[Federal Register Volume 63, Number 58 (Thursday, March 26, 1998)]
[Notices]
[Pages 14741-14743]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-7921]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39775; File No. SR-Amex-98-11]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Partial Accelerated Approval of Proposed Rule Change by the 
American Stock Exchange, Inc. Relating to a Reduction in the Value of 
the de Jager Year 2000, Amex Securities Broker/Dealer and Amex Airline 
Indices

March 20, 1998.
    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 February 23, 1998, 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 Amex. 
On March 11, 1998, the Amex filed Amendment No. 1 to the proposed rule 
change.\3\ 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 approval to the 
portion of the proposal relating to the Amex Securities Broker/Dealer 
Index (``Broker/Dealer Index'').
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from Scott G. Van Hatten, Legal Counsel, 
Derivative Securities, Amex, to Sharon Lawson, Esq., Assistant 
Director, Division of Market Regulation (``Division''), Commission, 
dated March 10, 1998 (``Amendment No. 1''). In Amendment No. 1, the 
Amex requests expedited review and accelerated effectiveness of the 
proposed rule change with respect to the provisions concerning the 
Amex Securities Broker/Dealer Index. In addition to correcting a 
clerical error, Amendment No. 1 also makes clear that the position 
and exercise limits, which are proposed to be initially doubled, 
will revert to their original limits at the expiration of the 
furthest expiration month for non-long term options series 
(``LEAPs'') as established on the date of the split.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Amex proposes to split the de Jager Year 2000 (``de Jager 
Index''), Broker/Dealer Index and Amex Airline (``Airline Index'') 
Indices to one-half of their current values.

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 Amex 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 Amex 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
    On December 12, 1994, the Commission granted the Exchange approval 
to list and trade options on the Airline Index.\4\ Initially, the 
aggregate value of the stocks contained in the Airline Index was 
reduced by a divisor to establish an index benchmark value of 200. Over 
the past two years, the index value of the Airline Index has more than 
tripled in value from 200 to 728.
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    \4\ See Securities Exchange Act Release No. 35084, 59 FR 65419 
(December 19, 1994) (order approving File No. SR-Amex-94-54).
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    On March 15, 1994, the Commission granted the Exchange approval to 
list and trade options on the Broker/Dealer Index.\5\ Initially, the 
aggregate value of the stocks contained in the Broker/Dealer Index was 
reduced by a divisor to establish an index benchmark value of 300. 
Since its creation the index value of the Broker/Dealer Index has more 
than tripled from 300 to 953.\6\
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    \5\ See Securities Exchange Act Release No. 33766, 59 FR 13518 
(March 22, 1994) (order approving File No. SR-Amex-93-37).
    \6\ At the time the proposal was originally filed, the index 
value of the Broker/Dealer Index had increased to 953. Subsequent to 
the original filing, however, the index value has increased to more 
than 1000. According to the Amex, the system used to calculate the 
value of the Index cannot accommodate four-digit numbers. As a 
result, all calculations of the value of options on the Broker/
Dealer Index must be performed manually on a continuous basis for 
each series. Therefore, the Amex has requested accelerated approval 
of the provisions of the proposal pertaining to the Broker/Dealer 
Index. See Amendment No. 1, supra note 3.
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    On February 19, 1997, the Commission granted the Exchange approval 
list and trade options on the de Jager Index.\7\ Initially, the 
aggregate value of the stocks contained in the de Jager Index was 
reduced by a divisor to establish an index benchmark value of 250. 
Since its creation, the index value of the de Jager Index has nearly 
doubled in value from 250 \8\ to 413.
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    \7\ See Securities Exchange Act Release No. 38307, 62 FR 8469 
(February 25, 1997) (order approving File No. SR-Amex-97-04).
    \8\ As originally filed, the proposal incorrectly listed the de 
Jager's benchmark Index value as 200. This clerical error was 
corrected by the Exchange in Amendment No. 1. See Amendment No. 1, 
supra note 3.
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    As a consequence of the rising Indices' values, premium levels for 
the Airline, Broker/Dealer and de Jager Indices options have also 
risen. According to the Exchange, these higher premium levels have been 
cited as the principal factor that has discouraged retail investors and 
some small market professionals from trading these index options. As a 
result, the Exchange is proposing to decrease the Airline, Broker/
Dealer and de Jager Indices to one-half of their respective present 
values.
    To decrease the Indices' values, the Exchange will double the 
divisor used in calculating the Indices. The Amex proposes no other 
changes to the components of the Indices, their methods of calculation 
(other than the change in the divisor), expiration style of the options 
or any other Index specification.
    The Amex believes that lower valued Indices will result in 
substantial lowering of the dollar values of options premiums for the 
airline, Broker/Dealer and de Jager Indices options contracts. The 
Exchange plan to adjust outstanding series similar to the manner in 
which equity options are adjusted for a 2-for-1 stock split. On the 
effective date of the split ``ex-date,'' the number of outstanding 
Airline, Broker/Dealer and de Jager Indices' options contracts

[[Page 14742]]

will be doubled and strike prices halved.

Position and Exercise Limits

    Currently, position and exercise limits for the Airline and Broker/
Dealer Indices equal 15,000 contracts, while position and exercise 
limits for the de Jager Index equal 12,000 contracts, on the same side 
of the market. The Exchange proposes to double the position and 
exercise limits to 30,000 contract for the Airline and Broker/Dealer 
Indices and to 24,000 contracts for the de Jager Index on the same side 
of the market. This change will be make simultaneously with the 
proposed reduction of the Indices' value and the doubling of the number 
of contracts.
    Since the new position and exercise limits will be equivalent to 
the Indices' present limits, there is no additional potential for 
manipulation of the Indices or the underlying securities. Further, an 
investor who is currently at the 15,000 (or 12,000) contract limit 
will, as a result of the index value reductions, automatically hold 
30,000 (or 24,000) contracts to correspond with the lowered index 
values. These increased position and exercise limits will revert to 
their original limits at the expiration of the furthest month for non-
LEAPs \9\ as established on the date of the split.
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    \9\ The proposal, as originally filed, required the increased 
position and exercise limits to revert to the original limits at the 
expiration of the furthest expiration month as established on the 
date of the split. Because trading in LEAPs has been approved for 
each of the three Indices, the Amex proposes to clarify that 
position and exercise limits will revert to their original levels at 
the expiration of the furthest expiration month for non-LEAPs. See 
Amendment No. 1, supra note 3. The furthest expiration month for 
non-LEAPs is generally nine months.
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    The Exchange believes that decreasing the values of the Airline, 
Broker/Dealer and de Jager Indices may make these index options more 
attractive to retail investors and other market professionals and 
therefore, more competitive with other products in the marketplace.
2. Statutory Basis
    The Amex believes the proposed rule change is consistent with the 
requirements of Section 6(b)(5) of the Act \10\ 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 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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    \10\ 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 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

    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 such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.
    The Exchange has also requested that the Commission find good 
cause, pursuant to Section 19(b)(2) of the Act,\11\ for approving the 
proposed split of the Broker/Dealer Index on an accelerated basis prior 
to the thirtieth day after publication in the Federal Register.\12\
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    \11\ 15 U.S.C. 78s(b)(2).
    \12\ See note 6, supra.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. 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 Amex. All 
submissions should refer to File Number SR-Amex-98-11 and should be 
submitted by April 16, 1998.

V. Commission Findings and Order Granting Partial Accelerated 
Approval of the Proposed Rule Change

    The Commission finds that the portion of the proposed rule change, 
as amended, relating to the Broker/Dealer Index is consistent with the 
requirements of Section 6 of the Act \13\ and the rules and regulations 
thereunder applicable to a national securities exchange.\14\ 
Specifically, the Commission believes that the provisions of the 
proposed rule change pertaining to the Broker/Dealer Index are 
consistent with and further the objectives of Section 6(b)(5) of the 
Act \15\ in that the proposed splitting of the Broker/Dealer Index and 
the associated temporary increases in the position and exercise limits 
would remove impediments to and perfect the mechanism of a free and 
open market in a manner consistent with the protection of investors and 
the public interest.
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    \13\ 15 U.S.C. 78f.
    \14\ In approving this rule, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \15\ 15 U.S.C. 78f(b)(5).
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    By reducing the value of the Broker/Dealer Index, the Commission 
believes that a broader range of investors will be provided with a 
means to hedge their exposure to the market risk associated with the 
stocks underlying the Index. Similarly, the Commission believes that 
reducing the value of the Broker/Dealer Index may attract additional 
investors, thus creating a more active and liquid trading market.
    The Commission also believes that Amex's proposed adjustments to 
its position and exercise limits applicable to the Broker/Dealer Index 
are appropriate and consistent with the Act. In particular, the 
Commission believes that the temporary doubling of the position and 
exercise limits are reasonable in light of the fact that the size of 
the Broker/Dealer Index option contract will be halved and that, as a 
result, the number of outstanding options contracts an investor holds 
will be doubled. The temporary doubling of the position and exercise 
limits, therefore, will ensure that investors will not potentially be 
in violation of the lower existing position and exercise

[[Page 14743]]

limits while permitting market participants to maintain, after the 
split of the Broker/Dealer Index, their current level of investment in 
the Broker/Dealer Index option contracts. As noted above, the increased 
position and exercise limits of 30,000 contracts will revert to their 
original limit of 15,000 contracts at the expiration of the further 
expiration month of non-LEAPs as established on the date of the split, 
which is expected to be October 1998.\16\
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    \16\ According to the Amex, October 1998 will be the furthest 
expiration month for non-LEAPs on the Broker/Dealer Index for 
purposes of the reversion of position and exercise limits to their 
original levels. The Amex has agreed to provide notice to its 
members to remind them of the need to reduce their positions at 
least one month prior to the date that the position and exercise 
limits revert to their original levels. Per telephone conversation 
between Scott Van Hatten, Legal Counsel, Derivative Securities, 
Amex, and Deborah Flynn, Division, Commission, on March 19, 1998.
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    The Commission further believes that doubling the Broker/Dealer 
Index's divisor will not have an adverse market impact on the trading 
in these options. After the split, the Broker/Dealer Index will 
continue to be comprised of the same stocks with the same weightings 
and will be calculated in the same manner, except for the proposed 
change in the divisor. The Commission notes that the Amex's 
surveillance procedures also will remain the same.
    Finally, the Commission notes that, prior to implementing the 
changes, the Exchange will provide advance notice of the proposed 
changes to the Broker/Dealer Index to its membership through an 
information circular.\17\ The Broker/Dealer Index is expected to be 
reduced by one-half prior to the April 17, 1998 expiration. The Amex 
has committed to provide notice to its membership at least two weeks 
prior to the implementation of the proposed change to the Broker/Dealer 
Index value and the resulting adjustments to the outstanding Broker/
Dealer Index options contracts. The Commission believes that the 
proposed time frame should allow for adequate notice to be provided to 
the holders of all open positions in Broker/Dealer Index options and 
other market participants.
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    \17\ Per telephone conversation between Scott Van Hatten, Legal 
Counsel, Derivative Securities, Amex, and Deborah Flynn, Division, 
Commission, on March 19, 1998.
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    The Commission finds good cause for partially approving the 
proposed rule prior to the thirtieth day after publication of the 
proposed rule change in the Federal Register. The Commission believes 
that the proposed split of the Broker/Dealer Index raises no new or 
novel regulatory concerns. In addition, the Commission notes that since 
the initial filing of the proposal, the value of the Broker/Dealer 
Index has increased to the extent that present value is in excess of 
1000. As the system used to calculate the value of the Index cannot 
accommodate four-digit numbers, all calculations of the value of 
options on the Broker/Dealer Index must be performed manually on a 
continuous basis for each series. The Commission believes that to 
ensure the continued accuracy and reliability of the values of Broker/
Dealer Index options contracts, the accelerated approval of the portion 
of the proposal relating to the Broker/Dealer Index is appropriate. In 
addition, the Amex has ensured that market participants will receive 
adequate notice prior to implementation of the adjustments to the index 
value and outstanding Broker/Dealer Index options. Accordingly, the 
Commission finds that good cause exists, consistent with Section 
6(b)(5) of the Act,\18\ to partially accelerate approval of the 
proposed rule change, as discussed above.
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    \18\ 15 U.S.C. 78f(b)(5).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\19\ that the portion of the proposed rule change (SR-Amex-98-11) 
relating to the Broker/Dealer Index is approved on an accelerated 
basis.
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    \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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-7921 Filed 3-25-98; 8:45 am]
BILLING CODE 8010-01-M