[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