[Federal Register Volume 63, Number 75 (Monday, April 20, 1998)]
[Notices]
[Pages 19542-19544]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-10335]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39854; File No. SR-Amex-98-14]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the American Stock Exchange, 
Inc. Relating to Options on the Computer Hardware Index

April 13, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on March 30, 1998, the 
American Stock Exchange, Inc. (``Amex'' or ``Exchange'') filed with the 
Securities and Exchange 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).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Amex proposes to trade options on the Computer Hardware Index, 
a new index developed by the Amex based on the stocks of companies 
engaged in the design and production of commercial and consumer 
personal computers and systems. In addition, the Amex proposes to amend 
its 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 Amex Rule 915. The text of 
the proposed rule change is set forth in Exhibit A to the filing.

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 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 the 
Statutory Basis for, the Proposed Rule Change

(1) Purpose
    The Amex proposes to trade options on its newly developed Computer 
Hardware Index (the ``Index''), an index based entirely on shares of 
widely held companies engaged in the design and production of 
commercial and consumer personal computers and systems. With rapidly 
changing technology, vendors constantly introducing more powerful 
products, and the growing demand for systems priced less than $1,000, 
stocks of companies in this sector of the high-tech industry are 
expected to remain extremely volatile, particularly in the near term. 
Options on the Index are designed to provide investors with an 
investment vehicle to participate in or hedge against this volatility, 
and decrease the risk involved in selecting individual stocks. A list 
of the current component securities is set forth in Exhibit B to the 
filing.
    The Amex is filing this proposal pursuant to Amex Rule 901C, 
Commentary .02, which provides for the commencement of the trading of 
options on the Index thirty days after the date of this filing. The 
proposal meets all the criteria set forth in Commentary .02 and the 
Commission's order approving that rule as outlined below.\2\
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    \2\ See Securities Exchange Act Release No. 34157 (June 3, 
1994), 59 FR 30062 (June 10, 1994).

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[[Page 19543]]

Eligibility Criteria for Index Components
    Pursuant to Commentary .02 to Rule 901C, (1) each of the component 
securities has a minimum market capitalization of at least $75 million 
and has a trading volume in each of the last six months of not less 
than 1,000,000 shares; (2) at least 90% of the Index's numerical index 
value and at least 80% of the total number of component securities meet 
the current criteria for standardized option trading set forth in 
Exchange Rule 915 (in fact, all of the component securities in the 
Index currently underlie standardized options); (3) the Index contains 
no American Depository Receipts (``ADRs''); (4) all component stocks 
are listed on the Amex, the New York Stock Exchange, or traded through 
the facilities of the National Association of Securities Dealers 
Automated Quotation System and are reported National Market System 
securities (``Nasdaq/NMS''); and (5) no component security represents 
more than 25% of the weight of the Index, and the five highest weighted 
component securities in the Index do not in the aggregate account for 
more than 60% of the weight of the Index.
Index Calculation
    The Index will be calculated using an ``equal-dollar weighting'' 
methodology designed to ensure that each of the component securities in 
represented in an approximately ``equal'' dollar amount in the Index. 
The following is a description of the methodology. As of the market 
close on February 20, 1998, a portfolio of stocks was established 
representing an investment of approximately $200,000 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 US 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 \3\ at the close of trading on February 20, 
1998.
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    \3\ The index's value at the close of trading on March 18, 1988 
was 234.86.
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Maintenance of the Index
    The Exchange will maintain the Index in accordance with Amex Rule 
901C, Commentary .02 so that (1) the Index is comprised of not less 
than 9 underlying stocks, and not more than 13 underlying stocks; (2) 
component stocks constituting the top 90% of the Index, by weight, will 
have a minimum market capitalization of $75 million, and 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 80% of the total number of 
components will meet the then current criteria for standardized options 
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 stocks will either be listed on 
the Amex, the NYSE, or Nasdaq/NMS; (6) no component security will 
represent more than 25% of the weight of the Index, and the five 
highest weighted components will not in aggregate account for more than 
60% of the Index; and (7) trading volume of each component security 
shall be at least 500,000 shares for each of the last six months, or 
for each of the lowest weighted components that in aggregate account 
for no more than 10% of the weight of the Index, the monthly trading 
volume may be at least 400,000 shares for each of the last six months.
    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.
Rebalancing
    Following the close of trading on the third Friday of February, 
May, August and November 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 will be made at the rebalancing to 
ensure continuity of the Index's value. The newly adjusted portfolio 
will then become the basis for the Index's value on the first trading 
day following the adjustment.
    The number of shares of each component stock in the Index portfolio 
will remain fixed between quarterly rebalances 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 the case of a merger or the 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 may be adjusted 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 addition or replacement, the average dollar value of the 
remaining portfolio components 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.
    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 possible. The Exchange will make this 
information available to the public through dissemination of an 
information circular.
Dissemination of Index
    Similar to other stock index values which underlie exchange-traded 
products, 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 are 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 expiring 
option series will normally be second to the 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 options series with expiration in the 
three near-term calendar months and in two additional calendar months 
in the February cycle. Further, flexible exchange options, in addition 
to longer term option series having up to thirty-six months to 
expiration, may be traded. In lieu of such long-term options on full 
value Index level, the Exchange may instead list long-term, reduced 
value put and call options based on one-tenth (\1/10\) 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

[[Page 19544]]

all the Exchange's index options, including sales practice rules, 
margin requirements and floor trading procedures. Position limits on 
reduced value long term 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).
    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 Nasdaq/NMS 
listed securities, 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. 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 Computer Hardware Index. 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 expects that the review required by 
Rule 904C(c) will result in a position limit of 15,000 contracts with 
respect to options on this Index.
(2) Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\4\ in general and furthers the objectives of Section 6(b)(5) \5\ in 
particular 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act.\6\ The Amex may not list options for trading on 
the Index prior to 30 days after the date the proposed rule change was 
filed with the Commission. At any time within 60 days of the filing of 
such proposed rule change, the Commission may summarily abrogate such 
rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in the furtherance of the purposes of the Act.
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    \6\ 15 U.S.C. 78s(b)(3)(A).
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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 submission 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 in the Commission's 
Public Reference Room in Washington, D.C. Copies of such filing will 
also be available for inspection and copying at the principal office of 
the Amex. All submissions should refer to the file No. SR-Amex 98-14 
and should be submitted by May 11, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-10335 Filed 4-17-98; 8:45 am]
BILLING CODE 8010-01-M