[Federal Register Volume 62, Number 221 (Monday, November 17, 1997)]
[Notices]
[Pages 61418-61419]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-30131]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38313; File No. SR-Amex-97-44]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by American Stock Exchange, Inc. Relating to Institutional Index 
Options

November 7, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on November 4, 1997, the American Stock Exchange, 
Inc. (``Amex'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items, I, II, and III below, which Items have been prepared by the 
self-regulatory organization. The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex proposes to increase both position and exercise limits for 
its Institutional Index Options (``XII''). In addition, the Exchange 
proposes to increase the firm facilitation exemption for XII. The text 
of the proposed rule change is available at the Office of the 
Secretary, Amex and at the Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Amex proposes to increase XII position and exercise limits to 
100,000 contracts on the same side of the market. Existing Exchange 
rules provide for XII position and exercise \3\ limits of 45,000 
contracts of the same side of the market of which no more than 25,000 
contracts may be used for purposes of realizing any differential in 
price between XII and the securities underlying XII. In July of 1992, 
the Exchange increased position and exercise limits for XII to their 
current levels.\4\ Since that time, options on XII continue to be 
traded primarily by institutional and professional investors and member 
firms, each often needing to hedge large asset quantities. However, 
institutional use of XII options to hedge large asset quantities has 
been limited as

[[Page 61419]]

a result of existing XII position limits causing XII users to use other 
less restrictive products and over-the-counter products in order to 
meet their hedging needs.
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    \3\ The exercise limit for XII, which is equal to XII's position 
limit, is determined under Exchange Rules 905C and 905.
    \4\ See Exchange Act Release No. 31330 (Oct. 16, 1992) 57 FR 
30516 (Oct. 23, 1992).
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    The Exchange believes that increasing the position and exercise 
limits for XII options to 100,000 contracts will allow increased 
institutional use of XII and allow it to be more competitive with 
alternative products. In addition, an increase in XII position and 
exercise limits will benefit not only the beneficiaries of assets 
managed by various institutions, but also the marketplace in general 
through increased liquidity.
    Increasing the XII firm facilitation exemption from 100,000 
contracts to 400,000 contracts in necessary to accommodate the needs of 
investors as well as market participants and should not substantially 
increase concerns regarding the potential for manipulation and other 
trading abuses.\5\ In addition, the proposed ruled change will further 
enhance the potential depth and liquidity of the options market as well 
as the underlying markets by providing Exchange members greater 
flexibility in executing large customer orders, while the Exchange's 
existing safeguards applicable to current facilitation exemptions 
continue to serve to minimize any potential disruption or manipulation 
concerns.
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    \5\ The Exchange notes that the XII firm facilitation exemption 
is in addition to the standard limit and other exemptions under 
Exchange rules, commentaries and policies.
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    These proposed changes are intended to result in little or no 
attendant risk to the marketplace as XII is composed of seventy-five of 
the most widely-held stocks in institutional portfolios that have a 
market value of more than one hundred million in investment funds.\6\ 
Thus the component issues are extremely liquid and the overall index 
less volatile than individual stocks. Lastly, XII options are European-
style and therefore can only be exercised at expiration.
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    \6\ To qualify for inclusion in XII, stocks must be held by a 
minimum of 200 of the reporting institutions filing Section 23(f) 
reports and must have traded at least 7 million shares in each of 
the two preceding calendar quarters.
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    To enhance its ability to monitor unhedged positions, the Amex will 
add a reporting requirement (new Commentary .03 to Exchange Rule 904C) 
for accounts having a position in excess of 45,000 a.m.-settled, 
European-style XII option contracts on the same-side of the market. 
Specifically, new Commentary .03 to Exchange Rule 904C states that if a 
member or member organization, other than an Exchange Specialist or 
Registered Options Trader, maintains a position in excess of 45,000 
a.m.-settled, European-style XII option contracts on the same-side of 
the market on behalf of its own account or for the account of a 
customer, it must report information as to whether those positions are 
hedged and provide documentation as to how such contracts are hedged, 
in the manner and form required by the Exchange. In addition, to 
address the Commission's concerns with respect to the ability of the 
Exchange to monitor customer accounts that maintain large unhedged 
positions, the Amex will add a margin and clearing firm requirement. 
Pursuant to new Commentary. 04 to Exchange Rule 904C, whenever the 
Exchange determines that additional margin is warranted in light of the 
risks associated with an under-hedged option position in excess of 
45,000 contracts, the Exchange may impose additional margin upon the 
account maintaining such under-hedged position, or assess capital 
charges upon the clearing firm carrying the account to the extent of 
any margin deficiency resulting from the higher margin requirement.
2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with Section 6(b)(5) of the Act \7\ in that it is 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 facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \1\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any inappropriate 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 either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35-days of the publication of this notice in the Federal 
Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, 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 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-97-44 and 
should be submitted by December 8, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-30131 Filed 11-14-97; 8:45 am]
BILLING CODE 8010-01-M