[Federal Register Volume 68, Number 58 (Wednesday, March 26, 2003)]
[Notices]
[Pages 14717-14722]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-7113]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47540; File No. SR-Amex-2001-92]


Self-Regulatory Organizations; Notice of Filing of Amendment Nos. 
2 and 3 to Proposed Rule Change by the American Stock Exchange LLC To 
Simplify the Manner in Which a Contrary Exercise Advice Is Submitted 
and To Extend by One Hour the Time for Members To Submit Customer's 
Contrary Exercise Advices

March 19, 2003.
    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 October 29, 2001, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change seeking to modify the manner 
in which Contrary Exercise Advices (``CEAs'') are submitted to the 
Exchange. The Amex amended its proposal on December 17, 2001.\3\ The 
original proposal and Amendment No. 1 were published in the Federal 
Register on January 15, 2002 for notice and comment.\4\ The Commission 
received four comment letters regarding the proposal.\5\ The Amex 
responded to the commenters in Amendment No. 2, which the Amex filed 
with the Commission on June 19, 2002.\6\ On March 6, 2003, the Amex 
submitted

[[Page 14718]]

Amendment No. 3 to the proposal.\7\ This Amendment completely replaces 
and supersedes the original filing and Amendment Nos. 1 and 2. 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\ See letter from Jeffrey P. Burns, Assistant General Counsel, 
Amex, to Jennifer L. Colihan, Special Counsel, Division of Market 
Regulation (``Division''), Commission, dated December 14, 2001 
(``Amendment No. 1'').
    \4\ Securities Exchange Act Release No. 45253 (January 8, 2002), 
67 FR 2003.
    \5\ See letter from Mark R. Mudry, Chairman, the Options 
Operations Subcommittee of the OCC Roundtable, to Jonathan G. Katz, 
Secretary, Commission, dated February 22, 2002; letter from Margo R. 
Topman, Vice President, Assistant General Counsel, Goldman, Sachs & 
Co., to Jonathan G. Katz, Secretary, Commission, dated February 15, 
2002; letter from Thomas N. McManus, Executive Director and Counsel, 
Morgan Stanley, to Jonathan G. Katz, Secretary, Commission, dated 
February 11, 2002; and letter from Mark Straubel, Assistant Vice 
President, Pershing, to Secretary, Commission, dated February 5, 
2002.
    \6\ See letter (with exhibit) from Jeffrey P. Burns, Assistant 
General Counsel, Amex, to Nancy Sanow, Assistant Director, Division, 
Commission, dated June 18, 2002 (``Amendment No. 2''). In Amendment 
No. 2, the Amex responded to the commenters and proposed to revise 
its original proposal to extend the one hour for all accounts to 
submit a CEA, to extend the deadline of 2 hours and 28 minutes 
following the time announced for the close of trading in equity 
options on that day instead of 6:30 p.m. (NY time) for all accounts 
to deliver a CEA or Advice Cancel where the Amex modifies the close 
of trading at expiration, and to require the Exchange to provide 
advance notice on the prior business day in order to establish 
earlier cut-off times for the submission of a CEA due to the 
Exchange modifying the close of trading or to unusual circumstances. 
The Exchange also proposed three new Commentaries to Amex Rule 980 
to: (1) Clarify that cut-off times for the submission of a CEA may 
be extended due to operational and/or systems problems at the 
Exchange; (2) clarify that while option holders are required to make 
a final decision to exercise by 5:30 p.m. (NY time), member and 
member organizations will have one hour to process the CEA for 
delivery to the Exchange by 6:30 p.m. (NY time) if the CEA is 
expected to be electronically submitted, and 5:30 p.m. (NY time) for 
manual or physical delivery of a CEA at the Exchange; and (3) 
require firms that employ an electronic submission method to adopt 
specific written procedures for the electronic submission of CEAs.
    \7\ See letter from Jeffrey P. Burns, Assistant General Counsel, 
Amex, to Nancy Sanow, Assistant Director, Division, Commission, 
dated March 5, 2003, replacing Form 19b-4 in its entirety 
(``Amendment No. 3''). In Amendment No. 3, Amex made changes to its 
rule text and provided additional discussion in response to 
comments.
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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 980: (i) To simplify the 
manner in which a CEA is submitted to the Exchange; (ii) to extend by 
one hour the cut-off time for members and member organizations to 
submit CEAs to the Exchange; and (iii) to add new paragraphs (g) and 
(h) for the purpose of establishing different cut-off times for the 
decision to exercise or not exercise an expiring option and for the 
submission of a CEA based on a modified trading session or due to 
``unusual circumstances.'' Below is the text of the proposed rule 
change, as amended. New text is italicized. Deleted text is bracketed.
* * * * *

Rule 980. Exercise of Option Contracts

    (a) [Subject to the restrictions established by the Exchange 
pursuant to Rule 905 and to such other restrictions which may be 
imposed by the Exchange pursuant to Rules 907 and 909 or by the Options 
Clearing Corporation (``OCC'') pursuant to its rules, an outstanding 
option contract may be exercised during the time period specified in 
the rules of OCC by the tender to OCC of an exercise notice in 
accordance with its rules.] An outstanding option contract may be 
exercised by the tender to the Options Clearing Corporation (``OCC'') 
of an exercise notice made during the periods, and using the 
procedures, specified in OCC rules. An exercise notice may be tendered 
to OCC only by the clearing member in whose OCC account the option 
contract is carried. Option exercises are also subject to restrictions 
that are established by or may be imposed by the Exchange in Rules 905, 
907 and 909, and in this rule. Members and member organizations may 
establish fixed procedures as to the latest [hour at which] time they 
will accept exercise instructions from customers.
    (a) [Final decisions by options holders to either exercise or not 
exercise expiring equity options must be made by members or member 
organizations not later than 5:30 p.m., New York time on the business 
day immediately prior to the expiration date (``the exercise cut-off 
time''). In this regard, members and member organizations must either] 
Special procedures apply to the exercise of equity options on the last 
business day before their expiration (``expiring options''). Unless 
waived by OCC, expiring options are subject to the Exercise-by-
Exception (``Ex-by-Ex'') procedure under OCC Rule 805. This rule 
provides that, unless contrary instructions are given, option contracts 
that are in-the-money by specified amounts shall be automatically 
exercised. In addition to OCC rules, the following Exchange 
requirements apply with respect to expiring options. Option holders 
desiring to exercise or not exercise expiring options must either:
    [(ii)](i) take no action and allow exercise determinations to be 
made in accordance with OCC's [Exercise-by-Exception] Ex-by-Ex 
procedure where applicable[.]; or
    [(i)](ii) submit a ``Contrary Exercise Advice'' to the Exchange by 
the deadline specified in paragraph (c) below. A Contrary Exercise 
Advice is a communication either: (A) [form prescribed by the Exchange 
for use by a member or member organization to indicate a final exercise 
decision committing an options holder] to not exercise an [equity] 
option[s position which] that would be automatically [be] exercised 
[pursuant to] under OCC's [Rule 805 Exercise-by-Exception] Ex-by-Ex 
procedure, or (B) to exercise an [equity] option [position which] that 
would not be automatically [be] exercised [pursuant to] under OCC's 
[Exercise-by-Exception] Ex-by-Ex procedure. A Contrary Exercise 
Advice[s can] may be submitted by a [any] member or member organization 
by using the Exchange's Contrary Exercise Advice Form, OCC's Clearing 
Management and Control System (C/MACS), a Contrary Exercise Advice form 
of any other [at a place designated for that purpose by any] national 
[options] securities exchange of which [they are] the firm is a member 
and where the option is listed, or [may be transmitted to the Exchange 
via OCC in a format prescribed by OCC; or] such other method as the 
Exchange may prescribe. A Contrary Exercise Advice may be canceled by 
filing an ``Advice Cancel'' with the Exchange or resubmitted at any 
time up to the submission cut-off times specified below.
    (c) Exercise cut-off time. Option holders have until 5:30 p.m. New 
York time on the business day immediately prior to the expiration date 
to make a final decision to exercise or not exercise an expiring 
option. For customer accounts, members and member organizations may not 
accept exercise instructions after 5:30 p.m. New York time but have 
until 6:30 p.m. New York time to submit a Contrary Exercise Advice. For 
non-customer accounts, members and member organizations may not accept 
exercise instructions after 5:30 p.m. New York time but have until 6:30 
p.m. New York time to submit a Contrary Exercise Advice if such member 
or member organization employs an electronic submission procedure with 
time stamp for the submission of exercise instructions by option 
holders. Consistent with Commentary .04, members and member 
organizations are required to submit a Contrary Exercise Advice by 5:30 
p.m. for non-customer accounts if such Members and/or member 
organization do not employ an electronic submission procedure with time 
stamp for the submission of exercise instructions by option holders. 
[In those instances when OCC has waived the Exercise-by-Exception 
procedure, a Contrary Exercise Advice is still required to be submitted 
by members and member organizations wishing to exercise an option that 
would not have been automatically exercised, or exercise an option that 
would have been automatically exercised had the Exercise-by-Exception 
procedure been in effect. The applicable underlying security price in 
such instances will be as described in OCC Rule 805(1), which is 
normally the last sale price in the primary market for the underlying 
security. In cases where the Exercise-by-Exception procedure has been 
waived for an options class, OCC rules require that members and member 
organizations wishing to exercise such options must submit an 
affirmative Exercise Notice to OCC, whether or not a Contrary Exercise 
Advice has been filed.]
    [Each member or member organization which maintains a proprietary 
or public customer account position in an expiring option is 
responsible for ensuring that final exercise decisions are indicated to 
the Exchange Member organizations who have accepted the responsibility 
to indicate final exercise decisions on behalf of another member or 
non-member firm and shall take necessary steps to ensure that such 
decisions are properly indicated to the Exchange. Member organizations 
may establish a

[[Page 14719]]

processing cut-off time prior to the Exchange's exercise cut-off time 
at which they will no longer accept final exercise decisions in 
expiring options from options holders for which they carry accounts.]
    (d) If OCC has waived the Ex-by-Ex procedure for an options class, 
members and member organizations must either:
    (i) submit to the Exchange, a Contrary Exercise Advice, in a manner 
specified by the Exchange, within the time limits specified in 
paragraph (c) above if the holder intends to exercise the option, or
    (ii) take no action and allow the option to expire without being 
exercised.
    In cases where the Ex-by-Ex procedure has been waived, OCC rules 
require that members and member organizations wishing to exercise such 
options must submit an affirmative Exercise Notice to OCC, whether or 
not a Contrary Exercise Advice has been filed with the Exchange.
    (e) An Exchange member organization that has accepted the 
responsibility to indicate final exercise decisions on behalf of 
another member or non-member firm shall take the necessary steps to 
ensure that such decisions are properly indicated to the Exchange. Such 
member organization may establish a processing cut-off time prior to 
the Exchange's exercise cut-off time at which it will no longer accept 
final exercise decisions in expiring options from option holders for 
whom it indicates final exercise decisions. Each member or member 
organization that indicates final exercise decisions through another 
broker-dealer is responsible for ensuring that final exercise decisions 
for all of its proprietary (including market maker) and public customer 
account positions are indicated in a timely manner to such broker-
dealer.
    [(d)] (f) Members and member organizations may make final exercise 
decisions after the exercise cut-off time but prior to expiration 
without having submitted a Contrary Exercise Advice: (i) In order to 
remedy mistakes made in good faith; [,] (ii) to take appropriate action 
as the result of a failure to reconcile unmatched Exchange option 
transactions; [,] or (iii) where exceptional circumstances have 
restricted an option holder's ability to inform a member organization 
of a decision regarding exercise, or a member organization's ability to 
receive an option holder's decision by the cut-off time. The burden of 
establishing any of the above exceptions rests solely on the member or 
member organization seeking to rely on such exceptions.
    (g) In the event the Exchange provides advance notice on or before 
5:30 p.m. (NY time) on the business day immediately prior to the last 
business day before the expiration date indicating that a modified time 
for the close of trading in equity options on such last business day 
before expiration will occur, then the deadline to make a final 
decision to exercise or not exercise an expiring option shall be 1 hour 
28 minutes following the time announced for the close of trading on 
that day instead of the 5:30 p.m. (NY time) deadline found in Rule 
980(c). However, members and member organizations may deliver a 
Contrary Exercise Advice or Advice Cancel to the Exchange within 2 
hours 28 minutes following the time announced for the close of trading 
in equity options on that day instead of the 6:30 p.m. (N.Y. time) 
deadline found in Rule 980(c) for customer accounts and non-customer 
accounts where such member firm employs an electronic submission 
procedure with time stamp for the submission of exercise instructions. 
For non-customer accounts, members and member organizations that do not 
employ an electronic procedure with time stamp for the submission of 
exercise instructions are required to deliver a Contrary Exercise 
Advice or Advice Cancel within 1 hour and 28 minutes following the time 
announced for the close of trading on that day instead of the 5:30 p.m. 
(NY time) deadline found in Rule 980(c).
    (h)(1) The Exchange may establish extended cut-off times for 
decision to exercise or not exercise an expiring option and for the 
submission of Contrary Exercise Advices on a case by case basis due to 
unusual circumstances.
    (2) The Exchange with at least one (1) business day prior advance 
notice, by 12 noon on such day, may establish a reduced cut-off time 
for the decision to exercise or not exercise an expiring option and for 
the submission of Contrary Exercise Advices on a case-by-case basis due 
to unusual circumstances; provided, however, that under no 
circumstances should the exercise cut-off time and the time for 
submission of a Contrary Exercise Advice be before the close of 
trading.
Commentary
    .01 For purposes of this Rule 980, the terms ``customer account'' 
and ``non-customer account'' have the same meaning as defined in OCC 
By-Laws Article I(C)(25) and Article I (N)(2), respectively.
    .02[.01] Each member organization shall prepare a memorandum of 
every [final] exercise [decision] instruction received showing the time 
when such instruction was so [for which a Contrary Exercise Advice is 
required showing the time when such decision was made or] received. 
Such memoranda shall be subject to the requirements of SEC Rule 17a-
4(b).
    .03 In the event of an ``unusual circumstance,'' Rule 980(h)(1) 
provides that the Exchange may extend the cut-off times for exercise 
instructions and the submission of a Contrary Exercise Advice beyond 
the normal time frames specified in Rule 980(c). For purposes of 
subparagraph (h)(1), an ``unusual circumstance'' includes, but is not 
limited to, increased market volatility; significant order imbalances; 
significant volume surges and/or systems capacity constraints; 
significant spreads between the bid and offer in underlying securities; 
internal system malfunctions affecting the ability to disseminate or 
update market quotes and/or deliver orders; or other similar 
occurrences. Rule 980(h)(2) specifies that the Exchange may also reduce 
such cut-off times for ``unusual circumstances.'' For purposes of 
subparagraph (h)(2), an ``unusual circumstance'' includes, but is not 
limited to, a significant news announcement concerning the underlying 
security of an option contract that is scheduled to be released just 
after the close on the business day immediately prior to expiration.
    .04 Although the deadline for all option holders to make a final 
decision to exercise or not exercise is 5:30 p.m. (NY time), the 
deadline for the submission of the Contrary Exercise Advice in the case 
of non-customer accounts will depend on the manner of the decision to 
exercise or not exercise.
    (i) For electronic timestamp submissions of the exercise decision 
by non-customer option holders, a Contrary Exercise Advice submitted by 
members and member organizations must be received by the Exchange by 
6:30 p.m. (NY time).
    (ii) For manual submissions of the exercise decision by non-
customer option holders, members and member organizations must submit a 
Contrary Exercise Advice at the Exchange via the Contrary Exercise 
Advice Box by 5:30 p.m. (NY time).
    .05 Each member organization shall establish fixed procedures to 
insure secure time stamps in connection with their electronic systems 
employed for the recording of submissions to exercise or not exercise 
expiring options.
    .06 [.02] In the event a member or member organization makes a 
final exercise decision after the exercise cut-off time pursuant to an 
exception set

[[Page 14720]]

forth in clauses (i), (ii) or (iii) of paragraph [(d)](f) of Rule 980, 
the member or member organization shall maintain a memorandum setting 
forth the circumstances regarding such exception and shall file a copy 
of the memorandum with the Exchange's Market Surveillance Department no 
later than 12 noon on the first business day following the respective 
expiration.
    .07 [.03] The filing of a Contrary Exercise Advice required by this 
rule does not serve to substitute as the effective notice to OCC for 
the exercise or non-exercise of expiring options.
* * * * *

I. 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, as 
amended, and discussed any comments it received on the proposed rule 
change, as amended. The text of these statements may be examined at the 
places specified in Item IV 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
    The Options Clearing Corporation (``OCC''), the issuer of all Amex-
traded options contracts, has an established procedure for options 
holders wishing to exercise in-the-money options \8\ before they 
expire. Known as Ex-by-Ex, the procedure provides for the automatic 
exercise at expiration of any equity option contract that is \3/4\ of a 
point or more in-the-money for customer accounts or \1/4\ point or more 
in-the-money for any other accounts.\9\ Option holders who wish to have 
their contracts exercised in accordance with the Ex-by-Ex procedure 
need to take no further action; those contracts that are in-the-money 
by the appropriate amount will be automatically exercised. Option 
holders who do not wish to have their options automatically exercised 
or who wish their options to be exercised under different parameters 
than the Ex-by-Ex procedure, must file a CEA with the Exchange pursuant 
to Amex rule 980, and instruct OCC of their ``contrary'' intention.\10\ 
The rule is designed to deter individuals from taking improper 
advantage of late-breaking news by requiring evidence of an option 
holder's intention to exercise or not exercise expiring equity options 
via the submission of a CEA. Members and member organizations satisfy 
the filing requirement by manually submitting a CEA form or by 
electronically submitting the CEA through OCC's Clearing Management and 
Control System (C/MACS).
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    \8\ ``In-the-money'' for a call option occurs if the current 
market value of the underlying security is above the exercise price 
of the option. For put options, ``in-the-money'' means the current 
value of the underlying security is below the exercise price of the 
option.
    \9\ See OCC Rule 805(d).
    \10\ A CEA may be canceled by filing an ``Advice Cancel'' with 
the Exchange at any time up to the submission cut-off deadline 
specified in proposed amended Amex Rule 980(c).
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    The principal goal of Amex rule 980 is to maintain a level playing 
field between persons holding long and short positions in expiring 
equity options. The Amex believes that after trading has ended on the 
final trading day before expiration, persons who are short the option 
have no way to close out their short position. To put option holders on 
equal footing, Amex Rule 980 attempts to keep to a minimum the time 
period in which a holder can exercise the option after the close of 
trading on the last business day prior to expiration, generally known 
as ``Expiration Friday.'' \11\
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    \11\ ``Expiration Friday'' is generally the last business day 
prior to the expiration of an option contract.
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    The current exercise cut-off time for an option holder to decide 
whether or not to exercise is 5:30 p.m. (NY time) on the business day 
immediately prior to the expiration date.\12\ Under the proposal, the 
exercise cut-off time set forth in amended Amex Rule 980(c) will not 
change except in cases of a modified trading session or due to 
``unusual circumstances.'' Current Amex rule 980 imposes a uniform 5:30 
p.m. cut-off time for the submission of CEAs for all accounts without 
differentiating between customer and non-customer accounts.
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    \12\ The ``expiration date'' of an options contract generally is 
the Saturday immediately following the third Friday of the 
expiration month of such option. See OCC By-Laws Article I (E)(k).
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    The proposed rule change was prompted by concerns expressed by 
clearing firms that the deadline for submitting CEAs is problematic for 
customer accounts,\13\ due to the logistical difficulties of receiving 
customer exercise instructions and processing them through their retail 
branch systems and back office areas before submitting them to the 
Exchange. Therefore, the Exchange proposes to adopt a cut-off time of 
6:30 p.m. (NY time) for members and member organizations to submit CEAs 
for customer accounts. In response to concerns expressed by commenters, 
the Exchange also proposes to allow members and member organizations to 
submit CEAs for non-customer accounts \14\ by 6:30 p.m. (NY time) 
provided such member or member organization employs an electronic 
procedure with time stamp recording for the submission of exercise 
instructions by options holders. In those cases where members or member 
organizations do not employ an electronic submission procedure for the 
submission of exercise instructions, CEAs for non-customer accounts 
must be submitted to the Exchange by 5:30 p.m. (NY time). The different 
CEA submission deadlines are set forth in amended Amex Rule 980(c) and 
new Commentary .04.
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    \13\ A ``customer account'' is defined in OCC By-Laws Article I 
(C)(25) as an account of a Clearing Member which is confined to 
Exchange transactions cleared and positions carried by the Clearing 
Member on behalf of its securities customers, other than those 
transactions of market-makers which are cleared through a market-
makers account. OCC By-Laws define a ``securities customer'' as a 
person having a securities account at a broker or dealer other than 
a non-customer of such broker or dealer. See OCC By-Laws Article I 
(S)(1).
    \14\ A ``non-customer account'' generally means a person that is 
not a customer of a broker or dealer defined in Rule 8c-1 and 15c2-1 
under the Act. See OCC By-Laws Article I (N)(2).
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    Although most firms have electronic submission procedures, the 
Exchange is concerned that those firms that manually submit CEAs could 
have an opportunity to improperly extend the 5:30 p.m. (NY time) 
deadline to exercise or not exercise an option if all non-customer 
accounts were subject to the 6:30 p.m. (NY time) deadline for the 
submission of CEAs. This concern on the part of the Exchange is based 
on the difficulty in monitoring a manual procedure that has different 
times for deciding whether or not to exercise the option and for the 
submission of the CEA.
    Accordingly, in the case of non-customer accounts, the Exchange has 
proposed to limit the 6:30 p.m. (NY time) deadline for submitting CEAs 
to those member firms that have an electronic submission procedure for 
deciding whether to exercise or not exercise an option. In connection 
with the use of an electronic submission procedure by member firms, the 
Exchange proposes the addition of new Commentary .05 that requires 
members and member organizations employing electronic submissions to 
establish procedures to secure time stamps in connection with their 
electronic systems employed for the recording of

[[Page 14721]]

submissions to exercise or not exercise expiring options.
    The OCC on occasion will suspend the use of its Ex-by-Ex procedure, 
such as when trading in the underlying stock has been halted or if 
accurate price data is unavailable for the determination of closing 
prices. When this occurs and there is no automatic exercise, all 
options contract holders must send an exercise notice to the OCC if 
they wish to exercise, regardless of whether the option is in or out-
of-the-money. Currently, when the OCC suspends its Ex-by-Ex procedure 
for an option class, Amex rule 980 requires the submission of a CEA. 
Thus, when the OCC has waived the Ex-by-Ex procedure, option holders 
must determine what price would have been used, even though the only 
available price might be a stale last sale price (a price the OCC did 
not feel comfortable using). Option holders then must determine whether 
a CEA needs to be submitted to the Exchange evidencing the intention to 
exercise or not exercise.
    In the Amex's view, the options exchanges have long viewed this 
process as cumbersome and confusing to option holders. Therefore, the 
Amex proposes to amend Amex rule 980(d) to eliminate the requirement 
that a CEA be submitted if the holder does not want to exercise the 
option when OCC has waived its Ex-by-Ex procedure for that options 
class. As a result, when the Ex-by-Ex procedure has been waived, 
submission of instructions to the Exchange to exercise will be required 
only when the options holder wants to exercise the option contract.
    The proposed rule change would also permit the Exchange to 
establish different exercise cut-off time as an exception to amended 
amex Rule 980(c) to address situations where the Exchange has advanced 
prior knowledge or warning of a modified trading session at expiration, 
or in the case of ``unusual circumstances.''
    Specifically, proposed Amex rule 980(g) would be applicable when a 
different or modified close of trading is announced due to a market-
wide event. In such cases, the Exchange would have forewarning of the 
event and would be required to provide notice of a change in exercise 
cut-off time by 5:30 p.m. (NY time) on the business day prior to the 
last trading day before expiration. For example, if the day after 
Thanksgiving is the last trading day prior to expiration with a close 
of trading of 1 p.m. (NY time), then the Exchange would, with prior 
notice up to the Wednesday before Thanksgiving, be able to reduce the 
cut-off time of the decision to exercise or not exercise expiring 
options to 1 hour 28 minutes after the close of trading. With respect 
to the submission of a CEA by members and member organizations, the 
cut-off time would be reduced to 2 hours and 28 minutes after the close 
of trading for customer accounts and non-customer accounts where the 
member firm employs an electronic procedure with time stamp for the 
submission of exercise instructions. Member firms that do not employ an 
electronic submission procedure for exercise instructions would be 
required to submit a CEA within 1 hour and 28 minutes after the close 
of trading for its non-customer accounts. Accordingly, the normal 
exercise cut-off time would not apply and, similar to amended Amex Rule 
980(c), the deadline for submitting CEAs to the Exchange for non-
customer accounts would depend on the use of an electronic submission 
procedure for the submission of exercise instructions.
    Proposed Amex rule 980(h)(1) would permit the Exchange to extend 
the cut-off time period for the decision to exercise or not exercise 
expiring options, as well as the submission of a CEA due to unusual 
circumstances. Situations that may arise that are deemed to be 
``unusual circumstances'' are set forth in revised Commentary .03. An 
``unusual circumstance'' for purposes of proposed paragraph (h)(1) 
includes, but is not limited to, increased market volatility; 
significant order imbalances; significant volume surges and/or systems 
capacity constraints; significant spreads between the bid and offer in 
underlying securities; internal system malfunctions affecting the 
ability to disseminate or update market quotes and/or deliver orders; 
or other similar occurrences.
    Proposed Amex Rule 980(h)(2) would permit the Exchange with one (1) 
business day prior advance notice by 12 noon (NY time) to establish a 
reduced cut-off time for the decision to exercise or not exercise 
expiring options as well as the submission of the CEA. The reduced cut-
off time under this new paragraph for both the decision to exercise or 
not exercise and the submission of the CEA may not occur before the 
close of trading. The primary purpose of this proposed paragraph (h)(2) 
is to permit the Exchange to reduce cut-off times because of an 
``unusual circumstance,'' such as a significant news event occurring 
after the close. Revised Commentary .03 to Amex Rule 980 provides that 
for purposes of subparagraph (h)(2), an ``unusual circumstance'' is a 
significant news announcement concerning the underlying security of an 
option contract that is scheduled to be released after the close on the 
last trading day prior to expiration. For example, a decision on 
whether a particular merger will be approved or whether a 
``blockbuster'' new product will receive regulatory approval that 
occurs after the close of trading would justify a reduced cut-off time 
so that persons holding short positions are not prejudiced by being 
unable to close out their positions. The Exchange believes that this 
would maintain a level playing field between persons holding long and 
short positions in expiring options.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with section 6(b) of the Act \15\ in general, and furthers 
the objectives of section 6(b)(5) of the Act \16\ in particular, 
because it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of change, 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.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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A. 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.

B. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange received four comment letters \17\ regarding the 
original proposal and Amendment No. 1. The Exchange believes that it 
has responded to the comments and concerns raised in these comment 
letters as reflected in Amendment Nos. 2 and 3.
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    \17\ See supra note.
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II. 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.

[[Page 14722]]

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 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-2001-92 and should be submitted by April 16, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-7113 Filed 3-25-03; 8:45 am]
BILLING CODE 8010-01-P