[Federal Register Volume 63, Number 185 (Thursday, September 24, 1998)]
[Notices]
[Pages 51107-51108]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25491]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40448; International Series Release No. 1158; File No. 
SR-Amex-98-27]


Self-Regulatory Organizations; American Stock Exchange, Inc.; 
Order Granting Accelerated Approval of Proposed Rule Change and 
Amendment No. 1 Thereto Relating to the Settlement of the Eurotop 100 
Index

September 17, 1998.

I. Introduction

    On July 8, 1998, the American Stock Exchange, Inc. (``Amex'' or 
``Exchange'') filed with 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 relating to the Eurotop 100 Index's (``Index'') 
\3\ settlement value methodology for options traded on the Index. On 
July 28, 1998, the Exchange filed an amendment to the proposed rule 
change (``Amendment No. 1'').\4\ The proposed rule change and Amendment 
No. 1 were published for comment in the Federal Register on August 26, 
1998.\5\ The Commission received no comments on the proposal. This 
order approves the proposed rule change, as amended, on an accelerated 
basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Commission notes that the Eurotop 100 Index and the 
Financial Times--Stock Exchange (``FTSE'') Eurotop 100 Index are 
referring to the same index. Telephone conversation between Scott G. 
Van Hatten, Legal Counsel, Amex, and James T. McHale, Special 
Counsel, Division of Market Regulation (``Division''), Commission, 
on September 15, 1998.
    \4\ Amendment No. 1 made the following clarifications: (i) the 
London International Financial Futures and Options Exchange 
(``LIFFE'') will be the new official calculation agent of settlement 
values; (ii) the current agent is the European Options Exchange; and 
(iii) reference to the maintenance of the Index by the Exchange is 
deleted from the filing. See letter from Scott G. Van Hatten, Legal 
Counsel, Amex to Sharon Lawson, Senior Special Counsel, Division, 
Commission (July 27, 1998).
    \5\ Securities Exchange Act Release No. 40343 (August 19, 1998), 
63 FR 45538 (August 26, 1998).
---------------------------------------------------------------------------

II. Description of the Proposal

    The Exchange proposes to revise the settlement value methodology 
for options on the Index in response to a change in the official 
calculation agent from EOE to LIFFE. Currently, the settlement value 
for options overlying the Index, calculated on the third Friday of the 
month, is based on the average of the Index values calculated at 5 
minute intervals between 12:30 p.m. and 1 p.m. Central European Time 
(C.E.T.) (6:30 a.m. and 7:00 a.m. Eastern Standard Time (E.S.T.)).\6\ 
Accordingly, on each expiration Friday, the settlement value is 
calculated by averaging the Index values quoted at 12:30, 12:35, 12:40, 
12:45, 12:50, 12:55 and 1:00 p.m. The Exchange settles its Index 
options contracts based on this value, reduced by a factor of one-tenth 
(0.10).
---------------------------------------------------------------------------

    \6\ The current settlement methodology has been used since 
initial approval of options on the Index in 1992. See Securities 
Exchange Act Release No. 30463 (March 11, 1992), 57 FR 9284 (March 
17, 1992).
---------------------------------------------------------------------------

    The new settlement value calculation uses a similar averaging 
methodology, but instead of every five minutes, the new settlement 
value will be an average of the Index's values taken every fifteen 
seconds during the period of 12:40 p.m. to 1:00 p.m. C.E.T. The values 
averaged during the twenty minute period will exclude the twelve 
highest and twelve lowest values, resulting in a settlement value made 
up of the average of 57 individual index values.\7\ The Exchange has 
represented the FTSE Eurotop 100 Index futures contracts traded on the 
New York Mercantile Exchange (``NYMEX'') will settle using the new 
settlement methodology for all Index futures contracts expiring after 
December 1998. Moreover, the Amex has represented that in June 1998, 
FTSE Eurotop 100 Index futures contracts traded on LIFFE and the 
Amsterdam Exchange FTSE Eurotop 100 Ecu options contracts began 
settling using the new settlement methodology.
---------------------------------------------------------------------------

    \7\ The Amex will continue to reduce the LIFFE-calculated 
settlement value by a factor of one-tenth (0.10) when the Exchange 
settles its Index option contracts.
---------------------------------------------------------------------------

    The settlement value using the existing methodology will continue 
to be disseminated by the Exchange and used to settle contracts 
expiring through December 1998. Options expiring after December 1998 
will be settled using the new settlement methodology.\8\ No other 
changes are being proposed to the Index. The Exchange will inform its 
members of the change in the settlement

[[Page 51108]]

methodology through dissemination of an information circular.
---------------------------------------------------------------------------

    \8\ Currently, there are no outstanding contracts that expire 
after December 1998.
---------------------------------------------------------------------------

III. Discussion

    The Commission finds that the proposed rule change, as amended, is 
consistent with the Act \9\ and in particular, with Section 6(b) of the 
Act.\10\ Specifically, the Commission believes that the proposal is 
consistent with the Section 6(b)(5) requirement that the rules of an 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, and in 
general to protect investors and the public interest in that the use of 
more samples in arriving at the settlement value should be a more 
accurate method of calculating the average of these individual index 
values.
---------------------------------------------------------------------------

    \9\ 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).
    \10\ 15 U.S.C. 78f(b).
---------------------------------------------------------------------------

    In particular, the Commission notes that the original approval 
order for the Index options \11\ permitted a similar Index average 
price methodology to be used for Index options settlement purposes. 
While the time period for averaging the Index values is reduced by ten 
minutes (changing from 12:30-1:00 C.E.T. to 12:40-1:00 C.E.T.), because 
the new settlement Index value will be calculated using Index values 
reported every 15 seconds, rather than values reported every five 
minutes, there will be a much larger sample of index values that will 
be averaged for settlement purposes. Moreover, removing the twelve 
highest and twelve lowest prices from the index settlement value 
calculation should help to ensure that the settlement value is not 
affected by temporary highs and lows in the Index's value. The 
Commission also believes the proposed methodology should contribute to 
the maintenance of fair and orderly markets by eliminating potential 
disparities between the settlement values of Index options traded on 
the Amex and options and futures contracts on the same index traded on 
other markets. Furthermore, the Exchange will issue a regulatory 
circular to its membership concerning the new settlement methodology in 
order to avoid investor confusion. Finally, the Commission notes that 
no outstanding Index options will be affected by the change.\12\
---------------------------------------------------------------------------

    \11\ See supra note 6.
    \12\ The Exchange has represented that all currently outstanding 
options on the Index will expire on or before December 1998.
---------------------------------------------------------------------------

    The Commission finds good cause for approving the proposal, as 
amended, prior to the thirtieth day after the date of publication of 
notice of filing in the Federal Register. As discussed above, the 
proposal refines the way existing settlement values are calculated for 
the Index by providing more prices to be used in calculating the 
Index's settlement value. Further, accelerated approval will permit the 
Exchange to implement the new settlement methodology starting with 
options that begin trading on September 21, 1998 and ensures that no 
options utilizing the old settlement methodology will be outstanding 
after the December 1998 expiration. In addition, the Commission 
believes that the proposed settlement value does not present any new or 
novel regulatory issues. Finally, there were no comments from the 
public on the proposal during the 21 day comment period. Accordingly, 
the Commission believes that it is consistent with Sections 6(b)(5) and 
19(b)(2) of the Act to approve the proposed rule change, including 
Amendment No. 1, on an accelerated basis.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change, as amended (SR-Amex-98-27), is 
hereby approved on an accelerated basis.

    \13\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. 98-25491 Filed 9-23-98; 8:45 am]
BILLING CODE 8010-01-M