[Federal Register Volume 63, Number 87 (Wednesday, May 6, 1998)]
[Notices]
[Pages 25130-25132]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11952]



[[Page 25130]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39928; File No. SR-AMEX-98-01]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendment No. 
1 Thereto by the American Stock Exchange, Inc. Relating to Flexible 
Exchange Index Options

April 28, 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 January 14, 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 and II below, which Items have been prepared by the self-
regulatory organization. On March 2, 1998, the Exchange filed Amendment 
No. 1 to the proposal with the Commission.\3\ The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons and to grant accelerated approval to the 
proposed rule change as amended.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from cott VanHatten, Legal Counsel, Derivative 
Securities, Amex to Michael Walinskas, Senior Special Counsel, 
Division of Market Regulation, SEC dated February 27, 1998 
(``Amendment No. 1''). In Amendment No. 1, the Exchange adds 
language to Rule 903G indicating that FLEX options may only be 
traded on an equity or index that was previously approved for non-
FLEX trading. In addition, the Exchange represents that it will 
request Commission approval before trading FLEX options on indices 
not yet approved for FLEX options trading.
---------------------------------------------------------------------------

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

    The Exchange proposes to expand the listing and trading of Flexible 
Exchange options (``FLEX Options'') to all of the Exchange's Broad 
Stock Index Groups and Stock Index Industry Groups. 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 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 III 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
    On August 20, 1993, the Commission, pursuant to Section 19(b)(2) of 
the Act and Rule 19b-4 thereunder, approved the Exchange's 
FLEXTM Options \4\ framework permitting the Exchange to list 
and trade FLEX Options based on the Major Market (``XMI''), 
Institutional (``XII'') and Standard & Poor's Corporation (``S&P'') 
MidCap (``MID'') Indices.\5\ On December 1, 1993, the Commission 
approved the listing and trading of FLEX Options on the Exchange's 
Japan Index (``JPN'').\6\
---------------------------------------------------------------------------

    \4\ The term ``FLEX'' is a trademark of the Chicago Board 
Options Exchange, Inc.
    \5\ Securities Exchange Act Release No. 32781 (August 20, 1993), 
58 FR 45360 (August 27, 1993).
    \6\ Securities Exchange Act Release No. 33262 (December 1, 
1993), 58 FR 64622 (December 8, 1993).
---------------------------------------------------------------------------

    The Exchange now proposes to expand approval for FLEX Options 
trading to all of its indices, including all Broad Stock Index Groups 
(other than the ones currently approved as noted above) \7\ and all 
Stock Index Industry Groups.\8\
---------------------------------------------------------------------------

    \7\ Amex Broad Stock Index Group Options currently consist of 
the following: EUROTOP 100 Index, Hong Kong Options Index, 
Institutional Index, Japan Index, Major Market Index, S&P MidCap 400 
Index, Morgan Stanley Consumer Index and Morgan Stanley Cyclical 
Index.
    \8\ Amex Stock Index Industry Group Options currently consist of 
the following: Airline Index, Gold BUGS Index, Biotechnology Index, 
Computer Technology Index, de Jager Year 2000 Index, Disk Drive 
Index, Interactive Week Internet Index, Mexico Index, M.S. Commodity 
Related Index, M.S. Heathcare Payor Index, M.S. Healthcare Product 
Index, M.S. Healthcare Provider Index, M.S. High Technology 35 
Index, Natural Gas Index, The NatWest Energy Index, Networking 
Index, North American Telecommunications Index, Oil Index, 
Pharmaceutical Index, Securities Broker/Dealer Index and Tobacco 
Index.
---------------------------------------------------------------------------

    Broad Stock Index Group FLEX Options. As noted above, the Exchange 
currently provides for the trading of FLEX Options on XMI, XII, MID and 
JPN indices. The Exchange now proposes to expand the ability to trade 
FLEX Options to include all of its Broad Stock Index Group indices, 
including the EUROTOP 100, Hong Kong Option, Morgan Stanley Consumer 
and Morgan Stanley Cyclical Indices. All of the Exchange's rules 
applicable to FLEX Index Options will apply to the additional Broad 
Stock Index Group FLEX Options. In addition, the Exchange proposes to 
apply its current position and exercise limits of 200,000 contracts on 
the same side of the market for FLEX Options on broad indices to FLEX 
Options on the additional Broad Stock Index Group indices. The Exchange 
is proposing this expansion in response to requests from market 
participants to make available FLEX Options on various additional broad 
indices. In addition, the Exchange believes that expansion of trading 
in FLEX Options to all of its Broad Stock Index Group indices will 
provide new and important trading opportunities which are currently 
unavailable to market participants. Further, it will increase the 
Exchange's competitiveness with the over-the-counter market place as 
well as with other exchanges which have continued to expand FLEX 
Options trading on indices.\9\ Rules currently in place for FLEX 
Options on indices shall apply to the FLEX Options on these additional 
broad indices.
---------------------------------------------------------------------------

    \9\ On January 14, 1998, the Commission approved the 
Philadelphia Stock Exchange's proposal to establish Rule 1079 
providing for the trading of FLEX Options on equities and narrow and 
broad indices. Securities Exchange Act Release No. 39549 (January 
14, 1998), 63 FR 3601 (January 23, 1998). On September 3, 1997, the 
Commission approved the Chicago Board Options Exchange's proposal to 
list FLEX Options on the Dow Jones Industrial Average. Securities 
Exchange Act Release No. 39011 (September 3, 1997), 62 FR 47841 
(September 11, 1997).
---------------------------------------------------------------------------

    Stock Index Industry Group FLEX Options. The Exchange also proposes 
to provide for the trading of FLEX Options on all of its Stock Index 
Industry Group indices (``Industry Indices''). As with its Broad Stock 
Index Group indices, the Exchange has received requests to provide for 
the trading of FLEX Options on its Industry Indices and believes this 
expansion will provide new and important trading opportunities 
currently unavailable to market participants while increasing the 
Exchange's competitiveness with the over-the-counter market place and 
other exchanges which have continued to expand FLEX Options trading on 
their indices.
    In addition to applying its existing FLEX Index Options rules to 
the trading of Industry Index FLEX Options, the Exchange proposes to 
establish position limits for these FLEX Options at four times the 
position limits for standard options on the respective underlying 
Industry Index (36,000, 48,000 and 60,000 contracts on the same side of 
the market). The Exchange believes such position limits are appropriate 
given the institutional nature and use of FLEX Index Options. Further, 
the proposed

[[Page 25131]]

position limits are the same as those recently adopted by the 
Philadelphia Stock Exchange, Inc.\10\
---------------------------------------------------------------------------

    \10\ Securities Exchange Act Release No. 39549 (January 14, 
1998), 63 FR 3601 (January 23, 1998).
---------------------------------------------------------------------------

    Finally, the Exchange proposes to adopt $5 million Underlying 
Equivalent Value as the minimum value size for opening transactions and 
Request for Quotes in Stock Index Industry Group Flex Index Options for 
any series with no open interest, $1 million Underlying Equivalent 
Value for any series with open interest and $1 million Underlying 
Equivalent Value, or the remaining Underlying Equivalent Value for a 
closing transaction, whichever is less. Similar to the proposed 
position limits for Stock Index Industry Group Flex Options, the 
Exchange believes such minimum value sizes for opening and closing 
transactions and Requests for Quotes are appropriate given the 
institutional nature and use of FLEX Index Options and they are the 
same minimum value sizes proposed by the Philadelphia Stock Exchange, 
Inc. in its proposal to trade FLEX Options on narrow based indices.\11\
---------------------------------------------------------------------------

    \11\ Id.
---------------------------------------------------------------------------

2. Statutory Basis
    The basis under the Act for the proposed rule change is the 
requirement under Section 6(b)(5) \12\ that an Exchange have rules that 
are designed to promote just and equitable principles of trade, and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers or dealers.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange represents that the proposed rule change will impose 
no 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. 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, NW., Washington, DC 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 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-98-01 and 
should be submitted by May 27, 1998.

IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and, in 
particular, with the requirements of Sections 6(b)(5) \13\ and 11A \14\ 
of the Act. Specifically, consistent with Section 11A of the Act, the 
proposal should encourage fair competition among brokers and dealers 
and the exchange markets, by allowing the Exchange to compete more 
effectively with the growing OTC market in customized index options.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b)(5).
    \14\ 15 U.S.C. 78k-1.
---------------------------------------------------------------------------

    The Commission believes that the Exchange's proposal reasonably 
addresses its desire to better meet the demands of sophisticated 
portfolio managers and other institutional investors who are 
increasingly using the OTC market in order to satisfy their hedging 
needs. Additionally, the Commission believes that the Exchange's 
proposal will help promote the maintenance of a fair and orderly 
market, consistent with Sections 6(b)(5) and 11A of the Act, because 
the purpose of the proposal is to facilitate the extension of the 
benefits of a listed exchange market to a wider variety of index 
options that are more flexible than current listed options and that 
currently trade OTC. The benefits of the Exchange's options market 
include, but are not limited to, a centralized market center, an 
auction market with posted transparent market quotations and 
transaction reporting, parameters and procedures for clearance and 
settlement, and the guarantee of OCC for all contracts traded on the 
Exchange.\15\
---------------------------------------------------------------------------

    \15\ In approving this rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation, 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The Commission believes that the Exchange's proposal to designate 
all currently approved Amex Industry and Broad Stock Group Indices as 
eligible for FLEX index options trading is consistent with the Act. The 
Commission notes, however, that when submitting a Section 19(b) 
proposal to list and trade a new non-FLEX index options product, the 
Exchange must, in the same filing, specifically propose to list and 
trade the FLEX index options. If the Exchange is not prepared at that 
time to seek approval for the listing of FLEX options overlying the 
proposed index, then the Exchange should submit a rule filing pursuant 
to Section 19(b) of the Act proposing to list and trade FLEX options on 
that index at an appropriate time in the future.
    In addition, the Commission believes that it is reasonable for the 
Exchange to apply its existing position limit of 200,000 contracts on 
the same side of the market to the additional Broad Stock Index Group 
indices approved for FLEX Options trading pursuant to this proposal. 
The Commission also believes that it is reasonable for the Exchange to 
establish position limits for Amex Industry Index FLEX Options at four 
times the position limits for standard options on the respective 
underlying Industry Index (36,000, 48,000 and 60,000 contracts on the 
same side of the market). The Commission notes that these position 
limits are identical to those recently adopted by the Philadelphia 
Stock Exchange.\16\
---------------------------------------------------------------------------

    \16\ Securities Exchange Act Release No. 39549 (January 14, 
1998), 63 FR 3601 (January 23, 1998).
---------------------------------------------------------------------------

    Finally, the Commission believes that it is reasonable for the Amex 
to require a $5 million underlying equivalent value for an opening 
transaction in Amex Industry Index FLEX options.\17\ The Commission 
believes that this large underlying equivalent value requirement should 
help to ensure that transactions in FLEX index options remain of 
substantial size and, therefore, that the product is geared to an 
institutional, rather than a retail market.
---------------------------------------------------------------------------

    \17\ The Commission notes that this underlying equivalent value 
requirement is identical to that recently approved by the Commission 
for the Philadelphia Stock Exchange. See Phlx Rule 1079(a)(8)(A)(i).
---------------------------------------------------------------------------

    The Commission finds good cause for approving the proposed rule 
change and Amendment No. 1 thereto prior to the thirtieth day after the 
date of publication of notice thereof in the Federal Register. 
Specifically, as noted above, the Exchange's proposal is substantially 
similar to a recently approved proposal by the Philadelphia

[[Page 25132]]

Stock Exchange.\18\ Therefore, the Commission believes that Amendment 
No. 1 does not raise any new regulatory issues.
---------------------------------------------------------------------------

    \18\ See Securities Exchange Act Release No. 39549 (January 14, 
1998), 63 FR 3601 (January 23, 1998). The Commission notes that this 
proposal was published for the full notice and comment period during 
which no comments were received.
---------------------------------------------------------------------------

    Accordingly, the Commission believes, consistent with Section 
6(b)(5) and Section 19(b)(2) of the Act, that good cause exists to 
grant accelerated approval to the proposed rule change.\19\
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78(f(b)(5) and 78s(b)(2).
---------------------------------------------------------------------------

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-AMEX-98-01) is approved.

    \20\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.3-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-11952 Filed 5-5-98; 8:45 am]
BILLING CODE 8010-01-M