[Federal Register Volume 62, Number 111 (Tuesday, June 10, 1997)]
[Notices]
[Pages 31638-31643]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15026]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38710; File No. SR-Amex-97-21]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval to Proposed Rule Change and Amendment 
Nos. 1 and 2 to the Proposed Change by the American Stock Exchange, 
Inc., Relating to the Adoption of Certain Margin Provisions

June 2, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 21, 1997, the America 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 Amex submitted to the Commission Amendment No. 1 on May 30, 
1997,\3\ and Amendment No, 2 on June 2, 1997.\4\ No comments were 
received on the proposal. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons. 
As discussed below, the Commission is also granting accelerated

[[Page 31639]]

approval of the proposed rule change and the amendments thereto.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4
    \3\ See Letter from Claire P. McGrath, Managing Director and 
Special Counsel, Amex, to Ivette Lopez, Assistant Director, Division 
of Market Regulation (``Market Regulation''), Commission, dated May 
30, 1997 (``Amex Amendment No. 1'').
    \4\ See Letter from Claire P. McGrath, Managing Director and 
Special Counsel, Amex, to Ivette Lopez, Assistant Director, Division 
of Market Regulation, Commission, dated June 2, 1997 (``Amex 
Amendment No. 2'').
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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 its Rule 462 ``Minimum Margin'' to 
(1) adopt options margin rules substantially similar to those that have 
been in effect under Regulation T (``Regulation T'') of the Board of 
Governors of the Federal Reserve System (``Federal Reserve Board'' or 
``Board''); (2) conform the Amex margin rule to those margin rules of 
the Chicago Board Options Exchange (``CBOE'') and the New York Stock 
Exchange (``NYSE''); and (3) correct or clarify certain current 
provisions of the margin rule.
    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 Exchange 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 V below. The Exchange 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 Federal Reserve System's Regulation T, which covers the 
extensions of credit by and to brokers and dealers, currently 
prescribes margin requirements for options transactions. In April 1996, 
the Federal Reserve Board amended Regulation T to delete certain rules 
regarding options transactions in favor of rules to be adopted by the 
options exchanges and approved by the Commission.\5\ This amendment to 
Regulation T became effective June 1, 1997. Therefore, the Exchange 
proposes to incorporate certain Regulation T requirements into its 
rules so that these requirements will substantially remain in effect 
after June 1, 1997. In addition, in the course of amending its rules to 
accommodate the changes necessary because of the Regulation T 
amendments, the Exchange has found it necessary to propose changes to 
its margin rules to conform them with the rules of the CBOE and NYSE, 
and also to make clarifying changes to certain existing provisions. The 
following is a description of the proposed additions, amendments and 
clarification to the Exchange's Rule 462.
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    \5\ See 61 FR 20386 (May 6, 1996) (Federal Reserve Board's 
release adopting certain changes to Regulation T).
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Rule 642, Paragraph (c)

    The Exchange proposes to amend paragraph (c) which sets forth 
exceptions to the initial and maintenance margin provisions to (i) 
clarify that broker-dealers may require margin in excess of the amounts 
specified in these rules; (ii) replace the Amex's provisions on 
Exempted Securities with provisions that are consistent with the C and 
the NYSE; (iii) adopt a margin treatment for non-convertible debt 
securities that is consistent with the CBOE and the NYSE; (iv) amend 
the margin requirement for offsets between long and short positions in 
the same security from 10% to 5% of the current market value of the 
``long'' securities to conform to the CBOE and NYSE provisions; (v) 
adopt a treatment for a short equity call option position offset by a 
warrant to purchase the underlying security in a customer margin 
account (a treatment consistent with a provision of Regulation T and 
requiring no margin for the position if the warrant to purchase the 
underlying security does not expire on or before the expiration date of 
the short call, and if the amount (if any) by which the exercise price 
of the warrant exceeds the exercise price of the short call is 
deposited in the account); and (vi) adopt a provision that requires 
margin be deposited and maintained equal to 100% of the purchase price 
of long positions in listed equity options.

Rule 462, Paragraph (d)

    The Exchange is proposing to move its existing margin rule 
definitions from where they were situated in Rule 462(d) (2) (C) to the 
very beginning of Rule 462(d) and amend the definitions of ``current 
market value'' and ``current market price'' to cover situations where 
there is no closing price or where trading was halted and not reopened 
before the normal end of the trading day or where the closing price was 
outside the last bid and offer that was established after the closing 
price. The Exchange states that, in such situations, a member 
organization may use a reasonable estimate of the market value of the 
security based upon the then current bids and offers in determining the 
``current market value'' of a security, including an option. The 
Exchange believes that this will allow member organizations to arrive 
at a more reasonable estimate of the current market value in general, 
and particularly where the underlying securities may be trading or 
quoted in other markets or in cases where the underlying security re-
opens for trading and the options remain closed.
    The provisions of subparagraph (D) dealing with the margin 
requirements for puts, calls, currency warrants, currency index 
warrants and stock index warrants issued, guaranteed or carried 
``short'' in a customer's account is remaining the same except that the 
treatment of over-the-counter (``OTC'') options has been deleted from 
subparagraph (D) because the Exchange is adopting the more extensive 
OTC margin provisions of the NYSE. The Exchange is also proposing the 
addition of a provision that would cap the margin on listed short puts 
that are out-of-the-money at a percentage of the exercise price of the 
short put. The reason for this cap is that, under the general rule, 
minimum margin is required equal to the options market value plus 10% 
of the current market value of the equivalent units of the underlying 
security for an option dealt in on the Exchange. However, as the market 
value of the underlying security increases above the strike price, at 
some point the put becomes farther out-of-the-money and the risk of the 
position decreases. Without the cap, the margin requirement would 
continue to increase at the same time that the risk of the position is 
decreasing.

Rule 462, Paragraph (d)2(J)

    The Exchange states that its rules and the rules of other 
regulatory organizations have always distinguished the margin treatment 
for specialists and market-makers from that applicable to customers and 
other broker-dealers because of the unique position of specialists and 
market-makers in maintaining liquid, fair and orderly markets. The 
rules recognize that options specialists and market-makers must engage 
in various hedging transactions to manage the risk involved in 
fulfilling their role in the marketplace. Specific provisions governing 
permitted offset treatment for specialists and market-makers are being 
deleted from Regulation T. The Amex proposes to adopt these deleted 
changes. Additionally, the Amex proposes to adopt certain offsets 
permitted under the SEC's Net Capital

[[Page 31640]]

Rule 15c3-1.\6\ These offset positions would be subject to the same 
``good faith'' margin treatment as currently accorded under Regulation 
T and would require the clearing/carrying firm to comply with the 
applicable haircut requirements of the Net Capital Rule for any cash 
margin deficiency (i.e., the difference between the margin required 
under Rule 462 and the amount received from the specialist or market 
maker.) The proposal also incorporates the current Regulation T 
definitions of the terms ``in or at the money,'' ``in the money'' and 
``overlying options.'' the parameters for permitted offsets within the 
``in or at the money'' definition have been expanded from one to two 
``standard exercise intervals.''
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    \6\ See Securities Exchange Act Release No. 38248 (February 6, 
1997) 62 FR 6474 (February 12, 1997) (Final rule adopting changes to 
SEC Rule 15c3-1).
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    Subparagraph (d)2(J) of Rule 462 has been revised in order to 
clarify the existing definition of ``good faith margin'' requirements.

Rule 462, Subparagraph (d)2(M)

    A new provision has been added to incorporate the provisions 
currently contained in Regulation T regarding ``exclusive designation'' 
that allow a customer to designate which security position in an 
account to be utilized to cover the required margin at the time an 
option order is entered, provided the member organization offers such a 
service.

Rule 462, Subparagraph (d)2(N)

    The Exchange is proposing to add a provision detailing the 
circumstances under which a customer may carry short equity option in a 
cash account, i.e., an account in which no credit is extended. This 
provision is consistent with a provision in Regulation T and is being 
added so that the Exchange's rules are more complete, thus enabling its 
members to rely on such rules for all aspects of margin regulation. The 
proposed rule would permit either a call option contract or a put 
option contract held in a short position to be carried in a cash 
account if the option is uncovered, i.e., if the account contains one 
of the specified offsets.

Rule 462, Paragraph (d)10

    The rules governing the margin requirements for OTC options have 
been adopted from the NYSE Rule 431, except that the Exchange has made 
a slight change to cap the minimum margin on OTC short puts. A chart 
submitted with the filing sets forth the initial and/or maintenance 
margin required for options on various types of underlying securities. 
The amount of margin required is the percentage of the current market 
value of the underlying component times the multiplier, if any, plus 
any ``in the money amount.'' The amount of the margin required to be 
maintained may be reduced for a short put or call by any ``out of the 
money'' amount. The amount to which the margin required may be reduced 
is set forth in a separate column. The Exchange is also proposing to 
add margin treatment for related securities positions involving OTC 
options held in a customer margin account. The Exchange is proposing to 
add special margin treatment for covered write convertibles, covered 
calls/puts, spreads, and straddles involving OTC options. The proposed 
margin treatment is the same treatment that is set forth in NYSE Rule 
431, except for the change to cap the minimum margin on short puts.

Rule 462, Commentary .03(c)

    Finally, the Exchange is proposing to change the definition of 
``cash equivalents'' found in Commentary .03(c) and defer to the 
definition Regulation T since it is expected that the definition in 
Regulation T will change from time to time.
(2) Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) that an exchange have rules that are 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to protect and 
perfect the mechanism of a free and open market and a national market 
system, and in general, to protect investors and the public interest. 
The Exchange believes that the proposed rule change is consistent with 
Section 6(b)(5) of the Act in that it is designed 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 Exchange does not believe that 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

    The Exchange requests that the Commission finds good cause pursuant 
to Section 19(b)(2) of the Act for approving the proposed rule change 
to its margin rules prior to the 30th day after publication of the 
proposed rule change in the Federal Register.

IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    After careful review of the Exchange's proposed amendments to its 
margin rules, and for the reasons discussed below, the Commission 
believes that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to national securities exchanges, and, in particular, with 
the requirements of Section 6(b).\7\ Specifically, the Commission 
believes the proposal is consistent with the Section 6(b)(5) 
requirements that the rules of an exchange be designed to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
to prevent fraudulent and manipulative acts, and, in general, to 
protect investors and the public interest.\8\
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    \7\ 15 U.S.C. Sec. 78f(b).
    \8\ In approving these rules, the Commission has considered the 
proposed rules' impact on efficiency, competition, and capital 
formation. 15 U.S.C. Sec. 78c(f).
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Rule 462, Paragraph (c)

    The Exchange proposes to amend Rule 462(c) which sets forth 
exceptions to the Exchange's initial and maintenance margin provisions 
to (i) clarify that broker-dealers may require margin in excess of the 
amounts specified in these rules; (ii) replace the Amex's provisions on 
Exempted Securities with provisions that are consistent with the CBOE 
and NYSE; (iii) adopt a margin treatment for non-convertible debt 
securities that is consistent with the CBOE and NYSE; (iv) amend the 
margin requirement for offsets between long and short positions in the 
same security from 10% to 5% of the current market value of the 
``long''

[[Page 31641]]

securities to conform to the CBOE and NYSE provisions; (v) adopt a 
treatment for a short equity call option position offset by a warrant 
to purchase the underlying security in a customer margin account (a 
treatment consistent with a provision of Regulation T \9\ and requiring 
no margin for the position if the warrant to purchase the underlying 
security does not expire on or before the expiration date of the short 
call, and if the amount (if any) by which the exercise price of the 
warrant exceeds the exercise price of the short call is deposited in 
the account); and (vi) adopt a provision that requires margin be 
deposited and maintained equal to 100% of the purchase price of the 
long positions in listed equity options.
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    \9\ The Exchange notes that provision is consistent with 
Regulation T, 12 CFR 220.5 (c)(3)(vi).
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    The Commission agrees that maintenance margin rates established by 
an Exchange are intended to set minimum margin standards for its member 
organizations. The Commission believes that it is appropriate for the 
Exchange to clarify that, when appropriate, its members are permitted 
to require margin deposits in excess of the Exchange's minimum 
requirement. The Commission notes that because maintenance margin rates 
are intended to set a minimum margin standard, they should not be 
construed as limiting the ability of members of the Exchange to require 
margin to be deposited in excess of the minimum when appropriate.
    The Exchange's proposed treatment for exempted securities would 
generally lower maintenance margin rates for United States debt 
securities from the existing 5%, and instead establish margin 
requirements of 1% to 6% depending on the years to maturity for the 
obligation. However, zero coupon bonds will be subject to a margin 
requirement of 3% for bonds with five years or more to maturity, and 
all other exempted securities, i.e., other than obligation of the 
United States, will be subject to an initial and maintenance margin 
requirement of 15% of the current market value or 7% of the principal 
amount, whichever is lower.
    The Commission notes that the Exchange's proposed margin treatment 
for exempted securities is nearly identical to an existing NYSE 
provision. When the NYSE adopted its provision, it stated that a 
sliding scale would provide greater margin requirements for the more 
volatile long-term securities, and reduce margin requirements as 
government securities approach maturity to reflect the reduced risk in 
carrying those securities. Prior to adopting the proposal, the NYSE had 
also conducted an analysis of two-year historical price information for 
three Treasury securities of different maturities, a short-, 
intermediate-, and long-term instrument, and concluded that the 
proposed margin requirements for the more volatile long-term government 
instrument would provide at least a 96% confidence level that price 
movements over one and two week periods would be covered.\10\ 
Accordingly, the Commission believes that the proposal by the Amex to 
adopt the same margin rates for U.S. obligations as required by the 
NYSE is reasonable and should provide member organizations with 
adequate protection against adverse short-term market movements of 
securities in customer margin accounts. Additionally, the Commission 
believes uniform margin rates in this area will enhance efficiency in 
the market place for these securities. Nevertheless, the Commission 
notes that maintenance margin rates are intended to set a minimum 
margin standard and should not be construed as limiting the Exchange's 
ability to require margin to be deposited in excess of the minimum 
margin when appropriate.
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    \10\ See Securities Exchange Act Release No. 24144 (February 27, 
1987) 52 FR 7245 (March 9, 1987).
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    The proposed treatment of non-convertible debt securities is new to 
Rule 462(c). The Exchange does not currently have a margin treatment 
specifically applicable to non-convertible debt securities and has 
decided to adopt the approach used by the NYSE for the sake of 
uniformity and because the Exchange believes that this approach is 
sensible. The Commission believes that this proposed revision does not 
raise new regulatory issues and, accordingly, is appropriate.
    The proposed treatment of security offset is new to Rule 462. The 
Exchange is simply adopted a provision that conforms with the 
established NYSE Rule 431. At the same time, the Exchange has decided 
to reduce the margin for offsetting long and short positions in the 
same security from 10% to 5%. Again, this is being done to ensure that 
all the options SROs have similar rules.
    The proposed treatment for a short listed call covered by a warrant 
is new to Rule 462(c) but it is consistent with the current treatment 
under Regulation T 12 CFR 220.4(b) and, accordingly, is reasonable.
    The proposed treatment for long listed equity options is also new 
to Rule 462(c) and its provisions essentially clarify the application 
of Regulation T 12 CFR 220.18(a) to such options. Specifically, the 
provision confirms that long listed equity options must be fully paid 
for at the time of purchase.\11\
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    \11\ The Commission notes that the Federal Reserve Board's 
recent amendments to Regulation T permit SROs' rules, pursuant to 
SEC-approval, to allow the extension of loan value to listed 
options. See supra note 5. The current proposal, however, does not 
address this issue or otherwise permit the extension of loan value 
for long listed options.
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Rule 462, Paragraph (d)

    The Exchange is proposing to move the definitions section of Rule 
462(d) from after subparagraph 2(C) to the very beginning of Rule 
462(d) and amend the definitions of ``current market value'' and 
``current market price'' to cover situations where there is no closing 
price or where trading was halted and not reopened before the normal 
end of the trading day or where the closing price was outside the last 
bid and offer that was established after the closing price. The 
Commission believes that the amended definition of ``current market 
value,'' and ``current market price'' is similar to the definition in 
NYSE Rule 431(a)(1) and will provide useful guidance to members 
especially in circumstances where trading in a security has been halted 
but the OTC market is still open. The Commission believes that the 
definition being adopted does not raise new or unique issues.
    The Exchange proposes to add a provision that would cap the margin 
on listed puts that are out-of-the-money and carried short in a 
customer's account at a percentage of the exercise price of the short 
put. The reason for this cap is that, under the general rule, minimum 
margin is required equal to the options market value plus 10% of the 
current market value of the equivalent units of the underlying security 
for a listed equity option. As the market value of the underlying 
security increases above the strike price, at some point the put 
becomes farther out-of-the-money and the risk of the position 
decreases. Without the cap, the margin requirement would continue to 
increase at the same time that the risk of the position is decreasing.
    The Exchange proposes to remedy the anomaly by revising the method 
for calculating the minimum margin on short listed puts. Specifically, 
the Exchange proposes to substitute the market value of the underlying 
instrument with the put's aggregate exercise price. Under this new 
method, the minimum requirement is a fixed value and, therefore, an 
increasingly higher minimum requirement will not occur as the value of 
the underlying rises. The Commission believes this new method for 
calculating the minimum

[[Page 31642]]

margin for short listed equity options is reasonable and should result 
in adequate margining for the affected positions.\12\
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    \12\ The Commission notes that the new minimum margin 
requirement should often result in higher margin levels for deep in-
the-money puts. This will occur because the current minimum margin 
requirement for a short put is based, in part, on the underlying 
instrument's value, an amount that decreases as the put becomes 
deeper in-the-money. The new formula corrects this result by 
requiring a minimum margin amount based in part on the aggregate 
exercise value of the option, an amount that remains constant as the 
value of the underlying security decreases in value.
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Rule 462, Paragraph (d)2(J)

    The Exchange has also proposed to adopt specific provisions 
governing permitted offset treatment for market-makers and specialists 
that are being deleted from Regulation T as of June 1, 1997. The 
proposed rule sets forth various permitted offset positions which may 
be cleared and carried by a member organization on behalf of one or 
more market-makers upon a margin basis satisfactory to the concerned 
parties (``good faith'' margin). In addition, it requires that the 
amount of any deficiency between the equity maintained by the market-
maker and the haircuts specified in SEC Rule 15c-1 shall be considered 
as a deduction from net worth in the net capital computation of the 
carrying broker.
    A permitted offset position will be defined to mean, in the case of 
an option in which a market-maker makes a market, a position in the 
underlying instrument or other related instrument, and in the case of 
other securities in which a market-maker makes a market, a position in 
options overlying the securities in which a market-maker makes a 
market, if the account holds the following positions: (i) A long 
position in the underlying instrument offset by a short option position 
which is ``in- or at-the-money;'' (ii) a short position in the 
underlying instrument offset by a long option position which is ``in- 
or at-the-money;'' (iii) a stock position resulting from the assignment 
of a market-maker short option position; (iv) a stock position 
resulting from the exercise of a market-maker long position; (v) a net 
long position in a security (other than an option) in which a market-
maker makes a market; (vi) a net short position in a security (other 
than an option) in which the market-maker makes a market; or (vii) an 
offset position as defined in SEC Rule 15c3-1.
    The six proposed offsets described in proposed Rule 462(d)2(J) (a) 
to (f) codify the existing permitted offsets that were provided under 
Regulation T until June 1, 1997. These offsets reflect well-recognized 
market-making hedging transactions involving certain options offset 
strategies involving the related underlying stock. The addition of Rule 
462(d)2(J)(g), allowing any offset position defined under SEC Rule 
15c3-1,\13\ constitutes a significant expansion of permitted offset 
positions. According to the Exchange, the inclusion of item (g) 
recognizes that options market-makers and specialists must engage in 
various hedging transactions to manage the risk involved in fulfilling 
their role, and, therefore, allows a member organization to clear and 
carry market-maker's offset positions as defined in SEC Rule 15c3-1 
upon a good faith margin basis. The Exchange has clarified its proposal 
to reflect that market-makers are permitted to receive good faith 
margin for all permitted offset positions only if they are effected for 
market-making purposes such as hedging, reducing the risk of 
rebalancing, liquidating open positions of the market-maker, 
accommodating customer orders, or another similar market-making 
purpose.\14\
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    \13\ See supra note 6.
    \14\ See Amex Amendment No. 1, supra note 3.
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    The Commission believes that the proposal is a reasonable effort by 
the Amex to accommodate the needs of Amex market-makers in undertaking 
their market-making responsibilities as it recognizes the occasional 
need for market-makers to effect transactions in their course of 
dealing in options classes for which the marker-maker is not 
registered. The Commission believes that this approach will not 
adversely affect the depth and liquidity necessary to maintain fair and 
orderly markets. The Commission expects Amex clearing firms and other 
Amex members that extend margin to market-makers to implement adequate 
procedures to ensure that offsets elected by market-makers are recorded 
accurately and cleared into appropriate accounts. In addition, such 
members should have a reasonable basis for determining that the offset 
transactions satisfy the market-making requirements set forth in Amex 
Rule 462(d)2(J). The Commission believes that these requirements will 
ensure that transactions effected by market-makers and specialists 
receiving the offset treatment are in fact directly related to their 
market-making function and are not effected for speculative purposes on 
a margin basis which should be available only for bona fide market-
making activity.
    The Exchange indicates that its proposed definition of ``in- or at-
the-money,'' for purposes of permitted offset transactions, represents 
a codification of its long standing practice of permitting the 
financing of options market-makers underlying stock positions on a good 
faith basis when offset on a share-for-share basis by options which are 
``in- or at-the money,'' i.e., where the current market price of the 
underlying security is not more than two standard exercise price 
intervals below (with respect to a call option) or above (with respect 
to a put option) the exercise price of the option. According to the 
Exchange, the proposal represents its concurrence with the 
recommendation made by the NYSE's Rule 431 Committee, and also 
constitutes the Exchange's attempt at conforming its margin rules with 
those of the CBOE in order to preserve a uniform treatment within the 
option margin system.\15\ At this time, the Commission does not object 
to the codification by the Amex of what the Commission believes to be a 
longstanding industry practice.
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    \15\ The Commission notes that the CBOE asserts that it has 
received oral no-action relief from the Federal Reserve Board 
permitting the two standard exercise price interval interpretation. 
See Securities Exchange Act Release No. 38709 (June 2, 1997).
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Rule 462, Subparagraph (d)2(M)

    A new provision has been added to incorporate the provisions 
currently contained in Regulation T regarding ``exclusive designation'' 
that allow a customer to designate which security position in an 
account to be utilized to cover the required margin at the time an 
option order is entered, provided the member organization offers such a 
service. The Exchange indicates that it is simply adopting the 
provision as currently found in Regulation T, 12 CFR 220.5(c)(6). 
Moreover, the Exchange indicates that the adoption of this provision is 
necessary to preserve the ability of ``sophisticated customers'' to 
choose and determine the most effective way to use offsetting positions 
in their margin accounts.\16\ The Commission believes it is reasonable 
for the Exchange to codify this Regulation T provision.
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    \16\ See Amendment No. 2 supra note 4.
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Rule 462, Subparagraph (d)2(N)

    The Exchange is proposing to add a provision detailing the 
circumstances under which a customer may carry short equity option in a 
cash account, i.e., an account in which no credit is extended. This 
provision is consistent with a provision in Regulation T and is being 
added so that the Exchange's rules are more complete, thus enabling its 
members to rely on such rules for all aspects of margin regulation. The 
proposed rule would permit either a call option contract or a put 
option contract

[[Page 31643]]

held in a short position to be carried in a cash account if the option 
is covered, i.e., if the account contains one of the specified offsets.
    This provision is consistent with Regulation T and is being added 
so that the Amex's rule is more complete, thus enabling its members to 
rely on such rules for all aspects of margin regulation. The Commission 
believes that the proposal is a reasonable effort by the Amex to 
accommodate the needs of its market-makers and their customers.

Rule 462, Paragraph (d)10

    The Exchange is proposing to add special margin treatment for 
covered write convertibles, covered calls/puts, spreads, and straddles 
involving OTC options. The proposed margin treatment is the same 
treatment that is set forth in NYSE Rule 431, except for the change to 
cap the minimum margin on short puts. The cap on the short puts is 
being adopted for the same reasons applicable to listed equity options 
discussed above. A chart submitted with the filing sets forth the 
initial and/or maintenance margin required for options on various types 
of underlying securities.
    Given the near identical nature of the Amex's proposal to the 
NYSE's previously approved proposal, the Commission believes that 
adoption of these proposed standards is reasonable. With regard to the 
cap on short put positions, the Commission believes the treatment 
proposed by the Exchange is also reasonable for the same reasons set 
forth regarding the identical treatment for listed positions.
    The Exchange is also proposing to add margin treatment for related 
securities positions involving OTC options held in a customer margin 
account. The proposed treatment of related securities positions in OTC 
options also is substantially similar to that of the NYSE and 
accordingly does not raise new regulatory issues.\17\ The Commission 
also believes that the Exchange's decision to model its margin 
treatment for OTC options and related securities positions based on the 
NYSE positions should help foster coordination between markets by 
achieving parity between the margin requirements of the various SROs.
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    \17\ See NYSE Rule 431(f)(2).
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Rule 462, Commentary .03(c)

    Finally, the Exchange is proposing to change the definition of 
``cash equivalents'' found in Commentary .03(c) and defer to the 
definition of Regulation T since it is expected that the definition in 
Regulation T will change from time to time. The Commission believes 
that by adopting this approach the Exchange's definition of ``cash 
equivalent'' will remain current in accordance with Regulation T.
    The Commission believes that good cause exist to approve the 
proposal, including Amendment Nos. 1 and 2 on accelerated basis prior 
to the thirtieth day after the date of publication of the notice of 
filing thereof. Certain provisions of Regulation T regarding option 
market-makers and specialists permitted offsets have been deleted as of 
June 1, 1997. Approval of Amex's substituting offset provisions is 
necessary to ensure the continued availability of these offsets. The 
other portions of the proposal are nearly identical to proposals 
submitted by the CBOE (SR-CBOE-97-17) and NYSE (SR-NYSE-97-01). Those 
proposals were noticed in the Federal Register\18\ with no comments 
received. The Commission is approving those proposals on the same date 
herewith. Amendment Nos. 1 and 2, which are also identical to 
amendments filed by the CBOE and NYSE, serve to clarify and strengthen 
the proposed rule filing by the Amex.
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    \18\ See Securities Exchange Act Release Nos. 38501 (April 14, 
1997) 62 FR 19364 (CBOE) and, 38411 (March 17, 1997) 62 FR 14174 
(NYSE).
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V. 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 at 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 Exchange. All 
submissions should refer to File No. SR-Amex-97-21 and should be 
submitted by July 1, 1997.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\19\ that the proposed rule change (SR-Amex-97-21) is hereby 
approved.

    \19\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 97-15026 Filed 6-9-97; 8:45 am]
BILLING CODE 8010-01-M