[Federal Register Volume 64, Number 26 (Tuesday, February 9, 1999)]
[Notices]
[Pages 6404-6405]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3030]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41010; File No. SR-Amex-99-01]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the American Stock Exchange, LLC Relating to Reductions in 
Airline, Natural Gas, Pharmaceutical and Securities Broker/Dealer 
Indices Values

February 1, 1999.
    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 6, 1999, the American Stock Exchange, LLC (``Amex'' or 
''Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II and III 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Amex proposes to split the Airline, Natural Gas, Pharmaceutical 
and Securities Broker/Dealer Indices to one-half their current values.

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 Exchange 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 
test of these statements may be examined at the places specified in 
Item IV below. The Exchange 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
    The Exchange proposes to split the Airline, Natural Gas, 
Pharmaceutical and Securities Broker/Dealer Indices to one-half their 
current values and temporarily increase their respective position and 
exercise limits to twice their current levels as discussed more fully 
below.
    Airline Index. On December 12, 1994, the Commission granted the 
Exchange approval to permit the trading of options on the Airline 
Index.\3\ Thereafter, on May 1, 1998, the Commission granted the 
Exchange approval to split the Airline Index in half.\4\ Initially, the 
aggregate value of the stocks contained in the Airline Index was 
reduced by a divisor to establish an index benchmark value of 200. The 
Airline Index's current value is approximately 275.\5\
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 35084 (December 12, 
1994), 59 FR 65419 (December 19, 1994).
    \4\ Securities Exchange Act Release No. 39941 (May 1, 1998), 63 
FR 25251 (May 7, 1998).
    \5\ The Airline Index's value as of the close, December 16, 
1998, taken from Bloomberg and rounded to the nearest whole number 
was 275. As of January 28, 1999, the open interest in the index 
options was approximately 200.
---------------------------------------------------------------------------

    Natural Gas Index. On March 7, 1994, the Commission granted the 
Exchange approval to permit the trading of options on the Natural Gas 
Index.\6\ Initially, the aggregate value of the stock contained in the 
Natural Gas Index was reduced by a divisor to establish an index 
benchmark value of 300. The Natural Gas Index's value is currently at 
216.\7\
---------------------------------------------------------------------------

    \6\ Securities Exchange Act Release No. 33720 (March 7, 1994), 
59 FR 11630 (March 11, 1994).
    \7\ The Natural Gas Index's value as of the close, December 16, 
1998, taken from Bloomberg and rounded to the nearest whole number 
was 216. As of January 28, 1999, the open interest in the index 
options was approximately 375.
---------------------------------------------------------------------------

    Pharmaceutical Index. On June 18, 1992, the Commission granted the 
Exchange approval to permit the trading of options on the 
Pharmaceutical Index.\8\ Initially, the aggregate value of the stocks 
contained in the Pharmaceutical Index was reduced by a divisor to 
establish an index benchmark value of 200. Since its creation, the 
index value of the Pharmaceutical Index has more than tripled in value 
from 200 to 742.\9\
---------------------------------------------------------------------------

    \8\ Securities Exchange Act Release No. 39830 (June 18, 1992), 
57 FR 28221 (June 24, 1992).
    \9\ The Pharmaceutical Index's value as of the close, December 
16, 1998, taken from Bloomberg and rounded to the nearest whole 
number was 742. As of January 28, 1999, the open interest in the 
index options was approximately 200.
---------------------------------------------------------------------------

    Securities Broker/Dealer Index. On March 15, 1994, the Commission 
granted the Exchange approval to permit the trading of options on the 
Securities Broker/Dealer Index.\10\ Thereafter, on March 20, 1998, the 
Commission granted the Exchange approval to split the Securities 
Broker/Dealer Index in half.\11\ Initially, the aggregate value of the 
stocks contained in the Securities Broker/Dealer Index was reduced by a 
divisor to establish an index benchmark value of 300. The Securities 
Broker/Dealer Index's value is currently at 464.\12\
---------------------------------------------------------------------------

    \10\ Securities Exchange Act Release No. 33766 (March 15, 1994), 
50 FR 13518 (March 22, 1994).
    \11\ Securities Exchange Act Release No. 39775 (March 20, 1998), 
63 FR 14741 (March 26, 1998).
    \12\ The Securities Broker/Dealer Index's value as of the close, 
December 16, 1998, taken from Bloomberg and rounded to the nearest 
whole number was 464. As of January 28, 1999, the open interest in 
the index options was approximately 1000.
---------------------------------------------------------------------------

    As a consequence of the rising Indices' values, premium levels for 
Airline, Natural Gas, Pharmaceutical and Securities Broker/Dealer Index 
options have also risen. The Amex cites these higher premium levels as 
the principal factor that has discouraged retail investors and some 
market professionals from trading these index options. In addition, the 
Exchange represents that its membership has indicated that indexes with 
values between 100 and 200 tend to promote increased liquidity in the 
overlying

[[Page 6405]]

options. As a result of the foregoing, the Exchange is proposing to 
decrease the Airline, Natural Gas, Pharmaceutical and Securities 
Broker/Dealer Indices to one-half of their respective present values.
    To decrease the Indices' values, the Exchange proposes to double 
the divisor used in calculating the Indices. No other changes are 
proposed as 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 valued indices will result in 
substantial lowering of the dollar values of options premiums for the 
Airline, Natural Gas, Pharmaceutical and Securities Broker/Dealer 
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. On the effective date of the split ``ex-date,'' the number of 
outstanding Airline, Natural Gas, Pharmaceutical and Securities Broker/
Dealer option contracts will be doubled and strike prices halved.
    Position and exercise limits. Currently, position and exercise 
limits (on the same side of the market) for each of the Indices are as 
follows: Airline, 15,000 contracts; Natural Gas, 15,000 contracts; 
Pharmaceutical, 12,000 contracts; and Securities Broker/Dealer, 15,000 
contracts. The Exchange proposes to double each Index's position and 
exercise limits to 30,000, 30,000, 24,000 and 30,000 contracts 
respectively, on the same side of the market. This change will be made 
in conjunction with the simultaneous reduction of the Indices' values 
and the doubling of the number of contracts.
    Since the new limits will be equivalent to the Indices' present 
limits, the Amex believes that there is no additional potential for 
manipulation of the Indices or the underlying securities. Further, an 
investor who is currently at the 12,000 or 15,000 contract limit will, 
as a result of the index value reductions, automatically hold 24,000 or 
30,000 contracts to correspond with the lowered Index values. These 
position limits will revert to their original limits at the expiration 
of the furthest non-LEAP (long Term Equity Anticipation Security) 
expiration month as established on the date of the split.
    The Exchange believes that decreasing the values of the Airline, 
Natural Gas, Pharmaceutical and Securities Broker/Dealer Indices may 
make these index options more attractive to retail investors and other 
market professionals and therefore more competitive with other products 
in the marketplace.
2. Statutory Basis
    The basis under the Act for the proposed rule change is the 
requirement under Section 6(b)(5) \13\ that an Exchange have rules that 
are 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.
---------------------------------------------------------------------------

    \13\ 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. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve the proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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. Sec. 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-99-01 and 
should be submitted by March 2, 1999.

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

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

Margaret H. McFarland
Deputy Secretary.
[FR Doc. 99-3030 Filed 2-8-99; 8:45 am]
BILLING COCE 8010-01-M