[Federal Register Volume 68, Number 67 (Tuesday, April 8, 2003)]
[Notices]
[Pages 17120-17122]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-8446]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47613; File No. SR-Amex-2003-19]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the American Stock Exchange 
LLC to Amend the Price Criteria for Securities That Underlie Options 
Traded on the Exchange

April 1, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act''),\1\ and rule 19b-4 thereunder,\2\ notice 
is hereby given that on March 25, 2003, the American Stock Exchange LLC 
(``Amex'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in items I and II below, which items have been prepared by 
the Exchange. The 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.
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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 its initial listing guidelines in 
Commentary .01 and .05(d)(ii) to Amex rule 915 to allow options to be 
listed on ``covered securities,'' when, among other things, the trading 
price of the underlying security was at least $3 for the five business 
days prior to certification with The Options Clearing Corporation 
(``OCC''). The text of the proposed rule change follows. Additions are 
in italics. Deleted text is in [brackets].
* * * * *

Rule 915. Criteria for Underlying Securities

    (a) No Change
    (b) No Change

Commentaries

    .01 The Board of Governors has established guidelines to be 
considered by the Exchange in evaluating potential underlying 
securities for Exchange option transactions. Absent exceptional 
circumstances with respect to items 1, 2, 3 or 4 listed below, at the 
time the Exchange selects an underlying security for Exchange options 
transactions, the following guidelines with respect to the issuer shall 
be met:
    1. No Change
    2. No Change
    3. No Change
    4. (a) If the underlying security is a ``Covered Security'' as 
defined under section 18(b)(1)(A) of the Securities Act of 1933, the 
market price per share of the underlying security has been at least 
$3.00 for the previous five consecutive business days preceding the 
date on which the Exchange submits a certificate to The Options 
Clearing Corporation for listing and trading, as measured by the 
closing price reported in the primary market in which the underlying 
security is traded; or
    (b) If the underlying security is not a ``Covered Security,'' 
[E]either (i) the market price per share of the underlying security has 
been at least $7.50 for the majority of business days during the three 
calendar months preceding the date of selection, as measured by the 
lowest closing price reported in any market in which the underlying 
security traded on each of the subject days or (ii) (a) the underlying 
security meets the guidelines for continued listing in rule 916; (b) 
options on such underlying security are traded on at least one other 
registered national securities exchange; and (c) the average daily 
trading volume for such options over the last three (3) calendar months 
preceding the date of selection has been at least 5,000 contracts.
    5. No Change
    .02-.04 No Change
    .05 (a)-(c) No Change
    (d) In the case of a restructuring transaction that satisfies 
either or both of the conditions of subparagraph (a) above in which 
shares of a Restructured Security are sold in a public offering or 
pursuant to a rights distribution;
    (i) No Change
    (ii) the Exchange may certify that the market price of the 
Restructured Security satisfies guideline 4 of Commentary .01 above by 
relying on the market price history of the original security prior to 
the ex-date for the Restructure Transaction in the manner described in 
paragraph (a) above, but only if the Restructured Security has traded 
``regular way'' on an exchange or automatic quotation system for at 
least five trading days immediately preceding the date of selection, 
and at the close of trading on each trading day preceding the date of 
selection, as well as at the opening of trading on the date of 
selection the market price of the Restructured Security was at least 
$7.50, or if the Restructured Security is a ``Covered Security,'' as 
defined in Commentary .01(4) to rule 915, the market price of the 
Restructured Security was at least $3.00; and
    (iii) No Change

[[Page 17121]]

    .06-.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 Exchange 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 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
    The Exchange proposes to amend its pricing requirement for 
underlying securities. Currently, Commentary .01(4) to Amex rule 915 
provides that either (i) the market price per share of the underlying 
security has been at least $7.50 for the majority of business days 
during the three calendar months preceding the date of selection or 
(ii) the underlying security meets the guidelines for continued listing 
in Amex rule 916, options on such underlying security are traded on at 
least one other registered 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 at least 5,000 
contracts.
    The Exchange now proposes to amend Commentary .01(4) to Amex rule 
915 to provide that, for underlying securities that are ``Covered 
Securities,'' as defined under section 18(b)(1)(A) of the Securities 
Act of 1933 (``1933 Act''),\3\ the closing market price of the 
underlying security must be at least $3 per share for the five previous 
consecutive business days prior to the date on which the Amex submits 
an option class certification to OCC.\4\ Underlying securities that are 
not ``Covered Securities'' will continue to be subject to the 
Exchange's current $ 7.50 price per share requirement found in 
Commentary .01 to Amex rule 915.\5\
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    \3\ Section 18(b)(1)(A) of the 1933 Act provides that, ``[a] 
security is a covered security if such security is listed, or 
authorized for listing, on the New York Stock Exchange or the 
American Stock Exchange, or listed, or authorized for listing, on 
the National Market System of the Nasdaq Stock Market (or any 
successor to such entities) * * * .'' See 15 U.S.C. 77r(b)(1)(A). 
The term Covered Security, for the operation of proposed amendments 
to Commentary .01(4) to Amex rule 915 would not include those 
securities defined under section 18(b)(1)(B) of the 1933 Act. See 15 
U.S.C. 77r(b)(1)(B).
    \4\ For purposes of this proposal, the market price of an 
underlying security is measured by the closing price reported in the 
primary market in which the underlying security is traded. See 
amended Commentary .01(4) to Amex rule 915.
    \5\ The Exchange is not seeking to amend any of the other 
initial listing guidelines set forth in Commentary .01 to Amex rule 
915.
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    The proposed rule change is identical to a proposal by the Chicago 
Board Options Exchange, Inc. (``CBOE'') to revise its initial listing 
standards that was recently approved by the Commission and became 
effective on January 15, 2003.\6\ In addition, the International 
Securities Exchange, Inc. (``ISE'') has also proposed to match the CBOE 
amendment to options initial listing standards.\7\ The Exchange seeks 
to amend its initial options listing guidelines in order to be 
consistent with both the CBOE and ISE so that the Amex is not placed at 
a competitive disadvantage with respect to the option classes that it 
may list. The Exchange further does not believe that this particular 
options initial listing guideline serves to accomplish its intended 
purpose of preventing the proliferation of option classes on overlying 
securities that lack adequate liquidity to maintain fair and orderly 
markets.
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    \6\ See Securities Exchange Act Release No. 47190 (January 15, 
2003), 68 FR 3072 (January 22, 2003).
    \7\ See Securities Exchange Act Release No. 47483 (March 11, 
2003), 68 FR 13352 (March 19, 2003).
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    The Exchange believes that changing the initial price guideline to 
the proposed $3 market price per share for ``covered securities'' would 
allow the Exchange to evaluate whether to list options on a greater 
number of classes without compromising investor protection based on the 
economic realities of its customers and the marketplace. In determining 
to list new option classes, the Exchange also must ensure that its own 
systems and those of the Options Price Reporting Authority (``OPRA'') 
have the capacity to handle the potential increased capacity 
requirements.
    The Exchange believes that the proposed $3 market price per share 
standard is also consistent with the guideline price in Exchange rule 
916 for determining whether an underlying security previously approved 
for Exchange options transactions can continue to underlie options 
trading.\8\ Commentary .01(4) and .02 to Amex rule 916 sets a $3 market 
price per share as the threshold for determining whether the Exchange 
may continue listing and trading options on an underlying security that 
was previously approved for options trading under rule 915. 
Accordingly, the Exchange believes that the proposed $3 market price 
per share for ``covered securities'' should also be the threshold 
standard for the initial listing as well.
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    \8\ See Commentary .01(4) and .02 of Amex rule 916.
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    Consistent with both the CBOE and ISE proposals, the Exchange, as a 
safeguard against price manipulation, has proposed that the underlying 
security have a closing market price of at least $3 per share for the 
previous five consecutive business days preceding the date on which the 
Exchange submits a certificate to OCC for listing and trading. The 
Exchange believes that the proposed ``look back'' period of five 
consecutive trading days provides a sufficient measure of protection 
from attempts to manipulate the market price of the underlying 
security. The proposed $3 price standard and the five-day look-back 
period would provide a reliable test for stability and, at the same 
time, presents a more reasonable time period for qualifying the price 
of an underlying security. The Exchange further believes that this 
proposed abbreviated qualification period, in combination with the 
Exchange's quarterly delisting program,\9\ would contribute to reducing 
unnecessary quote traffic.
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    \9\ The Exchange states that it currently reviews multiply 
listed option classes, on a quarterly basis, for the purpose of 
delisting such option classes due to a lack of trading interest. 
Going forward, the Exchange intends to implement an active delisting 
program which would require the quarterly delisting of multiply 
listed option classes that do not trade more than twenty (20) 
contracts per day on the Exchange.
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    Finally, for the purposes of consistency within Amex rules, the 
Exchange proposes to also amend Commentary .04(d)(ii) to Amex rule 915 
in connection with Restructured Securities. Commentary .04(d)(ii) to 
Amex rule 915 currently provides a method to certify that the market 
price of a Restructured Security satisfies the pricing requirement of 
Commentary .01(4) to Amex rule 915 referencing the $7.50 market price 
per share requirement. In order to make Commentary .04(d)(ii) Amex rule 
915 consistent with the pricing guideline change to Commentary .01(4) 
of Amex rule 915, the amended rule reflects the reduction of the market 
price from $7.50 to $3 as long as the Restructured Security is a 
``Covered Security.''

[[Page 17122]]

2. Statutory Basis
    The proposed rule change is consistent with section 6(b) \10\ of 
the Act in general and furthers the objectives of section 6(b)(5) \11\ 
in particular in that 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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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will impose no 
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

    The foregoing rule change, as amended, has become effective 
pursuant to section 19(b)(3)(A) of the Act \12\ and subparagraph (f)(6) 
of rule 19b-4 \13\ thereunder because it does not: (i) Significantly 
affect the protection of investors or the public interest; (ii) impose 
any significant burden on competition; (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate; and the Exchange has given the Commission 
written notice of its intention to file the proposed rule change at 
least five business days prior to filing. At any time within 60 days of 
the filing of such 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.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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    Under rule 19b-4(f)(6)(iii) of the Act,\14\ the proposal does not 
become operative for 30 days after the date of its filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest and the Exchange is 
required to give the Commission written notice of its intention to file 
the proposed rule change at least five business days prior to filing. 
The Exchange has given the Commission written notice of its intention 
to file the proposed rule change at least five business days prior to 
filing. The Exchange contends that this proposed rule is substantially 
similar to comparable rules the Commission approved for the CBOE, which 
was published for public notice and comment.\15\ As a result, the 
Exchange believes that the proposed rule change does not raise any new 
regulatory issues, significantly affect the protection of investors or 
the public interest, or impose any significant burden on competition. 
The Commission, consistent with the protection of investors and the 
public interest, has determined to waive the 30-day operative 
period,\16\ and, therefore, the proposal is effective and operative 
upon filing with the Commission.
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    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ See Securities Exchange Act Release No. 47190 (January 15, 
2003), 68 FR 3072 (January 22, 2003) (approving SR-CBOE-2002-62). 
See also Securities Exchange Act Release Nos. 47352 (February 11, 
2003), 68 FR 8319 (February 20, 2003) (Notice of Filing and 
Immediate Effectiveness of SR-PCX-2003-06); and 47483 (March 11, 
2003), 68 FR 13352 (March 19, 2003) (Notice of Filing and Immediate 
Effectiveness of SR-ISE-2003-04).
    \16\ For purposes only of waiving the 30-day operative period 
for this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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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 at the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No. SR-Amex-2003-19 and 
should be submitted by April 29, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-8446 Filed 4-7-03; 8:45 am]
BILLING CODE 8010-01-P