[Federal Register Volume 67, Number 165 (Monday, August 26, 2002)]
[Notices]
[Pages 54828-54830]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-21608]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46375; File No. SR-Amex-2002-68]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of a Proposed Rule Change and Amendment 
No. 1 Thereto by the American Stock Exchange LLC Revising the 
Maintenance Listing Criteria for Underlying Securities in Amex Rule 916

    August 16, 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 August 12, 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 and 
II below, which Items have been prepared by the Exchange. Amex 
submitted Amendment No. 1 to the proposed rule change on August 16, 
2002.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ This notice, representing Amendment No. 1, replaces the 
original filing in its entirety. In Amendment No. 1, the Exchange 
revised the proposed rule text to add the following language: ``and 
at the time the additional series was listed by such other 
registered national securities exchange it met the $3 market price 
requirement'; and requested expedited review and accelerated 
effectiveness of the proposed rule change, as amended, pursuant to 
Section 19(b)(2) of the Act. 15 U.S.C. 78s(b)(2). See letter from 
Jeffrey Burns, Assistant General Counsel, Amex, to Florence E. 
Harmon, Assistant Director, Division of Market Regulation, 
Commission, dated August 15, 2002 (``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Amex Rule 916 to permit the addition 
of a new series of individual equity option contracts that otherwise 
meet the maintenance listing standards except for the requirement that 
the market price per share of the underlying security be at least 
$3.00. The text of the proposed rule change is below. Proposed new 
language is italicized; deletions are in brackets.
* * * * *
Rule 916. Withdrawal of Approval of Underlying Securities
    No Change.
Commentary
    .01  No Change.
    1. No Change.
    2. No Change.
    3. No Change.
    4. Subject to Commentary .02 below, [T]the market price per share 
of the underlying security closed below $3 on the previous trading day 
as measured by the highest closing price reported in the primary market 
(as that term is defined in Rule 900(26)) in which the underlying 
security traded.
    5. No Change.
    6. No Change.
    7. No Change.
    .02  In connection with paragraph 4 of Commentary .01 above, the 
Exchange

[[Page 54829]]

shall not open for trading any additional series of option contracts of 
the class covering an underlying security at any time when the market 
price per share of such underlying security is less than $3 in the 
primary market in which it is traded unless the additional series is 
traded on at least one other registered national securities exchange 
and at the time the additional series was listed by such other 
registered national securities exchange it met the $3 market price 
requirement. Subject to Paragraph 4 of Commentary .01 above, the 
Exchange may open for trading additional series of option contracts of 
a class covering an underlying security when the market price per share 
of such underlying security is at or above $3 at the time such 
additional series are authorized for trading. For purposes of this 
Commentary .02, the market price of such underlying security is 
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.
    .03  No Change.
    .04  No Change.
    .05  No Change.
    .06  No Change.
    .07  No Change.
    .08  No Change.
    .09  No Change.
* * * * *

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 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 III below. The Amex 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 sets forth the guidelines to be 
used in determining whether an underlying individual equity security 
previously approved for options trading meets the requirements for 
continuance of such approval. The Amex states that these maintenance 
listing standards are uniform among the options exchanges. 
Specifically, Guideline 4 of Commentary .01 to Rule 916 (``Guideline 
4'') states that the Exchange may not list additional series for an 
option class if the market price per share of the underlying security 
closed below $3 on the previous trading day as measured by the highest 
closing price reported in the primary market in which the underlying 
security is traded.\4\ 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. Subject to Guideline 
4, Commentary .02 to Rule 916 provides that the Exchange may open for 
trading additional series of options contracts of the class covering an 
underlying security at any time when the market price per share of such 
underlying security is at or above $3 at the time such additional 
series are authorized for trading.\5\
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    \4\ See Securities Exchange Act Release No. 45074 (November 16, 
2001), 66 FR 59278 (November 27, 2001). The Amex amended 
Commentaries .01 and .02 to Rule 916 to reduce from $5 to $3 the 
price above which the underlying security must be traded before the 
Exchange may add additional series of options.
    \5\ Commentary .02 to Rule 916 provides that the market price 
for such underlying security is measured by (i) for intra-day series 
additions, the last reported trade in the primary market in which 
the underlying security is traded 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 is traded on the 
last trading day before the series are added.
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    In recent months, the Exchange notes that the addition of 
additional series of existing options classes have not been uniform due 
to the operation of the maintenance listing standards. For example, for 
intra-day series additions, the underlying security may trade at or 
above $3 for a brief period and then drop below $3 for the foreseeable 
future. If an exchange and its staff fail to quickly note that a 
particular underlying security is trading at or above $3, the Exchange 
may be prohibited from adding the additional series if at the time of 
authorization the underlying security is trading below $3.\6\ 
Accordingly, the ability to trade an additional series of an approved 
options class may solely depend on the exchange that is quicker posting 
(i.e. point and click) or bringing up the series. The Exchange states 
that this is not the intention of the maintenance listing standard and 
is contrary to the purpose of the Act in promoting the development of a 
national market system for options. In addition, the mechanics of 
adding an additional series of approved options classes, especially 
intra-day, is effectively anti-competitive.
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    \6\ During the past three (3) months, the Amex has been unable 
to add additional series of approved options classes on the 
following underlying securities: (1) The Williams Companies, Inc.; 
(2) Elan Corporation Plc; (3) Atmel Corporation; (4) JDS Uniphase 
Corporation; and (5) Lucent Technologies Inc.
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    The Exchange proposes to amend Guideline 4 to Commentary .01 and 
Commentary .02 to Rule 916 to permit the addition of any additional 
series of options contract of the class covering such underlying 
security regardless of the market price of the underlying security if 
such options series is traded on at least one other registered national 
securities exchange.\7\ This amendment to Commentary .02 to Rule 916 
will provide that, for underlying securities that satisfy all of the 
maintenance listing requirements other than the $3.00 per share price 
requirement, the Exchange would be permitted to list additional options 
series on securities regardless of the market price so long as such 
series are traded on at least one other registered national securities 
exchange. The Amex does not believe that the $3 guideline is necessary 
to accomplish the intended purpose of the maintenance requirement when 
the options series is trading at another options exchange. In 
particular, the Amex believes that the listing of a series already 
trading at another options exchange is not susceptible to manipulation 
and will not lead to a proliferation of options classes on underlying 
securities that lack liquidity needed to maintain fair and orderly 
markets.
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    \7\ The Exchange states that this proposal is consistent with a 
similar change to the Exchange's original listing criteria 
permitting the listing of an options class without reference to the 
market price of the underlying security if such options are traded 
on at least one other national securities exchange and the average 
daily trading volume for such options over the last three (3) 
calendar months preceding the date of selection has been 5,000 
contracts. See Commentary .01 to Rule 915 and Securities Exchange 
Act Release No. 45505 (March 5, 2002), 67 FR 10941 (March 11, 2002).
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    The Exchange believes that the maintenance listing standards other 
than price assure that options will be listed and traded on the 
securities of companies that are financially sound. Accordingly, the 
Exchange will continue to apply the other maintenance listing 
guidelines which assure that: (1) The underlying security consists of a 
large number of outstanding shares held by non-affiliates of the 
issuer; (2) the underlying security is actively-traded; (3) there are a 
large number of holders

[[Page 54830]]

of the underlying security; and (4) the underlying security continues 
to be listed on a national securities exchange or traded through the 
facilities of a national securities association.
    The Amex believes that the demands of options customers and the 
marketplace should determine the securities on which options continue 
to be traded. 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.
    The Amex believes that although the maintenance listing 
requirements are generally uniform among the options exchanges, the 
application of such standards in the current market environment have 
had an anticompetitive effect. Specifically, the Exchange states that 
on several occasions during the past year, it was unable to list 
additional options series because the price of the underlying security 
had fallen below the requirement of $3 after a series was added on 
another exchange.\8\ Because the underlying security will otherwise 
continue to meet the maintenance listing standards, the other options 
exchange(s) may continue to trade the additional series while the Amex 
(as well as other options exchanges) may not add such options series.
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    \8\ See supra note 6.
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    Amex believes that its proposal is narrowly drafted to address the 
circumstances where a series of an approved options class is currently 
ineligible for addition on the Amex while at the same time, such series 
is trading on another options exchange. The Amex notes that when an 
underlying security otherwise meets the maintenance listing standards 
and at least one other exchange trades the options series, the options 
already are available to the investing public. The Exchange believes 
competition for order flow in these additional series of approved 
options classes will benefit investors and the marketplace for both 
options and the underlying security. Accordingly, the Amex notes that 
the current proposal will not introduce any additional options series.
    Because the addition of an options series under the proposed 
alternative maintenance listing standard requires trading of such 
series on another options exchange, the Amex believes that there would 
be no investor protection concerns with listing such additional options 
series on the Amex. In addition, the Exchange believes that listing 
these options series on the Amex would enhance competition and benefit 
investors.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act,\9\ in general, and furthers 
the objectives of Section 6(b)(5) of the Act,\10\ in particular, 
because it is 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.
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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, as 
amended, 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. 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 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-2002-68 and should be submitted by September 16, 2002.

IV. Commissions' Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange, 
and in particular, the requirements of Section 6(b)(5) of the Act.\11\ 
The Commission believes investors benefit from the competition among 
options exchanges that results when options are listed on more than one 
options exchange; and that investors are sufficiently protected, even 
though Amex will be permitted to list a series of option contracts when 
the market price of the underlying security is below $3, because all of 
the other maintenance listing requirements of the Exchange must still 
be complied with, and the market price of the underlying security was 
at or above $3 when it was listed on the first options exchange.\12\ 
Therefore, the Commission finds that proposed rule change, as amended, 
will promote just and equitable principles of trade, and, in general, 
protect investors and the public interest consistent with Section 
6(b)(5) of the Act.\13\
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    \11\ 15 U.S.C. 78f(b)(5).
    \12\ The Commission notes that such series must have been 
properly listed by the original options exchange.
    \13\ 15 U.S.C. 78f(b)(5). In approving this proposed rule 
change, the Commission notes that it has considered the proposed 
rule's impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
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    The Amex has requested that the proposed rule change, as amended, 
be given accelerated approval pursuant to Section 19(b)(2) of the 
Act.\14\ The Commission believes accelerated approval of the proposal 
would enhance competition among the options exchanges. Accordingly, the 
Commission finds good cause, consistent with Section 19(b)(2) of the 
Act,\15\ to approve the proposed rule change, as amended, prior to the 
thirtieth day after the date of publication of the notice of filing 
thereof in the Federal Register.
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    \14\ 15 U.S.C. 78s(b)(2).
    \15\ Id.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-Amex-2002-68), as amended, 
is hereby approved on an accelerated basis.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 240.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-21608 Filed 8-23-02; 8:45 am]
BILLING CODE 8010-01-P