[Federal Register Volume 63, Number 88 (Thursday, May 7, 1998)]
[Notices]
[Pages 25249-25250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-12144]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39933; File No. SR-AMEX-98-15]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the American 
Stock Exchange, Inc., and Amendment No. 1 Thereto Relating to a 
Reduction in the Value of, and Increase in Position and Exercise Limits 
for, the Institutional Index

April 30, 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 April 7, 1998, the American Stock Exchange, Inc. (the ``Amex'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the Exchange. On April 
20, 1998, the Amex filed an amendment to the proposal.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons and to grant accelerated 
approval for the proposed rule.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Scott Van Hatten, Legal Counsel, Derivative 
Securities, Amex, to Michael Walinskas, Senior Special Counsel, 
Division of Market Regulation, Commission (April 20, 1998) 
(``Amendment No. 1''). Amendment No. 1 specifies that on April 16, 
1998, the Exchange's Board of Governors approved the submission of 
the instant proposed rule change to the Commission.
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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 Institutional Index (the ``Index'' 
or ``XII'') to one-half its current value and correspondingly amend 
Exchange Rule 904C to double the position and exercise limits for XII 
options.

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. No 
written comments were solicited or received with respect to 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
    On August 28, 1986, the Commission granted the Exchange approval to 
permit the trading of options on the Institutional Index, a broad 
market index based on the 75 major stocks currently held in the highest 
dollar amounts in institutional portfolios that have a market value of 
more than $100 million in investment funds.\4\ Initially, the aggregate 
value of the stocks contained in the Institutional Index was reduced by 
a divisor to establish an index benchmark value of 250. Since its 
creation, and as of the date of this filing, the level of the 
Institutional Index has increased nearly fivefold from 250 to 1218.
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    \4\ Exchange Act Release No. 23573 (August 28, 1986), 51 FR 
31859 (September 5, 1986).
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    As a consequence of the Index's rising value, premium levels for 
the Institutional Index options have also risen. These higher premium 
levels have been cited as a principal factor that has discouraged 
retail investors and some small market professionals from trading these 
Index options. As a result of the foregoing, the Exchange is proposing 
to decrease the Institutional Index to one-half of its present value. 
The Exchange believes that decreasing the Index value may make the 
Index options more attractive to retail investors and other market 
professionals and therefore more competitive with other products in the 
marketplace.
    To decrease the Index's value, the Exchange will double the divisor 
used in calculating the Index. The Exchange suggests that the lower 
valued Index will result in a substantial lowering of the dollar values 
of options premiums for the Institutional Index contracts. The Exchange 
plans to adjust outstanding series similar to the manner in which 
equity options are adjusted for a 2-for-1 stock split.\5\ On the 
effective date of the split ``ex-date,'' the number of outstanding 
Institutional Index option contracts will be doubled and strike prices 
halved. No other changes are proposed as to the components of the 
Index, its method of calculation (other than the change in the 
divisor), expiration style of the options or any other Index 
specification.
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    \5\ Consistent with customary Exchange practice, at least two 
weeks prior to the implementation of the proposed change to the 
Institutional Index value and the resulting adjustments to the 
outstanding Institutional Index options contracts, the Exchange will 
issue an information circular to its members setting forth the 
Index's current and new divisors, the manner in which the Index will 
be adjusted, the adjusted contract symbols, amounts and strike 
prices for outstanding XII series and the effective date of the 
adjustments.
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    a. Position and Exercise Limits.
    Currently, position and exercise limits for the Institutional Index 
equal 100,000 contracts on the same side of the market of which no more 
than 25,000 contracts may be used to realize any differential in price 
between the Institutional Index and the securities underlying the 
Index. Although the limitation of up to 25,000 contracts for purposes 
of realizing any differential in price between the Institutional Index 
and the securities underlying the Index will remain unchanged, the 
Exchange proposes to double the Index's position and exercise limits to 
200,000 contracts on the same side of the market. The change in 
position and exercise limits will be made in conjunction with the 
simultaneous reduction of the Index's value and the doubling of the 
number of contracts. Accordingly, an investor who is currently at the 
100,000 contract limit will, as a result of doubling the number of 
contracts, automatically hold 200,000

[[Page 25250]]

contracts based on the lowered Index value. Similar to the treatment 
approved concerning the recent split of the Standard & Poor's 100 Stock 
Index,\6\ thus, market participants will be able to maintain their 
current level of investment in XII options following the split of the 
Index.
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    \6\ Exchange Act Release No. 39338 (November 19, 1997), 62 FR 
63209 (November 26, 1997).
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    The new limits will be economically equivalent to the Index's 
present limits in that the dollar value represented by the contracts at 
the new position limit will remain the same as before the split. In 
addition, the existing Index components will remain the same and 
maintain their existing respective weights in the Index. Further, 
existing surveillance procedures will continue to apply to the Index. 
Therefore, the Exchange believes that there will be no additional 
potential for manipulation of the Index or the underlying securities 
resulting from the doubling of position limits in conjunction with the 
halving of the Index level.
(2) Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\7\ in general, and furthers the objectives of Section 6(b)(5),\8\ 
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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    \7\ U.S.C. 78f(b).
    \8\ 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. Commission's Findings and Order Granting Accelerated Approval 
of the Proposed Rule Change

    The Exchange has requested that the proposed rule change be given 
accelerated effectiveness pursuant to Section 19(b)(2) of the Act.\9\
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    \9\ U.S.C. 78s(b)(2).
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    After careful review, 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. 
Specifically, the Commission believes that reducing the value of the 
Index will serve to promote the public interest and help remove 
impediments to a free and open securities market by providing a broader 
range of investors with a means of hedging exposure to market risk 
associated with securities representing highly capitalized companies. 
Doubling the Index divisor should result in the Index options premiums 
being more affordable, enabling more retail investors and other market 
professionals to utilize this trading vehicle, resulting in a more 
active and liquid trading environment.
    The Commission also believes that Amex's adjustments to its 
position and exercise limits are appropriate and consistent with the 
Act. In particular the Commission believes that the position and 
exercise limits are reasonable in light of the fact that the size of 
the contract on the Index will be halved. Doubling the position and 
exercise limits, therefore will permit market participants to maintain, 
after the split of the Index, their current level of investment in XII 
options.
    Furthermore, the Commission believes that doubling the Index's 
divisor will not have an adverse market impact or make trading in Index 
options susceptible to manipulation. After the split, the 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 will also remain the same.
    The Commission also notes that the Exchange will provide notice of 
the proposed changes to the Index and the XII contracts to its 
membership through an information circular.\10\
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    \10\ See supra note 5.
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    The Commission believes that the Amex information circular will 
provide adequate notice to market participants regarding this change to 
Index value and the XII contract prior to its implementation.
    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register. Accelerating approval 
of this proposal will extend the noted benefits of the proposal as 
quickly as possible to market participants. The Commission further 
believes that the proposed change of the Index's divisor does not 
substantially change the character of the Index options as approved by 
the Commission on August 28, 1986,\11\ and otherwise does not raise any 
new or unique regulatory issues. Accordingly, the Commission believes 
it is consistent with Sections 19(b)(2)\12\ and 6(b)(5)\13\ of the Act 
to approve the proposed rule change on an accelerated basis.
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    \11\ See supra note 4.
    \12\ 15 U.S.C. 78s(b)(2).
    \13\ 15 U.S.C. 78f(b)(5).
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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 the file number in the caption above and 
should be submitted by May 28, 1998.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-Amex-98-15) is hereby 
approved on an accelerated basis.

    \14\ 15 U.S.C. 78s(b)(2).
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    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-12144 Filed 5-6-98; 8:45]
BILLING CODE 8010-01-M