[Federal Register Volume 63, Number 88 (Thursday, May 7, 1998)]
[Notices]
[Pages 25251-25252]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-12145]
[[Page 25251]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39941; File No. SR-Amex-98-11]
Self-Regulatory Organizations; American Stock Exchange, Inc.;
Order Granting Approval of Proposed Rule Change and Amendment No. 1
Thereto and Notice of Filing and Order Granting Accelerated Approval of
Amendment No. 2 to Proposed Rule Change Relating to a Reduction in the
Value of the de Jager Year 2000 and Amex Airline Indices
May 1, 1998.
I. Introduction
On February 23, 1997, the American Stock Exchange, Inc. (``Amex''
or ``Exchange'') submitted to the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to split the de Jager Year 2000 (``de Jager
Index''), Amex Securities Broker/Dealer Index (``Broker/Dealer Index'')
and Amex Airline (``Airline Index'') Indices to one-half of their
current values. On March 11, 1998, the Amex filed Amendment No. 1 to
the proposed rule change.\3\ On March 20, 1998, the Amex filed
Amendment No. 2 to the proposed rule change.\4\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Letter from Scott G. Van Hatten, Legal Counsel,
Derivative Securities, Amex, to Sharon Lawson, Assistant Director,
Division of Market Regulation (``Division''), Commission, dated
March 10, 1998 (``Amendment No. 1''). In Amendment No. 1, the Amex
requests expedited review and accelerated effectiveness of the
proposed rule change with respect to the provisions concerning the
Broker/Dealer Index. In addition to correcting a clerical error,
Amendment No. 1 also makes clear that the position and exercise
limits, which are proposed to be initially doubled, will revert to
their original limits at the expiration of the furthest expiration
month for non-long term options series (``LEAPs'') as established on
the date of the split.
\4\ See Letter from Scott G. Van Hatten, Legal Counsel,
Derivative Securities, Amex, to Sharon Lawson, Assistant Director,
Division, Commission, dated March 19, 1998 (``Amendment No. 2''). In
Amendment No. 2, the Amex represents that, in connection with the
splitting of the Airline, Broker/Dealer and de Jager Indices, it
will issue: (1) a circular to its members at least two weeks prior
to the split, disclosing the pre- and post-reduction values, the
doubling of the number of contracts, and the temporary doubling of
the position limits for the options overlying such Indices; (2) a
second notice to its members just prior to implementing the index
reductions setting forth the new divisor and other relevant
information; and (3) a circular at least one month prior to the
expiration of the furthest non-LEAP options reminding members that
the position limits are scheduled to revert to the original levels.
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On March 26, 1998, the proposed rule change and Amendment No. 1
were published for comment in the Federal Register \5\ and the
Commission granted accelerated approval to the portion of the proposal
relating to the Broker/Dealer Index. No comments were received on the
proposal. This order approves the portions of the proposed rule change
relating to the de Jager Index and Airline Index (collectively, ``de
Jager and Airline Indices'') and approves Amendment No. 2 on an
accelerated basis.
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\5\ See Securities Exchange Act Release No. 39775 (March 20,
1998) 63 FR 14741.
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II. Description of the Proposal
The Commission granted the Exchange approval to list and trade
options on the de Jager \6\ and the Airline \7\ Indices on February 19,
1997 and December 12, 1994, respectively. Initially, the aggregate
value of the stocks contained in the de Jager and Airline Indices was
reduced by divisors to establish index benchmark values of 250 and 200,
respectively. Over the past two years, the index value of the Airline
Index has more than tripled in value from 200 to 728. Moreover, since
its creation, the index value of the de Jager Index has nearly doubled
in value from 250 \8\ to 413.
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\6\ See Securities Exchange Act Release No. 38307 62 FR 8469
(February 25, 1997) (order approving File No. SR-Amex-97-04).
\7\ See Securities Exchange Act Relase No. 35084 59 FR 65419
(December 19, 1994) (order approving File No. SR-Amex-94-54).
\8\ As originally filed, the proposal incorrectly listed the de
Jager's benchmark Index value as 200. This clerical error was
corrected by the Exchange in Amendment No. 1. See Amendment No. 1,
supra note 3.
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As a consequence of the rising values of the Indices, premium
levels for options on the de Jager and Airline Indices have also risen.
According to the Exchange, these higher premium levels have been cited
as the principal factor that has discourage retail investors and some
small market professionals from trading these index options. As a
result, the Exchange is proposing to decrease the de Jager and Airline
Indices to one-half of their respective present values.
To decrease the values of the Indices, the Exchange will double the
divisor used in calculating the de Jager and Airline Indices. The Amex
proposes no other changes to the components of the Indices, their
methods of calculation (other than the change in the divisor),
expiration style of the options or any other Index specification.
The Amex believes that lower values Indices will result in
substantial lowering of the dollar values of options premiums for
options contracts on the de Jager and Airline Indices. The Exchange
plans to adjust outstanding series similar to the manner in which
equity options are adjusted for a 2-for-1 stock split. On the effective
date of the split ``ex-date,'' the number of outstanding options
contracts on the de Jager and Airline Indices will be doubled and the
associated strike prices halved.
Position and Exercise Limits
Currently, position and exercise limits for the de Jager Index
equal 12,000 contracts, while position and exercise limits for the
Airline Index equal 15,000 contracts, on the same side of the market.
The Exchange proposes to double the position and exercise limits to
24,000 contracts for the de Jager Index and to 30,000 contracts for the
Airline Index on the same side of the market. This change will be made
simultaneously with the proposed reduction of the Indices' values and
the doubling of the number of contracts.
Since the new position and exercise limits will be equivalent to
the Indices' present limits, the Exchange believes there is no
additional potential for manipulation of the Indices or the underlying
securities. Further, an investor who is currently at the de Jager
(12,000) or Airline (15,000) Indices' contract limit will, as a result
of the Index value reductions, automatically hold 24,000 or 30,000
contracts, respectively, to correspond with the lowered Index values.
These increased position and exercise limits will revert to their
original limits at the expiration of the furthest expiration month for
non-LEAPs as established on the date of the split.
III. Discussion
The Commission finds that the proposed rule change, as amended,
relating to the de Jager and Airline Indices is consistent with the
requirements of Section 6 of the Act \9\ and the rules and regulations
thereunder applicable to a national securities exchange.\10\
Specifically, the Commission believes that the provisions of the
proposed rule change pertaining to the de Jager and Airline Indices are
consistent with and further the objectives of Section 6(b)(5) of the
Act \11\ in that the proposed reduction in value of the de Jager and
Airline Indices and the associated temporary increases in the position
and exercise limits should remove impediments to and perfect the
mechanism of a free and open market in
[[Page 25252]]
a manner consistent with the protection of investors and the public
interest.
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\9\ 15 U.S.C. 78f.
\10\ In approving this rule, the Commission notes that it has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\11\ 15 U.S.C. 78f(b)(5).
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By reducing the value of the de Jager and Airline Indices, the
Commission believes that a broader range of investors will be provided
with a means to hedge their exposure to the market risk associated with
the stocks underlying the Indices. Similarly, the Commission believes
that reducing the value of the de Jager and Airline Indices may attract
additional investors, thus creating a more active and liquid trading
market.
The Commission also believes that Amex's proposed adjustments to
its position and exercise limits applicable to the de Jager and Airline
Indices are appropriate and consistent with the Act. In particular, the
Commission believes that the temporary doubling of the position and
exercise limits are reasonable in light of the fact that the size of
the options contracts on the de Jager and Airline Indices will be
halved and that, as a result, the number of outstanding options
contracts an investor holds will be doubled. The temporary doubling of
the position and exercise limits, therefore, will ensure that investors
will not potentially be in violation of the lower existing position and
exercise limits while permitting market participants to maintain, after
the split of the de Jager and Airline Indices, their current level of
investment in the de Jager and Airline Index options contracts. As
noted above, the increased position and exercise limits of 24,000 and
30,000 contracts will revert to their original limits of 12,000 and
15,000 contracts, respectively, at the expiration of the furthest
expiration month for non-LEAPs as established on the date of the
split.\12\
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\12\ According to the Amex, January 1999 and February 1999 will
be the furthest expiration months for non-LEAPs on the Airline and
de Jager Indices, respectively, for purposes of the reversion of
position and exercise limits to their original levels. Per telephone
conversation between Scott Hatten, Legal Counsel, Derivative
Securities, Amex, and Deborah Flynn, Division, Commission, on April
29, 1998.
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The Commission further believes that doubling the de Jager and
Airline Indices' divisors will not have an adverse market impact on the
trading in these options. After the split, the de Jager and Airline
Indices will continue to be composed of the same stocks with the same
weightings and will be calculated in the same manner, except for the
proposed change in the divisors. The Commission notes that the Amex's
surveillance procedures also will remain the same.
Finally, the Commission notes that, prior to implementing the
proposed changes, the Exchange will provide advance notice of the
proposed changes to the de Jager and Airline Indices to its
membership.\13\ The de Jager and Airline Indices are expected to be
reduced by one-half immediately following the May 15, 1998
expiration.\14\ The Amex has committed to provide notice to its
membership at least two weeks prior to the implementation of the
proposed changes to the values of the de Jager and Airline Indices and
the resulting adjustments to the outstanding options contracts on the
de Jager and Airline Indices.\15\ In addition, the Commission notes
that the Exchange has agreed to issue a second notice to its members
just prior to implementing the Index reductions setting forth the new
divisor and other relevant information.\16\ Finally, the Exchange has
agreed to issue a circular to its members at least one month prior to
the expiration of the furthest non-LEAP options on the de Jager and
Airline Indices reminding its member firms that the respective position
and exercise limits will revert to their original levels.\17\ The
Commission believes that the proposed time frames should allow for
adequate notice to be provided to the holders of all open positions in
options on the de Jager and Airline Indices and other market
participants.
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\13\ See Amendment No. 2, supra note 5.
\14\ Per telephone conversation between Scott Van Hatten, Legal
Counsel, Derivative Securities, Amex, and Deborah Flynn, Division,
Commission, on May 1, 1998.
\15\ See Amendment No. 2, supra note 5.
\16\ Id.
\17\ Id.
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The Commission finds good cause for approving Amendment No. 2 to
the proposed rule change prior to the thirtieth day after publication
in the Federal Register. The Commission notes that Amendment No. 2
merely codifies the notification procedures that the Amex had agreed to
verbally prior to the Commission's grant of partial accelerated
approval to the reduction in value of the Broker/Dealer Index. The
Commission believes that Amendment No. 2 should ensure that market
participants will receive adequate notice prior to the implementation
of the adjustments to the values of the de Jager and Airline Indices
and the eventual reversion to the original position and exercise
limits. Accordingly, the Commission finds that good cause exists,
consistent with Section 6(b)(5) of the Act,\18\ to accelerate approval
of Amendment No. 2 to the proposed rule change.
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\18\ 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 Amendment No. 2, including whether Amendment No. 2
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 submissions, 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, 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
File Number SR-Amex-98-11 and should be submitted by May 28, 1998.
V. Conclusion
For the foregoing reasons, the Commission finds that the Amex's
proposal, as amended, to reduce the value of the de Jager and Airline
Indices by one-half and to temporarily double the corresponding
position and exercise limits, is consistent with the requirements of
the Act and the rules and regulations thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\19\ that the portions of the amended proposed rule change (SR-
Amex-98-11) relating to the de Jager and Airline Indices are approved.
\19\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-12145 Filed 5-6-98; 8:45 am]
BILLING CODE 8010-01-M