[Federal Register Volume 68, Number 117 (Wednesday, June 18, 2003)]
[Notices]
[Pages 36616-36617]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-15352]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48023; File No. SR-Amex-2003-53]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the American Stock Exchange 
LLC Relating to Maximum Bid/Offer Differentials for Option Contracts

June 12, 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 June 2, 2003, the American Stock Exchange LLC (the ``Amex'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``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 Amex proposes to amend Exchange Rule 958 to set the maximum 
bid/offer differential for option contracts at $0.40 where the 
prevailing bid is at or above $2 but does not exceed $5, and $0.80 
where the prevailing bid is more than $10 but does not exceed $20. The 
text of the proposed rule change is set forth below. [Bracketing] 
indicates text to be deleted, and italics indicates text to be added.
* * * * *

Options Transactions of Registered Traders

Rule 958

    (a)-(b) No change
    (c) With respect to each class of options as to which he is 
assigned by the Exchange, a Registered Trader, whenever he enters the 
trading crowd in other than a floor brokerage capacity, or is called 
upon by a Floor Official or a Floor Broker acting in an agency 
capacity, is required to make competitive bids and offers as reasonably 
necessary to contribute to the maintenance of a fair and orderly market 
and shall engage, to a reasonable degree under the existing 
circumstances, in dealings for his own account when there exists a lack 
of price continuity, a temporary disparity between the supply of and 
demand for option contracts of a particular series, or a temporary 
distortion of the price relationships between option contracts of the 
same class. Without limiting the foregoing, a Registered Trader is 
expected to perform the following activities in the course of 
maintaining a fair and orderly market:
    (i) If the underlying security is a stock or Exchange-Traded Fund 
Share, bidding and offering so as to create differences of no more than 
$0.25 between the bid and the offer for each option contract for which 
the prevailing bid is less than $2, no more than [$0.37] $0.40 where 
the prevailing bid is $2 but does not exceed $5, no more than $0.50 
where the prevailing bid is more than $5 but does not exceed $10, no 
more than [$0.75] $0.80 where the prevailing bid is more than $10 but 
does not exceed $20, and no more than $1 where the last prevailing bid 
is more than $20. In the event the bid/ask differential in the 
underlying security is greater than the bid/ask differential set forth 
herein, the permissible price differential for any in-the-money option 
series may be identical to those in the underlying security market.

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 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 the 
Statutory Basis for, the Proposed Rule Change

(1) Purpose
    Pursuant to the industry-wide conversion of the pricing of 
securities from fractions to decimals, the Exchange converted all 
stocks and options pricing in its rules to decimals. Among the rules 
affected was Exchange Rule 958, which sets forth the obligations of 
registered options traders and options specialists.\3\ Subparagraph 
(c)(i) of Rule 958 requires registered options traders and options 
specialists, in the course of maintaining a fair and orderly market, to 
adhere to maximum bid/offer differentials specified in the rule.\4\ In 
connection with this conversion from fractions to decimals, the 
Exchange converted (i) the maximum bid/offer differential of 3/8 of $1 
to $0.37 where the prevailing bid is at or above $2 but does not exceed 
$5; and (ii) the maximum bid/offer differential of 3/4 of $1 to $0.75 
where the prevailing bid is more than $10 but does not exceed $20.
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    \3\ Exchange Rule 950(n) requires options specialists to adhere 
to the maximum bid/offer differentials set forth in Amex Rule 
958(c).
    \4\ The maximum bid/offer differential varies depending upon the 
prevailing bid for the option contract.
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    The requirements of related Exchange Rule 952, however, created 
anomalies in the maximum bid/offer differentials as stated in Rule 958. 
Amex Rule 952, which sets forth the minimum price variation (``MPV'') 
for option contracts, requires a MPV of $0.05 where an option contract 
trades less than $3.00 and a MPV of $0.10 where an option contract 
trades at or above $3. Consequently, option contracts trading at or 
above $2 but less than $3 are restricted to a maximum bid/offer 
differential of $0.35, not $0.37, because the MPV at those prices is 
$0.05, and option contracts trading at or above $3 but not exceeding $5 
are restricted to a maximum bid/offer differential of $0.30, not $0.37, 
because the MPV at those prices is $0.10. Similarly, option contracts 
where the prevailing bid is more than $10 but does not exceed $20 are 
allowed a maximum bid/offer differential of $0.75 under Amex Rule 958, 
but since the MPV is $0.10 at those prices, registered options traders 
and options specialists are required to quote with a maximum 
differential of $0.70.
    Because maximum bid/offer differentials were reduced from levels 
permitted before the conversion from fractions to decimals, the 
Exchange now proposes to amend Amex Rule 958 to increase the maximum 
bid/offer differential (i) from $0.37 to $0.40 where the prevailing bid 
is at or above $2 but does not exceed $5; and (ii) from $.075 to $0.80 
where the prevailing bid is more than $10 but does not exceed $20. 
These changes will conform Amex Rule 958 to the Exchange's current 
practice of allowing registered options traders and options specialists 
to quote bids and offers with maximum bid/offer

[[Page 36617]]

differentials of $0.40 and $0.80 under the abovementioned 
conditions.\5\
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    \5\ Under Amex Rule 958(c)(i), the Exchange may establish, where 
appropriate, maximum bid/offer differentials other than those set 
forth in the rule.
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(2) Basis
    The proposed rule change is consistent with section 6(b) of the Act 
\6\ in general and furthers the objectives of section 6(b)(5) of the 
Act \7\ 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, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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.

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 has become immediately effective pursuant 
to section 19(b)(3)(A) of the Act \8\ and Rule 19b-4(f)(6) \9\ 
thereunder because (i) it does not significantly affect the protection 
of investors or the public interest; (ii) it does not impose any 
significant burden on competition; and (iii) by its terms, it does not 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest; provided that the 
self-regulatory organization has given the Commission written notice of 
its intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule change.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. Acceleration of the operative delay will permit the Amex to 
amend Rule 958 without undue delay. For this reason, the Commission 
designates the proposal to be effective upon filing with the 
Commission.\10\ At any time within sixty (60) days of the filing of the 
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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    \10\ For purposes only of accelerating the operative date of 
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. 
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 Section, 450 Fifth Street, NW., 
Washington, DC 20549. 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-2003-53 and should be 
submitted by July 9, 2003.

    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. 03-15352 Filed 6-17-03; 8:45 am]
BILLING CODE 8010-01-P