[Federal Register Volume 62, Number 239 (Friday, December 12, 1997)]
[Notices]
[Pages 65463-65465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32527]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39407; File No. SR-AMEX-97-33]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the American Stock Exchange, Inc. 
Relating to Listing and Trading Options on the Pauze Tombstone Common 
Stock Index SM

December 5, 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 October 8, 1997, the American 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 self-
regulatory organization. On November 14, 1997 the Exchange submitted an 
amendment to the proposal.\3\ The Commission is publishing this notice 
to solicit comments on the proposed rule change, as amended from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. Sec. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Claire McGrath, Vice President and Special 
Counsel, Amex to Michael Walinskas, Senior Special Counsel, 
Commission dated November 13, 1997 (``Amendment No. 1''). In 
Amendment No. 1, the Exchange added Rock of Ages Corp. to the Index. 
The Exchange also amended Exchange Rule 904C to set the position 
limit for the Index at 6,000 contracts on the same side of the 
market. In addition, the Exchange represents that component 
securities that in the aggregate account for no more than 10% of the 
weight of the Index will have an average monthly trading volume of 
at least 100,000 shares. The Exchange represents that it will 
maintain the Index so that at least 90% of the Index's numerical 
value and at least 70% of the total number of component securities 
will meet the then current criteria for standardized options trading 
set forth in Exchange Rule 915. Finally, Amendment No. 1 makes a 
non-substantive change to clarify the proposal.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to trade options on the Pauze Tombstone 
Common Stock Index SM (the ``Index''), a new index developed 
by Pauze Swanson Capital Management Co. TM comprising death 
care industry stocks. In addition, the Amex proposes to amend Rule 902C 
to include the Pauze Tombstone Common Stock Index SM in the 
disclaimer provisions of the rule.

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 purpose of the proposed rule change is to permit the Exchange 
to trade standardized options on the Index. The Index is composed of 
the stocks of ten companies involved in providing death care services 
or products consisting of funeral services, cemetery services, and 
funeral and cemetery support goods and services. Options on the Index 
will provide investors with a low-cost means to participate in the 
performance of the death care industry and to hedge against the risk of 
investing in the industry. The Index also currently serves as the basis 
for an index mutual fund being offered by Pauze Swanson Capital 
Management Co. TM, which has been registered with the 
Commission as an investment advisor since 1993. Pauze Swanson's 
president, Philip C. Pauze, has specialized in providing investment 
management for the assets of pre-need funeral accounts and cemetery 
endowment care funds since 1985, and is financial consultant to several 
state- and nation-wide funeral trusts and funeral directors 
associations' retirement plans.
    The value to the public offered by options trading on the Index is 
underscored by the expected long-term growth of the death care 
industry, which offers essential, basic services required by the public 
regardless of economic conditions. Studies conducted by the Bureau of 
the Census of the United States Department of Commerce indicate that 
the aging of the population, as the ``Baby Boom'' generation begins to 
reach the age of mortality, as well as the population increase of 
approximately 28% from the years 1995 to 2025 will lead to a 
significant rise in the annual aggregate number of deaths. Consolidator 
companies, which purchase private funeral homes and consolidate their 
operations, currently constitute only about 15% of the total United 
States funeral service market, although the trend is toward 
consolidation. Consequently, these companies have a very large 
potential for future growth through acquisitions.
    Eligibility Standards for Index Components. Pauze Swanson Capital 
Management Co.TM, as developer of the Index, is responsible 
for selecting and maintaining the list of companies to be included in 
the Index. Only stocks of companies which derive at least fifteen 
percent of their revenues from the provision of goods and/or services 
to the death care sector of the economy are eligible to be included. 
The Index conforms with the criteria of Exchange Rule 901C for 
including stocks in an index on which standardized options trade. In 
addition, all of the component securities currently meet the following 
standards: (1) Each component has a market capitalization of at least 
$100 million; (2) the total market capitalization of the Index is 
greater than $17 billion; (3) more than 95% of the weight of the Index 
is accounted for by securities each having an average monthly trading 
volume of greater than 1,000,000 shares over the six months preceding 
the date of this filing; (3) foreign country securities or American 
Depositary Receipts thereon are not currently represented in the Index; 
(4)

[[Page 65464]]

all component stocks are either listed on the New York Stock Exchange 
(``NYSE''), Amex, or traded through the facilities of the National 
Association of Securities Dealers Automated Quotation System 
(``Nasdaq'') and are reported National Market System securities; and 
(5) over 95% of the numerical value of the Index is accounted for by 
securities that meet the current criteria for standardized options 
trading set forth in Exchange Rule 915.
    While the shares of Service Corp. International constitute 55.63% 
of the overall Index value, the Exchange believes that the price of 
Service Corp. Stock is not readily susceptible to manipulation because 
the company enjoys a sizable market capitalization of more than 8.04 
billion dollars, has over 251 million shares outstanding, and has 
experienced an average monthly trading volume of over 13 million shares 
in the six months preceding the date of this filing. Furthermore, its 
contribution to the value of the Index will diminish as the stocks of 
more companies are added. The Exchange anticipates that several more 
companies will qualify for addition to the Index within the next few 
months. No other component security in the Index currently accounts for 
more than 15.59% of its value.
    The Exchange believes the potential for manipulation of the Index 
is minimized and, in particular, the lesser-traded component stocks 
should properly be included in the Index for the following reasons: (1) 
The representation of these stocks in relation to the overall Index 
value (an aggregate of 4.76% of the weight of the Index) is small; and 
(2) over 95% of the value of the Index is accounted for by stocks which 
comply with the listing criteria for standardized options trading set 
forth in Rule 915 and have an average market capitalization of 3.12 
billion dollars, an average of 91 million shares outstanding, and a 
six-month average monthly trading volume of 5.14 million shares.
    Index Maintenance. The Index will be maintained by the Amex. If 
necessary in order to maintain continuity of the Index, its divisor may 
be adjusted to reflect certain events relating to the component stocks. 
These events include, but are not limited to, stock distributions, 
stock splits, reverse stock splits, spin-offs, certain rights issuance, 
recapitalizations, reorganizations, and mergers and acquisitions.
    The Exchange will maintain the Index so that: (1) The Index is 
comprised of no less than 9 component securities; (2) each of the 
component securities constituting the top 90% of the Index by weight, 
will have a minimum market capitalization of $75 million and each of 
the component stocks constituting the bottom 10% of the Index, by 
weight, may have a minimum market capitalization of $50 million; (3) 
90% of the Index's numerical index value and at least 70% of the total 
number of component securities will meet the then current criteria for 
standardized option trading set forth in Amex Rule 915; (4) foreign 
country securities or ADRs thereon that are not subject to 
comprehensive surveillance agreements will not in the aggregate 
represent more than 20% of the weight of the Index; (5) all component 
securities will either be listed on Amex, the New York Stock Exchange, 
or Nasdaq/NMS listed; and (6) 90% of the component securities shall 
have a monthly trading volume of at least 500,000 shares and the 
component securities constituting the bottom 10% of the Index, by 
weight, shall have a minimum average monthly trading volume of at least 
100,000 shares.
    The Exchange shall not open for trading any additional option 
series should the Index fail to satisfy any of the maintenance criteria 
set forth above unless such failure is determined by the Exchange not 
to be significant and the Commission concurs in that determination.
    Index Calculation. The Index will be calculated by the Amex using a 
modified market capitalization methodology. The value of the Index is 
determined by multiplying the price of each stock times the number of 
its shares outstanding times the percentage of the company's revenues 
derived from the death care industry, adding those products and 
dividing by a divisor. Currently, in the case of Hillenbrand Industries 
and American Annuity Group, only 40% and 15%, respectively, of their 
total market capitalization are valued in the Index since those 
proportions of the companies' revenues are derived from business in the 
death care industry. The divisor was initially determined to yield a 
benchmark Index value of 100 at the close of trading on its base date 
of December 31, 1985.\4\
---------------------------------------------------------------------------

    \4\ The Index's value at the close of trading on August 19, 1997 
was 523.04.
---------------------------------------------------------------------------

    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.
    Expiration and Settlement. The proposed options on the Index will 
be European style (i.e., exercises permitted at expiration only), and 
cash settled. Standard option trading hours (9:30 a.m. to 4:02 p.m. New 
York Time) will apply. The options on the Index will expire on the 
Saturday following the third Friday of the expiration month. The last 
trading day in an expiring option series will normally be the second to 
last business day preceding the Saturday following the third Friday of 
the expiration month (normally a Thursday). Trading in expiring options 
will cease at the close of trading on the last trading day.
    The Exchange plans to list option series with expirations in the 
three near-term calendar months and in the two additional calendar 
months in the March cycle. In addition, longer term option series 
having up to thirty-six months to expiration may be traded. Instead of 
such long-term options on a full value Index level, the Exchange may 
list long-term, reduced value put and call options based on the one-
tenth (\1/10\th) of the Index's full value. The interval between 
expirations 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 that 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.
    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.
    Exchange Rules Applicable to Stock Index Options. Amex Rules 900C 
through 980C will apply to the trading of option contracts based on the 
Index. These Rules cover issues such as surveillance, exercise prices 
and position limits. The Index is deemed to be a Stock Index Option 
under Rule 901C(a) and a Stock Index Industry Group under Rule 
900C(b)(1). With respect to Rule 903C(b), 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. In addition, the Exchange has set a position limit of 6,000 
contracts on the same side of the market with respect to options on 
this

[[Page 65465]]

Index.\5\ Surveillance procedures currently used to monitor trading in 
each of the Exchange's other index options will also be used to monitor 
trading options on the Index.
---------------------------------------------------------------------------

    \5\ See Amendment No. 1, supra note 3.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with Section 6(b)(5) of the Act \6\ in that it is designed to prevent 
fraudulent and manipulative acts and practices and to perfect the 
mechanism of a free and open market.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. Sec. 78f(b).
---------------------------------------------------------------------------

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. Sec. 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-97-33 and 
should be submitted by January 22, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
---------------------------------------------------------------------------

    \7\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jonathan G. Katz,
Secretary.
[FR Doc. 97-32527 Filed 12-11-97; 8:45 am]
BILLING CODE 8010-01-M