[Federal Register Volume 67, Number 94 (Wednesday, May 15, 2002)]
[Notices]
[Pages 34744-34745]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-12115]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45895; File No. SR-Amex-2002-15]


Self-Regulatory Organizations; Order Granting Accelerated 
Approval of Proposed Rule Change by the American Stock Exchange LLC to 
Amend Commentary .02(c) of Amex Rule 901C to Include Volume Weighted 
Average Pricing as a Permissible Index Option Settlement Value 
Calculation Methodology

May 8, 2002.

I. Introduction

    On March 5, 2002, the American Stock Exchange LLC (``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 to amend Commentary .02(c) of Amex Rule 901C to 
add volume weighted average pricing (``VWAP'') as a permissible index 
option settlement value calculation methodology for National 
Association of Securities Dealers Automated Quotation System 
(``NASDAQ'') National Market System (``NMS'') listed components. Notice 
of the proposed rule change was published for comment in the Federal 
Register on April 10, 2002.\3\ This order approves the proposed rule 
change on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 45692 (April 4, 2002), 
67 FR 17475. In the notice, the Commission stated it would consider 
granting accelerated approval of the proposed rule change after a 
15-day comment period.
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II. Description of the Proposal

    The Exchange proposes to amend Commentary .02(c) to Amex Rule 901C 
to add VWAP as a permissible index option settlement value calculation 
methodology for NASDAQ/NMS listed components. Currently, Commentary 
.02(c) of Amex Rule 901C provides that index settlement values are 
determined by using the regular way opening sale price for each of an 
index's component stocks in its primary market on the last trading day 
prior to expiration.\4\ Unlike exchange-listed securities where there 
is a market opening price at which all investors entering a market-on-
open order can participate, investors in NASDAQ/NMS securities cannot 
be sure of transactions at a price equal to the first reported print. 
In some instances, this price may be significantly different than the 
first price at which most investors can conduct transactions. As a 
result, investors, market-makers and the specialist cannot be sure that 
any hedges into which they may have entered will converge to the 
settlement value for the index; and, in some cases, the value of the 
hedge may differ significantly from the index settlement value. This 
uncertainty adds to the cost of trading the options and makes them less 
desirable to trade.
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    \4\ See, e.g., Securities Exchange Act Release No. 36283 
(September 26, 1995), 60 FR 51825 (October 3, 1995) (SR-Amex-95-26) 
(order approving the listing and trading of options on the Morgan 
Stanley High Technology 35 Index).
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    While it may still be difficult to get complete convergence, the 
Exchange believes that using the VWAP would provide more opportunity 
for investors to transact at a price near the settlement price, making 
it much less likely that there will be any significant difference 
between the hedge and the settlement value. For this reason, the 
Exchange proposes to permit, in addition to ``regular way'' opening 
price settlement, the VWAP settlement calculation methodology for 
NASDAQ/NMS listed components.

III. Discussion

    The Commission has reviewed carefully the proposed rule change and 
finds that it is consistent with the Act and the rules and regulations 
promulgated thereunder applicable to a national securities exchange 
and, in particular, with the requirements of Section 6(b).\5\ 
Specifically, the Commission finds that approval of the proposed rule 
change is consistent with Section 6(b)(5) \6\ 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, and in general, to 
protect investors and the

[[Page 34745]]

public interest. The Commission believes that permitting the VWAP 
settlement calculation methodology for NASDAQ/NMS component securities 
of an index option may provide more opportunity for investors to 
transact at a price near the settlement price, and should result in a 
settlement value more reflective of the markets in NASDAQ/NMS 
securities.\7\
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    \5\ 15 U.S.C. 78f(b). In approving this proposal, the Commission 
has considered the proposed rule's impact on efficiency, competition 
and capital formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ This approval order limits use of the VWAP as a permissible 
index option settlement value calculation methodology for NASDAQ/NMS 
listed components. Should the Amex wish to use the VWAP as the 
methodology for securities other than NASDAQ/NMS component 
securities, the Commission expects the Exchange to file a proposed 
rule change for Commission consideration.
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    The Commission finds good cause for approving the proposed rule 
change before the thirtieth day after the date of publication of notice 
of filing thereof in the Federal Register. In the notice,\8\ the 
Commission indicated that it would consider granting accelerated 
approval of the proposal after a 15-day comment period. The Commission 
received no comments on the proposal during the 15-day comment period. 
The Commission believes it is reasonable to implement the proposal on 
an accelerated basis, in view of the anticipated benefits of the 
proposal. For these reasons, the Commission finds good cause for 
accelerating approval of the proposed rule change.
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    \8\ See footnote 3, supra.
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IV. Conclusion

    For the above reasons, the Commission finds that the proposed rule 
change is consistent with the provisions of the Act, in general, and 
with Section 6(b)(5) \9\ in particular.
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    \9\ 15 U.S.C. 78f(b)(5).
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-AMEX-2002-15) be and hereby 
is approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-12115 Filed 5-14-02; 8:45 am]
BILLING CODE 8010-01-U