[Federal Register Volume 63, Number 78 (Thursday, April 23, 1998)]
[Notices]
[Pages 20225-20226]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-10753]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39878; File No. SR-Amex-98-18]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the American Stock Exchange, 
Inc., Relating to the Elimination of Fixed Percentage Tests for Trading 
Halts in Index Options

April 16, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on April 
10, 1998, the American Stock Exchange, Incorporated (the ``Amex'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.

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

    The Amex proposes to amend Exchange Rule 918C to eliminate certain 
fixed percentage tests that presently apply to the decision to halt 
trading in index options as well as the decision to resume trading 
after such a halt. 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 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange seeks to amend Exchange Rule 918C, ``Trading Halts or 
Suspensions,'' to eliminate certain fixed percentage tests that 
presently apply to the decision to halt trading in index options as 
well as the decision to resume trading after such a halt.
    a. Trading halts. Currently, under Exchange Rule 918C, one of the 
enumerated factors that the designated Exchange officials may consider 
in deciding whether to halt trading in an index option is whether 
trading has been halted or suspended in underlying stocks whose 
weighted value represents ``20% or more of the current index group 
value.'' The Exchange is concerned that by including a fixed percentage 
test among those factors that ``may be considered,'' the present rule 
may imply that it would be improper for the designated Exchange 
officials to consider trading interruptions in underlying stocks whose 
weighted value represents less than 20% of the index value.
    The Exchange believes such an interpretation would conflict with 
the purpose of Exchange Rule 918C, which grants designated Exchange 
officials the discretion to halt index option trading whenever they 
``deem such action appropriate in the interest of a fair and orderly 
market or to protect investors.'' Because Exchange Rule 918C(b) sets 
forth a non-exclusive list of factors that Exchange officials may 
consider in exercising that discretion, the Exchange contends it would 
be inappropriate to prohibit those officials from considering trading 
disruptions in underlying stocks that fall below a predetermined level. 
Accordingly, the proposed rule change would clarify that Exchange 
officials, in evaluating whether to halt trading in index options, are 
not limited to situations in which 20% of the underlying stocks have 
halted, but rather may consider ``the extent to which'' trading is not 
occurring in the underlying stocks.
    In addition, the proposed rule change would provide Exchange 
officials with the flexibility to consider not only whether trading in 
underlying stocks has been ``halted or suspended,'' but also whether 
such trading is ``not occurring.'' The term ``halted or suspended'' 
indicates that Exchange authorities have taken formal action to 
discontinue trading in a stock. However, in deciding whether to 
continue trading a derivative instrument like an index

[[Page 20226]]

option, Exchange officials should be able to consider the full extent 
to which underlying stocks are not trading, whether trading is not 
occurring because of formal exchange action, systemic problems, market 
emergencies, or other cause. The proposed rule change would clarify 
that in determining whether to halt index option trading, Exchange 
officials may consider the extent to which ``trading is not occurring'' 
in the underlying stocks, without limiting that consideration to formal 
halts or suspensions.
    The Exchange also believes that Exchange Rule 918C may imply that 
the Exchange is required to calculate, on an ongoing basis, the extent 
to which stocks underlying a subject index are trading. The Exchange 
contends that such calculations would be difficult to perform on a real 
time basis for those indexes comprised of a large number of stocks 
(e.g., the S&P MidCap 400 Index, which consists of 400 stocks). The 
removal of the fixed percentage tests from Exchange Rule 918C is 
expected to rectify any misperception regarding the Exchange's duty to 
maintain and calculate trading information for stocks underlying an 
index on which options are traded.
    b. Resumption of trading after trading halts. Currently, trading 
may resume when the designated Exchange officials determine that (i) 
the conditions that led to the halt no longer are present; (ii) 
underlying securities constituting 50% or more of the stock index value 
are not subject to halt or suspension in the primary market for the 
trading of such underlying securities; and (iii) two floor governors in 
consultation with a senior executive officer of the Exchange conclude 
in their best judgment that the interests of a fair and orderly market 
are served by a resumption of trading. The proposed rule change would 
eliminate the provision in Exchange Rule 918C(b)(ii) that makes trading 
in a fixed percentage of stocks underlying an index a prerequisite to 
the resumption of index options trading after a trading halt.
    The Exchange will continue its practice of assessing the extent to 
which underlying stocks are trading in deciding whether to resume 
trading after an index options trading halt. However, the Exchange 
believes it is inappropriate to delay the resumption of trading until 
the level of trading in stocks underlying an index has reached a 
predetermined, fixed level, particularly since it often may be 
difficult to make a precise determination of trading activity for 
indexes with a large number of constituent stocks.
    Accordingly, the proposed rule change would eliminate the 50% fixed 
test and instead would specify that one of the factors that Exchange 
officials may consider in determining whether the ``interests of a fair 
and orderly market are served by a resumption of trading'' is ``the 
extent to which trading is occurring in stocks underlying the index.''
    The proposed rule change would enable the Exchange to resume 
trading as soon as conditions warrant, without interposing an 
artificial barrier that might result from a fixed percentage test. The 
Exchange believes the proposed rule change continues to provide 
Exchange officials with the opportunity to give appropriate weight to 
the extent to which underlying stocks are trading.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\1\ in general, and furthers the objectives of Section 6(b)(5),\2\ 
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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    \1\ 15 U.S.C. 78f(b).
    \2\ 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

    Because the foregoing proposed rule change is based on 
substantively identical rules governing halting and resumption of 
trading in index options in place at the Chicago Board Options 
Exchange, Inc. (See Securities Exchange Act Release No. 39480 (December 
22, 1997) 62 FR 68327 (December 31, 1997) and: (1) does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
(3) does not become operative for 30 days from April 10, 1998, the date 
on which it was filed, and the Exchange provided the Commission with 
written notice of its intent to file the proposed rule change at least 
five business days prior to the filing date, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(e)(6) \4\ 
thereunder. At any time within 60 days of the filing of the 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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    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(e)(6).
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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 in 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 SR-Amex-98-18 and should be submitted by 
May 14, 1998.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-10753 Filed 4-22-98; 8:45 am]
BILLING CODE 8010-01-M