[Federal Register Volume 70, Number 108 (Tuesday, June 7, 2005)]
[Notices]
[Pages 33226-33228]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2897]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51770; File No. SR-Amex-2005-040]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
and Amendment Nos. 1 and 2 to Extend Until June 5, 2006, a Pilot 
Program for Listing Options on Selected Stocks Trading Below $20 at 
One-Point Intervals

May 31, 2005.
    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 April 14, 2005, 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. The Amex filed 
Amendment Nos. 1 and 2 to the proposal on May 10, 2005, and May 18, 
2005, respectively.\3\ The Amex filed the proposal, as amended, 
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 the filing 
with the Commission of Amendment No. 2 to the proposal.\6\ 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    \3\ Amendment No. 2 replaced and superseded the original filing 
and Amendment No. 1 in their entirety. Amendment No. 2 revises the 
proposal to change it from a filing made pursuant to Section 
19(b)(2) of the Act to a filing made pursuant to Section 19(b)(3)(A) 
of the Act and Rule 19b-4(f)(6) thereunder. In addition, Amendment 
No. 2 requests a one-year extension of the $1 strikes pilot program, 
through June 5, 2006, rather than permanent approval of the pilot.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
    \6\ As noted above, Amendment No. 2 changed the proposal from a 
filing made pursuant to Section 19(b)(2) of the Act to a filing made 
pursuant to Section 19(b)(3)(A) of the Act. The Amex has asked the 
Commission to waive the five-day pre-filing notice requirement and 
the 30-day operative delay. See Rule 19b-4(f)(6)(iii), 17 CFR 
240.19b-4(f)(6)(iii).
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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 Commentary .05 to Amex Rule 903, 
``Series of Options Open for Trading,'' to extend until June 5, 2006, 
its pilot program for listing options series on selected stocks trading 
below $20 at one-point intervals (``Pilot Program''). The text of the 
proposed rule change is available on the Amex's Web site (http://www.amex.com), at the Amex's principal office, and at the Commission's 
Public Reference Room.

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
    The Pilot Program was established in June 2003,\7\ with a one-year 
extension through June 5, 2005, granted by the Commission in June 
2004.\8\ The Amex believes that the Pilot Program has operated as 
designed, providing investors with greater flexibility in achieving 
their investment strategies in connection with stocks trading below 
$20. Accordingly, the Amex believes that a one-year extension, through 
June 5, 2006, is reasonable and consistent with the intent of the Pilot 
Program.
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    \7\ See Securities Exchange Act Release No. 48024 (June 12, 
2003), 68 FR 36617 (June 18, 2003) (order approving File No. SR-
Amex-2003-36) (``Pilot Approval Order'').
    \8\ See Securities Exchange Act Release No. 49813 (June 4, 
2004), 69 FR 33088 (June 14, 2004) (notice of filing and immediate 
effectiveness of File No. SR-Amex-2004-45) (``Pilot Program 
Extension Notice'').
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    The Pilot Program permits the Exchange to select a total of five 
individual stocks on which options series may be listed at $1 strike 
price intervals. To be eligible for the Pilot Program, an underlying 
stock must close below $20 on its primary market on the previous 
trading day. If selected, the Exchange may list $1 strike prices at $1 
intervals from $3 to $20, consistent with the terms of the Pilot 
Program. Under the Pilot Program, a $1 strike price may not be listed 
that is greater than $5 from the underlying stock's closing price on 
its primary market on the previous day. The Exchange may also list $1 
strikes on any other options class designated by another options 
exchange that employs a similar pilot program approved by the 
Commission.
    The Pilot Program prohibits the Exchange from listing $1 strikes on 
any series of individual equity options classes that have greater than 
nine months until expiration. In addition, the Exchange is restricted 
from listing any series that would result in strike prices being $0.50 
apart.
    To date, the Exchange believes that the Pilot Program has been 
beneficial to investors and the options market by providing investors 
with greater flexibility in the trading of equity options that overlie 
stocks trading below $20. In this manner, options investors are able to 
better tailor their strategies through the availability of $1 strikes. 
The Pilot Program Report, attached as Exhibit 3, provides data 
regarding the Pilot Program as required in the Pilot Program Extension 
Notice.\9\ The Amex notes that, as the data indicates, the $1 strikes 
exhibited higher volume and open interest than the ``standard'' strike 
price intervals. Specifically, the five options classes selected by the 
Amex for $1 strikes had a trading volume of 595,836 contracts, while 
the ``standard'' strikes for the same options classes had a trading 
volume of 342,553 contracts. Of even greater significance is the 
difference in open interest between the $1 strikes and ``standard'' 
strikes. As of

[[Page 33227]]

March 8, 2005, $1 strikes open interest totaled 883,471 contracts 
versus 677,553 contracts for ``standard'' strikes. Given the limited 
nature of the Pilot Program, the Exchange submits that the impact on 
systems has been minimal. Accordingly, the Amex believes that an 
extension of the Pilot Program for one year through June 5, 2006, is 
warranted.
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    \9\ See note 8, supra.
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2. Statutory Basis
    The Amex believes that the proposed rule change is consistent with 
the Section 6(b) of the Act,\10\ in general, and furthers the objective 
of Section 6(b)(5) of the Act,\11\ in particular, in that it is 
designed to promote just and equitable principles of trade and to 
remove impediments to and perfect the mechanism of a free and open 
market.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Amex believes that the proposed rule change will impose no 
burden on competition that is not necessary or appropriate in the 
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

    The Amex has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \12\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\13\ Because the foregoing proposed 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) by its terms does not become operative for 30 days after the 
date of this filing, 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 and Rule 19b-4(f)(6) thereunder.
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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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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. In addition, Rule 19b-4(f)(6)(iii) requires a 
self-regulatory organization to provide the Commission with 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, 
or such shorter time as designated by the Commission. The Amex has 
asked the Commission to waive the five-day pre-filling notice 
requirement and the 30-day operative delay so that the proposal will be 
effective on June 5, 2005.
    The Commission waives the five-day pre-filing notice requirement. 
In addition, the Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest because it will allow the Pilot Program to continue without 
interruption through June 5, 2006.\14\ For this reason, the Commission 
designates that the proposal become operative on June 5, 2005.\15\
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    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \15\ As set forth in the Commission's initial approval of the 
Pilot Program, if the Amex proposes to: (1) extend the Pilot 
Program; (2) expand the number of options eligible for inclusion in 
the Pilot Program; or (3) seek permanent approval of the Pilot 
Program, it must submit a Pilot Program report to the Commission 
along with the filing of its proposal to extend, expand, or seek 
permanent approval of the Pilot Program. The Amex must file any such 
proposal and the Pilot Program report with the Commission at least 
60 days prior to the expiration of the Pilot Program. The Pilot 
Program report must cover the entire time the Pilot Program was in 
effect and must include: (1) Data and written analysis on the open 
interest and trading volume for options (at all strike price 
intervals) selected for the Pilot Program; (2) delisted options 
series (for all strike price intervals) for all options selected for 
the Pilot Program; (3) an assessment of the appropriateness of $1 
strike price intervals for the options the Amex selected for the 
Pilot Program; (4) an assessment of the impact of the Pilot Program 
on the capacity of the Amex's, the Options Price Reporting 
Authority's, and vendors' automated systems; (5) any capacity 
problems or other problems that arose during the operation of the 
Pilot Program and how the Amex addressed them; (6) any complaints 
that the Amex received during the operation of the Pilot Program and 
how the Amex addressed them; and (7) any additional information that 
would help to assess the operation of the Pilot Program. See Pilot 
Approval Order, supra note 7.
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    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.

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 No. SR-Amex-2005-040 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 No. SR-Amex-2005-040. 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., Washington, DC 20549. Copies of such filing will also be available 
for inspection and copying at the principal office 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 No. SR-Amex-2005-040 and should be 
submitted on or before June 28, 2005.


[[Page 33228]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2897 Filed 6-6-05; 8:45 am]
BILLING CODE 8010-01-P