[Federal Register Volume 69, Number 197 (Wednesday, October 13, 2004)]
[Notices]
[Pages 60924-60925]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2576]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50492; File No. SR-Amex-2004-73]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
and Amendment No. 1 Relating to the Maturity of FLEX Index Options

October 5, 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 August 31, 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 and 
II below, which Items have been prepared by the Amex.\3\ The Exchange 
has filed the proposal pursuant to Section 19(b)(3)(A) of the Act,\4\ 
and Rule 19b-4(f)(6) thereunder,\5\ which renders the proposal 
effective upon filing with the Commission. 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\ On September 17, 2004, the Amex filed Amendment No. 1 to the 
proposal. See letter from Laura M. Clare, Assistant General Counsel, 
Amex, to Nancy Sanow, Assistant Director, Division of Market 
Regulation, Commission, dated September 16, 2004 (``Amendment No. 
1''). Amendment No. 1 withdraws the Amex's request that the 
Commission waive the 30-day operative delay. See Rule 19b-
4(f)(6)(iii), 17 CFR 204.19b-4(f)(6)(iii).
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 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

    The Exchange proposes to amend Amex Rule 903G(a)(4)(i) to extend 
the maximum permissible term of FLEX index options to ten years under 
certain circumstances. The text of the proposed rule change appears 
below. Proposed new language is italicized.
* * * * *

Rule 903G Terms of FLEX Options

    (a) General Terms
    (1)-(3) No Change.
    (4) Every FLEX Request for Quotes and every responsive FLEX Quote, 
as applicable, must satisfy the following contract and transaction 
specifications:
    (i) The maximum term of any FLEX Equity Option shall be three 
years, provided, however, that a submitting Member may request a longer 
term to a maximum of five (5) years, and upon assessment by the Flex 
Post Supervisor that sufficient liquidity exists among Specialists and 
Registered Options Traders such request may be granted. The maximum 
term of any FLEX Index Option shall be five (5) years, however, a 
Submitting Member may request a longer term to a maximum of ten (10) 
years, and upon assessment by the Flex Post Supervisor that sufficient 
liquidity exists among Specialists and Registered Options Traders such 
request may be granted;
    (ii)-(iv) No Change.
    (b)-(c) 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 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
    Currently, under Amex Rule 903G, ``Terms of FLEX Options,'' FLEX 
index options are limited to a maturity of five years. The purpose of 
the proposal is to allow FLEX index options traded on the Amex to have 
a maturity beyond five years and up to ten years in certain 
circumstances.
    FLEX index options provide investors with the ability to customize 
basic option features including size, expiration date, exercise style, 
and certain exercise prices. Currently, FLEX index options are limited 
to a maximum term of five years. The Exchange recently has received 
requests from broker-dealers to extend the maturity of FLEX index 
options to ten years. Among the reasons for this request from the 
broker-dealers is that some of their institutional customers trade or 
issue securities with five-to ten-year terms and are seeking a method 
to hedge that long-term risk. Furthermore, the Chicago Board Options 
Exchange, Inc. (``CBOE'') amended CBOE Rule 24A.4(a)(4)(i) to increase 
the maximum term of FLEX index options from five to ten years.\6\
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    \6\ See Securities Exchange Act Release No. 46815 (November 12, 
2002), 67 FR 69775 (November 19, 2002) (order approving File NO. SR-
CBOE-2002-23).
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    The proposed amendment to Amex Rule 903G would permit FLEX index 
options with terms up to a maximum of ten years when requested by a 
Submitting Member if the FLEX Post Supervisor determines that 
sufficient liquidity exists among FLEX index participating members. In 
other words, the FLEX Post Supervisor will ask FLEX index market-makers 
and other FLEX index traders (including the Submitting Member) whether 
any of them are interested in making a two-sided market in the proposed 
series for the size requested. If the answer is yes, the FLEX Post 
Supervisor will open a Request for Quotes for the proposed series and 
it will trade pursuant to the provisions of Amex Rule 904G, ``FLEX 
Trading Procedures and Principles.'' The liquidity requirement will 
help to ensure that there is not a proliferation of longer-term FLEX 
index options series where no interest in trading such options exists.
    The Exchange margin requirements for the proposed longer term FLEX 
index options will be the same margin requirements that currently apply 
to

[[Page 60925]]

existing FLEX index options (and other listed options). The margin that 
will be required for a purchase of the proposed FLEX index options in a 
margin account will be the same margin that is required for a purchase 
of other listed long-term options (options with more than nine months 
until expiration) and will be required to comply with the provisions of 
Amex Rule 462(d)(2)(D).
    According to the Amex, the proposal will allow institutions to use 
longer-term FLEX index options to protect portfolios from long-term 
market moves with a known and limited cost. The Amex believes that the 
proposal will better serve the long-term hedging needs of institutional 
investors and provide those investors with an alternative to hedging 
their portfolios with off-exchange customized options and warrants.
    By allowing for the extension of the maturity of FLEX index options 
to ten years in situations where there is demand for a longer-term 
expiration and where there is sufficient liquidity among FLEX index 
participating members to support the request, the Amex believes that 
the proposal will better serve the needs of the Amex's customers and 
members who make a market for such customers.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act,\7\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\8\ in particular, in that it 
is designed to remove impediments to and perfect the mechanism for a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 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 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

    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

    Because the foregoing rule change: (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 on which it was filed, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\9\ and Rule 19b-4(f)(6) thereunder.\10\ As required under Rule 19b-
4(f)(6)(iii), the Amex provided the Commission with written notice of 
its intention to file the proposed rule change at least five business 
days prior to filing the proposal with the Commission or such shorter 
period as designated by the Commission.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the 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.\11\
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    \11\ The Commission considers the 60-day period within which the 
Commission may summarily abrogate the proposal under Section 
19(b)(3)(C) of the Act to have commenced on September 17, 2004, the 
date the Amex filed Amendment No. 1 to the proposal.
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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-2004-73 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-2004-73. 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. Copies of the 
filing also will be available for inspection and copying at the 
principal offices of the 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-2004-73 and should be submitted on or before 
November 3, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E4-2576 Filed 10-12-04; 8:45 am]
BILLING CODE 8010-01-P