represent in the aggregate more than 
one-third of the Index's value, the Exchange will rebalance the Index 
after the close of trading on Expiration Friday in the next month on 
the March cycle.\9\ For example, if in July it is determined that the 
top five components in the Index account for more than one-third of the 
Index's weight, then the Index will be rebalanced after the close of 
trading on expiration Friday in September.
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    \9\ The options on The NatWest Energy Index will expire on the 
Saturday following the third Friday of the expiration month 
(``Expiration Friday'').
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    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 and 
to the Options Price Reporting Authority (``OPRA'').

E. Maintenance of the Index

    The Index will be calculated and maintained by the Amex in 
consultation with NatWest which may, from time to time, suggest changes 
in the Index's components, in the industry categories represented or in 
the number of component stocks in an industry category to properly 
reflect the changing conditions in the energy sector. The Index will be 
maintained in accordance with Rule 901C, Commentary .02 which provides 
that the Index continues to meet the eligibility standards set forth 
above, except that, (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) the monthly 
trading volume of each component security shall be at least 500,000 
shares, or for each of the lowest weighted components in the Index that 
in the aggregate account for no more than 10% of the weight of the 
Index, the monthly trading volume shall be at least 400,000 shares; and 
(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 50% of the Index as of the first day of January and July in 
each year.
    At the beginning of each calendar year, NatWest will provide the 
Amex with a current list of replacement stocks on which to draw in the 
event that a component in the Index is to be replaced (``Replacement 
List'').\10\ The Amex will publicly distribute the Replacement List as 
soon as practicable following receipt from NatWest.
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    \10\ See letter from Jeffrey T. Letzler, General Counsel, 
NatWest to Sharon Lawson, Assistant Director, SEC, dated May 16, 
1997 (``NatWest Letter'').
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    The stocks in the Replacement List will be selected and ranked by 
NatWest based on a number of criteria, including conformity to the 
initial eligibility standards set forth above,\11\ trading liquidity, 
market capitalization, the ability to borrow shares and share price. 
The replacement stocks will be categorized by industry within the 
energy sector and ranked within their category based on the 
aforementioned criteria. The replacement stock for a security leaving 
the Index will be selected by the Amex from the Replacement List based 
on industry category and liquidity.\12\
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    \11\ See supra Section II. C entitled ``Eligibility Standards 
for the Inclusion of Component Stocks in the Index.''
    \12\ The Amex will ensure that at the time of selection it will 
only select securities that continue to meet the eligibility 
requirements discussed above.
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    In addition, NatWest will advise the Exchange regarding the 
handling of

[[Page 30916]]

unusual corporate actions which may arise from time to time. Routine 
corporate actions (e.g., stock splits, routine spin-offs, etc.) which 
require straightforward index divisor adjustments will be handled by 
Exchange staff without consultation with NatWest. All stock 
replacements and unusual divisor adjustments caused by the occurrence 
of extraordinary events such as dissolution, merger, bankruptcy, non-
routine spin-offs or extraordinary dividends will be made by Exchange 
staff in consultation with NatWest. All stock replacements and the 
handling of non-routine corporate actions will be announced at least 
ten business days in advance of such effective change, whenever 
practicable. As with all options currently trading on the Amex, the 
Exchange will make this information available to the public through 
dissemination of an information circular.

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. 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.\13\
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    \13\ 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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G. Contract Specifications

    The proposed options on the Index will be European-style,\14\ and 
cash settled. Standard option trading hours (9:30 a.m. to 4:10 p.m. New 
York time) will apply. 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). The Exchange Plans to list option series with expirations in 
the three near-term calendar months and in the two additional calendar 
months in the March cycle. The Exchange also intends to list longer 
term option series having up to thirty-six months to expiration. 
Trading in expiring options will cease at the close of trading on the 
last trading day. The Exchange proposes to list near-the-money (i.e., 
within ten points above or below the current index value) option series 
on the Index at 2-\1/2\ point strike (exercise) price intervals when 
the value of the Index is below 200 points.
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    \14\ A European-style option can be exercise only during a 
specified period before the option expires.
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H. Listing of Long-Term Options on the Full Value or the Reduced Value 
of the Index

    The proposal provides that the Exchange may list longer term option 
series having up to thirty-six months to expiration on the full value 
of the Index. 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. 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.

I. Position and Exercise Limits, Margin Requirements and Trading Halts

    Because the Index is a Stock Index Option under Amex Rule 901C(a) 
and Stock Index Industry Group under Rule 900C(b)(1), the proposal 
provides that Exchange rules that are applicable to the trading of 
narrow-based index options will apply to the trading of options on the 
Index. Specifically, Exchange rules governing margin requirements, 
position and exercise limits,\15\ and trading halt procedures \16\ that 
are applicable to trading of narrow-based index options will apply to 
options traded on the Index. Position limits on reduced value long-term 
NatWest Energy 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 15,000 contracts on the same side of the market, then the 
position limit for the reduced value options will be 150,000 contracts 
on the same side of the market).
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    \15\ Pursuant to Amex Rules 904C and 905C, respectively, the 
position and exercise limits for the proposed Index options will be 
15,000 contracts, unless the Exchange determines, pursuant to Rules 
904C and 905C, that a lower limit is warranted.
    \16\ Pursuant to Amex Rule 918C, the trading of options on the 
Index will be halted or suspended whenever trading in underlying 
securities whose weighted value represents more than 20% of the 
Index's value are halted or suspended.
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J. Surveillance

    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. These procedures include complete 
access to trading activity in the underlying securities. Further, the 
Intermarket Surveillance Group (``ISG'') Agreement, dated July 14, 
1983, as amended on January 29, 1990, will be applicable to the trading 
of options on the Index.\17\
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    \17\ 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, July 14, 1983. The 
most recent amendment to the ISG Agreement, which incorporates the 
original agreement and all amendments made thereafter, was signed by 
ISG members on January 29, 1990. See Second Amendment to the 
Intermarket Surveillance Group Agreement, January 29, 1990. The 
members of the ISG are: the Amex; the Boston Stock Exchange, Inc.; 
the Chicago Board Options Exchange, Inc.; the Chicago Stock 
Exchange, Inc.; the National Association of Securities Dealers, 
Inc.; the NYSE; the Pacific Stock Exchange, Inc.; and the 
Philadelphia Stock Exchange, Inc. Because of potential opportunities 
for trading abuses involving stock index futures, stock options, and 
the underlying stock, and the need for greater sharing of 
surveillance information for these potential intermarket trading 
abuses, the major stock index futures exchanges (e.g., the Chicago 
Mercantile Exchange and the Chicago Board of Trade) joined the ISG 
as affiliate members in 1990.
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    NatWest has also adopted special procedures to prevent the 
potential misuse of material, non-public information by the research, 
sales, and trading divisions of the firm in connection with the 
maintenance of the Index.\18\ As discussed above, the Amex will 
publicly disseminate each Replacement List by issuing information 
circulars so that investors will know in advance which securities will 
be considered as replacements for the Index.\19\
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    \18\ See NatWest Letter, supra note 10.
    \19\ Id.
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    In addition, NatWest will have a limited role in the stock 
replacement selection and substitution process. First, when a stock in 
the Index no longer meets the published criteria as determined 
following a quarterly review of the components by the Exchange, the 
Amex will determine, without consultation with NatWest, which security 
from the applicable Replacement List will be selected for addition to 
the Index. Second, the Amex will also make adjustments as a result of 
stock splits, routine spin-offs, and otherwise, without consultation 
with

[[Page 30917]]

NatWest. Even in those situations where the Amex consults with NatWest, 
upon the occurrence of certain events, the actual replacement stock 
will be selected solely by Amex from the stocks on the Replacement 
List. Finally, the special procedures developed by NatWest to prevent 
the misuse of material, non-public information concerning the Index 
will also be used in connection with the addition or removal of an 
industry group from the Index.

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,\20\ and, in 
particular, with the requirements of Section 6(b)(5).\21\ Specifically, 
the Commission finds that the trading of options on the Index, 
including full-value and reduced value 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 
energy sectors.\22\
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    \20\ In approving this rule, the Commission has considered the 
proposed rules' impact on efficiency, competition, and capital 
formation. 15 U.S.C. Sec. 78c(f).
    \21\ 15 U.S.C. 78f(b)(5).
    \22\ 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 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 
likely would 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 energy sector in the U.S. stock 
markets.
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    The trading of options on the Index and reduced-value 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 adequately has addressed 
these issues.

A. Index Design and Structure

    The Commission believes it is appropriate for the Exchange to 
designate the Index as narrow-based for purposes of index options 
trading. The Index is comprised of a limited number of stocks intended 
to track discrete industry groups of the energy 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 proposed Index options.\23\
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    \23\ See supra Section II.I entitled ``Position and Exercise 
Limits, Margin Requirements, and Trading Halts.''
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    The Commission also believes that the liquid markets, large 
capitalizations, and relative weighings of the Index's component stocks 
significantly minimize the potential for manipulation of the Index. 
First, the stocks that comprise the Index are actively traded. Minimum 
monthly trading volume in the component stocks of the Index for the 
period between June 1, 1996 and December 1, 1996 ranged from 2.52 
million to 27.52 million shares. Second, the market capitalizations of 
the stocks in the Index are very large, ranging from $1.86 billion to 
$126 billion. Third, because the index is equal dollar-weighted, no one 
particular stock or group of stocks dominates the Index.
    Fourth, the Index will be maintained so that in addition to the 
other maintenance criteria discussed above in Section II. E, at each 
rebalancing, at least 90% of the Index's numerical value and at least 
80% of the total number of component securities will be composed of 
securities eligible for standardized options trading. Fifth, NatWest 
and 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 of the value of the Index. Finally, the Commission 
believes that Amex's existing mechanisms to monitor trading activity in 
the component stocks of the Index, or options on those stocks or the 
Index, will help deter 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 options on the Index, 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 
options on the Index will be subject to the same regulatory regime as 
the other standardized options currently traded on the Amex, the 
Commission believes that adequate safeguards are in place to ensure the 
protection of investors in options on the Index. Finally, the Amex has 
stated that it will distribute information circulars to members 
following rebalancings and prior to component changes to notify members 
of changes in the composition of the Index. Additionally, the Amex will 
publicly disseminate each Replacement List by means of information 
circulars. The Commission believes this should help to protect 
investors and avoid investor confusion.

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 
readily susceptible to manipulation.\24\ In this regard, markets on 
which the components of the Index currently trade, the markets on which 
all component stocks trade are members of the ISG, which provides for 
the exchange of all necessary surveillance information.\25\
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    \24\ See Securities Exchange Act Release No. 31243 (September 
28, 1992), 57 FR 45849 (October 5, 1992).
    \25\ See supra note 17.
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    The Commission notes that certain concerns are raised when a 
broker-dealer, such as NatWest, is involved in the development and 
maintenance of a stock index that underlies an exchange-traded 
derivative product. For several reasons, however, the Commission 
believes that the Amex has adequately addressed this concern with 
respect to options on the Index.
    First, the value of the Index is to be calculated and disseminated 
by the Amex independent of NatWest. Accordingly, neither NatWest nor 
any other party will be in receipt of the value prior to its public 
dissemination. Second, routine corporate actions (e.g., stock splits, 
routine spinoffs, etc.) will be handled by the Amex without 
consultation with NatWest. Third, although stock replacements and 
unusual divisor adjustments caused by the occurrence of extraordinary 
events,

[[Page 30918]]

such as dissolution, merger, bankruptcy, non-routine spinoffs, or 
extraordinary dividends, will be made by Exchange staff in consultation 
with NatWest, Amex alone ultimately will select the actual replacement 
stock from the Replacement List without NatWest's assistance. Such 
replacements will be announced publicly at least 10 business days in 
advance of the effective change by the Amex through the dissemination 
of an information circular, whenever practicable. Fourth, the 
Commission believes that the procedures NatWest has established to 
detect and prevent material non-public information concerning the Index 
from being improperly used by the person or persons responsible for 
compiling the Replacement List, as well as other persons within NatWest 
responsible for coordinating with Amex on the Index, as discussed 
above,\26\ adequately serve to minimize the likelihood of manipulation 
of options on the Index, the securities in the Index, and securities 
added to and deleted from any Replacement List. In summary, the 
Commission believes that the procedures outlined above help to ensure 
that NatWest will not have any informational advantages concerning 
modifications to the composition of the Index due to its limited role 
in consulting with Amex on the maintenance of the Index under certain 
circumstances.
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    \26\ See NatWest Letter, supra note 10.
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D. Market Impact

    The Commission believes that the listing and trading of options on 
the Index, including long-term full-value and reduced-value Index 
options, on the Amex will not adversely impact the underlying 
securities markets.\27\ First, as described above, due to the ``equal 
dollar-weighting'' methodology, no one stock or group of stocks 
dominates the Index. Second, as noted above, the stocks contained in 
the Index have relatively large capitalizations and are relatively 
actively traded. Third, the currently applicable 15,000 contract 
position and exercise limits will serve to minimize potential 
manipulation and market impact concerns. Fourth, the risk to investors 
of contraparty non-performance will be minimized because the options on 
the Index 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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    \27\ In addition, the Amex and the OPRA have represented that 
the Amex and the OPRA have the necessary systems capacity to support 
those new series of index options that would result from the 
introduction of options on the Index. See Letter from Edward Cook, 
Jr., Managing Director, Trading Floor Systems & Technology, Amex, to 
Ivette Lopez, Assistant Director, Division of Market Regulation, 
SEC, dated April 7, 1997; and letter from Joe Corrigan, Executive 
Director, OPRA, to Ivette Lopez, Assistant Director, Division of 
Market Regulation, SEC, dated April 15, 1997.
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    Lastly, the Commission believes that settling expiring options on 
the Index (including long-term full-value and reduced-value Index 
options) based on the opening 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.\28\
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    \28\ Securities Exchange Act Release No. 30944 (July 21, 1992), 
57 FR 33376 (July 28, 1992).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\29\ that the proposed rule change (SR-AMEX-97-15) is approved.

    \29\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-14687 Filed 6-4-97; 8:45 am]
BILLING CODE 8010-01-M