[Federal Register Volume 66, Number 228 (Tuesday, November 27, 2001)]
[Notices]
[Pages 59278-59280]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-29404]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45074; File No. SR-Amex-2001-99]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the American Stock Exchange 
LLC Relating to the Withdrawal of Continued Approval for Securities 
Underlying Options Traded on the Exchange

November 16, 2001
    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 November 16, 2001, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Amex. The proposed 
rule change has been filed by the Amex as a ``non-controversial'' rule 
change under Rule 19b-4(f)(6) under the Act.\3\ 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.
    \3\ 17 CFR 240.19b-4(f)(6)
---------------------------------------------------------------------------

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

    The Amex proposes to amend Amex Rule 916 governing the withdrawal 
of approval for securities underlying options traded on the Exchange.
    The text of the proposed rule change is available at the Amex and 
at the Commission.

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 statutory 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 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
    Commentary .01 to Amex Rule 916 currently provides guidelines to be 
used in determining whether an underlying security previously approved 
for options trading meets requirements for continuance of such 
approval. Specifically, one guideline states that the Exchange may not 
list additional series for an option class if the underlying security 
has failed to close above $5 for the majority of business days during 
the preceding six calendar months as measured by the highest closing 
price reported in any market in which the underlying security traded. 
If the underlying security does not meet the guideline price then the 
Exchange will not open for trading additional series of that class and 
may take other actions such as prohibiting opening purchase 
transactions in existing series. There is a limited exception from this 
guideline for highly capitalized, actively-traded securities whose 
options have significant investor open interest. The exception allows 
series to be added if such underlying securities closed at or above an 
initial standard of $3 and a subsequent standard of $4.
    Change in Guideline Price. The Exchange is proposing to amend 
Commentary .01 to Rule 916 in the following manner. First, the Exchange 
proposes to change the guideline price from $5 to $3, which is used to 
determine whether an underlying security previously approved for 
options transactions meets the requirements for continued approval. 
Second, the Exchange proposes to shorten the time period used to 
determine the guideline price from the majority of business days during 
the preceding six calendar months to whether the underlying security 
closed above the guideline price on just the preceding trading day. 
And, third, the Exchange proposes to use the highest closing price 
reported in the primary market in which the underlying security trades 
rather than the closing price in ``any market'' to determine whether 
the $3 guideline has been met. The other criteria set forth in 
Commentary .01 used to determine whether a class of options meets the 
requirements for continued approval (such as, the number of shares 
outstanding and held by non-insiders, the number of holders, and 
trading volume) will remain the same.
    Additions of Series. Commenter .02 to Amex rule 916 prohibits the 
opening of

[[Page 59279]]

trading any additional series of options on an underlying security at 
any time when the market price per share of such security is less than 
$5, as measured by the highest closing price reported in any market in 
which the underlying security trades. The Exchange proposes to amend 
Commentary .02 to Amex Rule 916 by reducing from $5 to $3 the price 
above which the underlying security must be traded before the Exchange 
may add additional series of options. This means if the Exchange is 
adding a series intra-day, the underlying security must have closed 
above $3 the previous day (in order to meet the proposed requirement of 
Commentary .01) and must be at $3 or above at the time the new series 
is added (in order to meet the proposed requirement of Commentary .02 
to Amex Rule 916). In addition, the Exchange proposes to use the 
highest closing price reported in the primary market, as that term is 
defined in Rule 900(26), in which the underlying security trades, 
rather than the closing price in ``any market'' to determine whether 
the $3 guideline has been met. Finally, for purposes of Commentary .02, 
the Exchange proposes to use the market price for each underlying 
security as measured by (i) for intra-day series additions, the last 
reported trade in the primary market in which the underlying security 
trades at the time the Exchange determines to add these additional 
series; and (ii) for next-day and expiration series additions, the 
closing price reported in the primary market in which the underlying 
security traded on the last trading day before the series are added.
    Exemption from Commentaries .01 and .02. Commentary .04 to Amex 
Rule 916 provides an exemption from the $5 guideline for highly 
capitalized, actively traded underlying securities whose options have 
significant customer open interest. The Exchange may add series if: (1) 
The closing price of the underlying security was at or over $3 for a 
majority of the days during the six calendar month period preceding the 
addition, and (2) the closing price of the underlying security was at 
or over $4 for a majority of the days during a subsequent six calendar 
month period. Since the Exchange is proposing to reduce the guideline 
from $5 to $3 in Commentaries .01 and .02, the exemption provided in 
Commentary .04 no longer needed.
    When many of the maintenance criteria were first implemented, the 
list options market was in its infancy. Now more than twenty-six years 
later, the listed options market is a mature market with sophisticated 
investors. The Exchange does not believe that the $5 guideline is 
necessary to accomplish its presumed intended purposes: (1) To provide 
for the listing of options on securities that are not susceptible to 
manipulation; and (2) to prevent the proliferation of option classes on 
underlying securities that lack liquidity needed to maintain fair and 
orderly markets. The Exchange believes that it should allow the desires 
of its customers and the workings of the marktplace determine the 
securities on which options will continue to be traded. The Exchange 
represents that it will continue to apply its other guidelines, which 
assure that there are a large number of shares outstanding and held by 
non-affiliates of the issuer, the underlying security is actively 
traded, there are a large number of holders of the security, and the 
underlying security continues to be listed on a national securities 
exchange or traded through the facilities of a national securities 
association. The Exchange represents that the use of the revised 
guidelines will continue to ensure that options will be traded on 
securities of companies that are financially sound and are still 
subject to adequate minimum standards. In addition, the Exchange 
asserts that it will ensure that its own systems and those of the 
Options Price Reporting Authority can handle any increased capacity 
requirements due to the listing of new option series under the proposed 
less restrictive guidelines.
2. Statutory Basis
    The Amex believes that the proposed rule change is consistent with 
Section 6 of the Act,\4\ in general, and with Section 6(b)(5) of the 
Act,\5\ specifically, 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.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f.
    \5\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    Because the foregoing proposed rule change, as amended: (1) Does 
not significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days after the date of filing, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest; provided that the 
self-regulatory organization has given the Commission written notice of 
its intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule change, 
or such shorter time as designated by the Commission,\6\ the proposed 
rule change has become effective pursuant to Section 19(b)(3)(A) of the 
Act \7\ and Rule 19b-4(f)(6) \8\ thereunder.
---------------------------------------------------------------------------

    \6\ See Letter from Claire P. McGrath, Vice President and Deputy 
General Counsel, Amex, to Nancy Sanow, Assistant Director, Division 
of Market Regulation, Commission, dated November 2, 2001.
    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Amex seeks to have the proposed 
rule change become operative immediately. The Commission, consistent 
with the protection of investors and the public interest, has 
determined to make the proposed rule change operative as of November 
16, 2001.\9\ The Commission notes that the proposed rule change is 
substantially similar in all material respects to the rule of another 
exchange that the Commission has already noticed for public comment and

[[Page 59280]]

approved \10\ and, therefore, the proposed rule change raises no new 
issues of regulatory concern. At any time within 60 days of the filing 
of the proposed rule change the Commission may summarily abrogate such 
rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.\11\
---------------------------------------------------------------------------

    \9\ For purposes only of accelerating the operative date of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \10\ See Securities Exchange Act Release No. 44964 (October 19, 
2001), 66 FR 54559 (October 29, 2001) (order approving File No. SR-
CBOE-2001-29).
    \11\ See Section 19(b)(3)(C) of the Act, 15 U.S.C. 78(b)(3)(C).
---------------------------------------------------------------------------

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, NW., Washington, DC 20549-0609. 
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 Room. 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 No. SR-Amex-2001-99 and should 
be submitted by December 18, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
Margaret H. McFarland,
Deputy Secretary.
---------------------------------------------------------------------------

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

[FR Doc. 01-29404 Filed 11-26-01; 8:45 am]
BILLING CODE 8010-01-M