[Federal Register Volume 67, Number 147 (Wednesday, July 31, 2002)]
[Notices]
[Pages 49724-49726]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-19315]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46251; File No. SR-Amex-2002-50]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the American Stock Exchange LLC 
Relating to Trading of Trust Issued Receipts and ``Other Securities''

July 24, 2002.
    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 May 31, 2002, 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 Exchange. On July 
8, 2002, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ The

[[Page 49725]]

Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from Claire P. McGrath, Senior Vice President and 
Deputy General Counsel, Amex, to Nancy J. Sanow, Assistant Director, 
Division of Market Regulation, Commission, dated July 3, 2002 
(``Amendment No. 1''). Amendment No. 1 deleted a proposed technical 
change to Amex Rule 958.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Amex proposes to amend Amex Rule 958, Commentary .10 relating 
to trading by regular members in securities listed pursuant to Section 
107 of the Amex Company Guide (Other Securities) and Rule 1200 (Rules 
of General Applicability; Trust Issued Receipts). The text of the 
proposed rule change follows. Proposed new language is in italics; 
proposed deletions are in brackets.
    Rule 958
    * * * *
    Commentary
    * * * *
    .10 Transactions on the Floor in index warrants [and], currency 
warrants, securities listed pursuant to Section 107 of the Company 
Guide (``Other Securities''), and Trust Issued Receipts listed pursuant 
to Rules 1200 et seq. which are otherwise traded under the Exchange's 
equity trading rules, shall be effected in accordance with the 
provisions of this rule, and shall only be effected by Registered 
Traders who are regular members. [, and] [t]Transactions by Registered 
Traders on the Floor in derivative products (as defined in Article I, 
Section 3(d) of the Exchange Constitution) which are otherwise traded 
under the Exchange's equity trading rules, shall be effected in 
accordance with the provisions of this rule. In addition, Rule 111, 
Commentary .01 shall not apply to such transactions. (See Rule 111, 
Commentary .12 and Rule 114, Commentary .14.)

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In 1992, the Commission approved Rule 958, Commentary .10 relating 
to trading on the Floor in ``derivative products,'' index warrants and 
currency warrants.\4\ Commentary .10 requires that these securities be 
traded by Registered Traders under Rule 958, which relates to trading 
by Registered Options Traders (``ROTs''). Commentary .10 also states 
that index warrants and currency warrants may be traded by ROTs who are 
regular members. Options Principal Members (``OPMs'') and Limited 
Trading Permit Holders (''LTPs'') are permitted to trade derivative 
products under Rule 958, but are not permitted to trade index or 
currency warrants. All of these securities must be traded under Rule 
958 only and cannot be traded by Registered Equity Traders (``RETs'') 
or Registered Equity Market Makers (``REMMs'') under Rules 111 or 
114.\5\ ``Derivative Products'' traded by Registered Traders under Rule 
958 include all exchange-traded funds listed under Amex Rules 1000 and 
1000A, including, for example, Nasdaq 100 Index Tracking Stock\TM\, 
SPDRs, DIAMONDS, iShares\TM\, and Select Sector 
SPDRs.
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    \4\ Securities Exchange Act Release No. 30768 (June 2, 1992), 57 
FR 24277 (June 8, 1992) (File No. SR-Amex-92-06).
    \5\ The term ``derivative products'' is defined in Article I, 
Section 3(d) of the Exchange Constitution to include ``standardized 
options and other securities issued by the Options Clearing 
Corporation or another limited purpose entity or trust, and which 
are based solely on the performance of an index or portfolio of 
other publicly traded securities.'' The definition explicitly 
excludes warrants of any type and closed end funds.
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    Pursuant to Rule 958, Commentary .10, regular members trading 
derivative products, index warrants and currency warrants as ROTs are 
subject to continuous market making obligations. As such, ROTs receive 
market maker margin. OPMs and LTPs are permitted to trade derivative 
products pursuant to Article I, Section 3 and Article IV, Section 1(h), 
respectively, of the Exchange Constitution, and, because their trading 
under Rule 958 also requires ongoing market making obligations, OPMs 
and LTPs also receive market maker margin.\6\
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    \6\ OPMs also can trade stock options and index options. LTPs 
can trade index options but not stock options. As previously 
mentioned, OPMs and LTPs also may trade derivative products, but are 
not permitted to trade index or currency warrants. Derivative 
products cannot be traded by persons registered as RETs or REMMs 
under Rules 111 or 114. REMMs are not subject to Rule 958 type 
continuous market making obligations and do not receive ``good 
faith'' market maker margin, but instead are subject to full 
customer margin requirements.
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    When the Exchange first authorized trading in derivative products 
by OPMs and LTPs in 1990, the Exchange specifically intended to 
encourage trading crowds and competitive market making to develop in 
such products as SuperTrust securities (which represented interests in 
actual portfolios of securities such as the S&P 500 Index) and 
SPDRS, which were then under development by the Exchange. In 
the Exchange's Rule 19b-4 filing with the Commission to authorize such 
OPM and LTP trading, the Exchange stated that the definition of 
derivative products was not intended to include products that OPMs and 
LTPs are not entitled to trade currently, including currency warrants, 
index warrants, or closed end mutual funds.\7\
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    \7\ See Securities Exchange Act Release No. 28612 (November 14, 
1990), 55 FR 48308 (November 20, 1990) (File No. SR-Amex-90-17).
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    The Exchange proposes to amend Rule 958, Commentary .10 to clarify 
that ``structured products'' and Trust Issued Receipts (HOLDRS\SM\) 
traded under Amex equity trading rules must be traded under Rule 958 
and only by registered traders who are regular members. Structured 
products include all securities listed under Section 107 of the Amex 
Company Guide (e.g., Index-Linked Notes (MITTS, BOXES\SM\, 
TIERS\SM\); Equity-Linked Term Notes (e.g., GOALS, ELKS\SM\, 
SPARQS\SM\, STRIDES\SM\) and Trust Preferred Securities (e.g., TOPrS)). 
Trust Issued Receipts include HOLDRS\SM\ and are listed under Rules 
1200 et seq. Therefore, these securities would not be eligible to be 
traded by OPMs or LTPs, or by RETs or REMMs under Rules 111 and 114. 
The Exchange believes that permitting regular member ROTs to trade 
structured products and HOLDRS\SM\ under Rule 958 will promote 
additional market depth and liquidity. These securities do not fall 
within the definition of ``derivative products'' as contemplated by the 
Exchange in authorizing OPMs and LTPs to trade derivative products, 
and, therefore, OPMs and LTPs are not permitted to trade these 
securities listed under Section 107 of the Company Guide or Rule 1200. 
The Exchange is therefore amending Rule 958, Commentary .10 to clarify 
this position.\8\
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    \8\ Amendment No. 1. The exchange also originally proposed a 
technical change to Amex Rule 958. The change is unnecessary because 
it was previously proposed by the Amex and approved by the 
Commission. (See Securities Exchange Act Release No. 45320 (January 
18, 2002), 67 FR 3921 (January 28, 2002) (File No. SR-Amex-2001-79).
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\9\ in general and furthers the objectives of Section 6(b)(5) \10\ in 
particular 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, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, to protect

[[Page 49726]]

investors and the public interest and is not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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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 not necessary or appropriate in 
furtherance of the purposes of the Act.

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 Exchange consents, the Commission will:
    (A) By order approve such 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, as amended, 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 amended 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, 450 
Fifth Street, NW, Washington, DC 20549. Copies of the proposed rule 
change and Amendment No. 1 will also be available for inspection and 
copying at the principal office of the Amex. All submissions should 
refer to File No. SR-Amex-2002-50 and should be submitted by August 21, 
2002.

    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. 02-19315 Filed 7-30-02; 8:45 am]
BILLING CODE 8010-01-P