[Federal Register Volume 69, Number 104 (Friday, May 28, 2004)]
[Notices]
[Pages 30731-30734]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-12111]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49759; File No. SR-Amex-2004-35]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the American Stock Exchange 
LLC Relating to the Adoption of Procedures for the Transfer of Options 
Positions

May 24, 2004.
    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 14, 2004, 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 Amex. Pursuant to 
section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) 
thereunder,\4\ Amex has designated this proposal as non-controversial, 
which renders the proposed rule change effective immediately upon 
filing. The Commission is publishing this notice to

[[Page 30732]]

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\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Amex proposes to amend Exchange Rule 959 to adopt procedures for 
the on-floor transfer of options positions that are being transferred 
as part of a sale or disposition of all, or substantially all, of the 
assets or options of the transferring party. The text of the proposed 
rule change is available at Amex and at the Commission.

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

    In its filing with the Commission, 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. 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 purpose of the proposed rule change is to establish which 
position transfers may occur off-floor and which position transfers 
must be offered to the floor. Specifically, the Exchange proposes to 
amend Rule 959 to allow for the on-floor transfer of options positions 
that are being transferred as part of a sale or disposition of all, or 
substantially all, of the assets or option positions of a specialist or 
registered options trader (``ROT''), who would no longer be involved in 
managing or owning the transferred positions. The procedures 
established by this proposal would be used by specialists and ROTs who, 
for reasons other than a forced liquidation, desire to liquidate their 
entire, or nearly entire position in a single set of transactions. In 
addition, specialists and ROTs would also be able to use these 
procedures in preparation for or during lengthy absences from the 
trading floor, such as an extended vacation. However, these procedures 
are not intended to replace the Exchange's auction market, and 
accordingly, frequent use of the procedures by the same specialist or 
ROT will not be permitted.
    Pursuant to the proposal, the specialist or ROT (referred to 
hereinafter as the ``Transferor'') would determine which securities to 
package with the Amex-traded option positions in the portfolio. The 
Transferor would be able to include other exchange-listed or NASDAQ NMS 
securities as well as option contracts in the package to be transferred 
(``Transfer Package'') provided the positions are being transferred 
pursuant to a discontinuation of the management or ownership of the 
options positions. Any number of Transfer Packages can be created, 
provided each Transfer Package contains positions in only one option 
class. This limitation ensures that smaller specialists and ROTs are 
able to compete against larger member organizations in the bidding for 
the Transfer Package, thus ensuring a broader participation by the 
membership of the Exchange. The proposed rule provides, however, that a 
member or member organization may make an aggregate bid or offer for 
any number of Transfer Packages offered by a single Transferor. In the 
event that the aggregate bid or offer is superior to the combination of 
the individual best bids or offers for the individual Transfer 
Packages, the Transferor would be allowed to accept that aggregate bid 
or offer for a combination of, or all of, the Transfer Packages. The 
Exchange believes that allowing Transferors to accept aggregate bids or 
offers would ensure that they get the best possible price for their 
positions.
    Transfer Packages would be offered using the procedures for the 
trading of Flexible Exchange Options (``FLEX'') \5\ and would be 
required to be submitted to the specialist for that option class prior 
to 2 p.m. Under the proposed procedures, any firm submitting a Transfer 
Package would be required to designate a member of the Exchange or a 
person associated with a member to represent the order on the floor of 
the Exchange. This designee must be available on the Exchange floor to 
answer questions regarding the Transfer Package during the entire 
Request Response Time. Following the offer of the Transfer Packages, 
interested members of the Exchange would be given two hours to submit a 
bid for one or any combination of the Transfer Packages offered by the 
Transferor. Acceptance of a best bid or offer (``BBO'') would create a 
binding contract under Amex Rule 953, however, a Transferor is not 
obligated to accept a BBO. If the Transferor does not accept the BBO 
for the Transfer Packages, the Transferor may offer the positions in 
any Transfer Package the following business day. Because the Exchange 
intends for this proposed procedure to be a transfer procedure and not 
a price discovery mechanism, the Transferor would need the permission 
of a Floor Governor to offer the positions on the Exchange floor for 
any day subsequent to the second day.
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    \5\ See Exchange Rules 900G et al.
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    Bids and offers would be made on a net debit or credit basis for 
entire Transfer Packages. In the event that a particular Transfer 
Package contains stock positions or other securities positions whose 
transfer must be transacted on another exchange pursuant to applicable 
law or regulation, then any accepted bid or offer would give rise to a 
contract for the Amex-listed product, the price of which is contingent 
on the prices at which the other portions of the Transfer Package are 
transacted. The price at which the Amex-listed product is transacted 
would be the price that is necessary to ensure that the entire Transfer 
Package is transferred at the agreed upon net debit or credit. All 
transactions that are required to be completed would typically be 
transacted by the end of the trading day on which the bid or offer is 
made and accepted. The proposed rule also would provide that the member 
submitting the accepted bid or offer may cancel the trade for the Amex-
listed product in the event that the parties are unable to complete the 
transaction for the non-Amex-listed product due to a trading halt or 
some other operational problem outside the control of the submitting 
party.
    The Exchange believes that the proposed procedures should provide 
Transferors a more favorable bid or offer for their options positions 
since the other securities in the package may hedge or otherwise 
complement the options positions and result in more favorable pricing 
for the overall package.
    The proposed rule would serve to expose the maximum number of 
positions to the auction market. The Exchange believes that exposing 
these positions to the auction market would benefit the public by 
increasing the liquidity and transparency of the market in the listed 
option positions. We further believe that the membership would benefit 
by being given the opportunity to bid on the positions.

Exemptions

    The Exchange represents that it generally prohibits the off-floor 
transfers of options positions between accounts, individuals or 
entities where a change of beneficial ownership results.

[[Page 30733]]

However, the Exchange recognizes that there may be circumstances where 
an off-floor transfer may be justified, such as emergency transfers of 
a firm's positions in bulk during a market crisis. In an extremely 
volatile market, the Transferor may be subject to undue risk if he were 
forced to subject his positions to the auction process established by 
the proposed rule because there may be some delay in agreeing to a 
price. In these circumstances, the Exchange represents that its Chief 
Executive Officer or his designee may, on his own initiative or upon 
request from the Transferor, exempt the transfer from the proposed rule 
and permit an off-floor transfer to occur. The Exchange states that 
another basis for exempting the transfer from the proposed rule would 
be a showing by the Transferor to the Chief Executive Officer or his 
designee that compliance with the proposed rule would compromise the 
market value of the Transferor's business.
    The Exchange represents that there are several other circumstances 
where it would not require the transfer to be completed on the Exchange 
floor, even in situations where the Transferor does not maintain 
ownership or management of the positions. These exemptions found in the 
proposed Rule generally relate to changes to the member's legal status 
or trading account. In addition, positions donated to a not-for-profit 
organization or positions donated to a minor under the ``Uniform Gifts 
to Minor'' law would not have to be brought to the Exchange floor 
pursuant to the proposed rule change.
2. Statutory Basis
    The Exchange believes that 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) \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

    Amex does not believe that the proposed rule change will result in 
any burden on competition that is 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

    Amex neither solicited nor received written comments with respect 
to the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing proposed rule change has become effective upon filing 
on May 14, 2004 pursuant to section 19(b)(3)(A) \8\ of the Act and Rule 
19b-4(f)(6) \9\ thereunder because the proposal: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days from the date of 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 at least five business days 
prior to the filing date of the proposed rule change.\10\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ As required under Rule 19b-4(f)(6)(iii), Amex provided the 
Commission with written notice of its intent to file the proposed 
rule change at least five business days prior to the filing date.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\11\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and public interest. Amex seeks to have the 
proposed rule change become effective immediately to allow it to 
implement the proposed procedures for transferring the options 
positions of specialists and ROTs that are being transferred as part of 
a sale or disposition.
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    \11\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission has determined to waive the 30-day operative date 
requirement for this proposed rule change, and designate the proposed 
rule change as operative on May 14, 2004, the date it was submitted to 
the Commission.\12\ The Commission notes that the proposed rule change 
is similar to rules of the Pacific Exchange, Inc. and Chicago Board 
Options Exchange, which were previously approved by the Commission.\13\ 
Accordingly, because the proposed rule change does not raise any new 
regulatory concerns, the Commission has determined that it is 
consistent with the protection of investors and the public interest to 
designate the proposed rule change as operative on May 14, 2004. At any 
time within 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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    \12\ For the 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).
    \13\ See Securities Exchange Act Release Nos. 36647 (December 
28, 1995) (Order approving CBOE Rule 6.49A); and 45395 (February 5, 
2002) (Order approving PCX Rule 6.78(d)).
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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. Comments may be submitted by any of 
the following methods:
    Electronic comments:
     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-Amex-2004-35 on the subject line.
    Paper comments:
     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-Amex-2004-35. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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, 450 Fifth 
Street, NW.,

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Washington, DC 20549. Copies of such filing also will be available for 
inspection and copying at the principal office of Amex. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-Amex-2004-35 and should be 
submitted on or before June 18, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-12111 Filed 5-27-04; 8:45 am]
BILLING CODE 8010-01-P