[Federal Register Volume 70, Number 165 (Friday, August 26, 2005)]
[Notices]
[Pages 50431-50433]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4658]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52312; File No. SR-Amex-2005-063]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change Relating to the Elimination of 
Position and Exercise Limits on NDX Options

August 22, 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 June 9, 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, II, 
and III below, which Items have been prepared by the Amex. 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 eliminate position and exercise limits for 
options on the Nasdaq-100 Index (``NDX''). The text of the proposed 
rule change is available on the Amex's Web site (http://www.amex.com), 
at the Amex's Office of the Secretary, 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.

[[Page 50432]]

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

1. Purpose
    The Exchange proposes to eliminate position and exercise limits for 
options on the NDX, a broad-based securities index.\3\ In August 2002, 
the Commission granted permanent approval to an Amex pilot program that 
eliminated position and exercise limits for options on the Major Market 
Index (the ``XMI'') and the Institutional Index (the ``XII'').\4\ For 
similar reasons, the Exchange believes that position and exercise 
limits for NDX options should equally be eliminated.
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    \3\ As described by Amex, the Nasdaq-100 Index is a modified 
capitalization-weighted index of the 100 largest and most active 
non-financial domestic and international issues listed on the Nasdaq 
Stock Market, Inc. A single component security is prohibited from 
representing more than 24% of the weight of the Index. The Index was 
developed with a base value of 125 as of February 1, 1985. See 
Securities Act Exchange Release No. 51884 (June 20, 2005), 70 FR 
36973 (June 27, 2005) (File No. SR-Amex-2005-038) (options on the 
Nasdaq-100 Indexes). See also Securities Exchange Act Release Nos. 
51121 (February 1, 2005), 70 FR 6476 (February 7, 2005) (File No. 
SR-ISE-2005-01); 33428 (January 5, 1994), 59 FR 1576 (January 11, 
1994) (SR-CBOE-93-42); and 37659 (September 6, 1996), 61 FR 48722 
(September 16, 1996) (SR-CBOE-96-40).
    \4\ See Securities Exchange Act Release No. 46393 (August 21, 
2002), 67 FR 55289 (August 28, 2002) (``XMI/XII Permanent Approval 
Order'').
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    In the XMI/XII Permanent Approval Order, the Commission cited 
several reasons for allowing the Exchange to eliminate position and 
exercise limits for XMI and XII options. First, the Commission 
expressed its belief that the enormous capitalization of these indexes 
and the deep liquid markets for the securities underlying each of these 
indexes significantly reduced concerns of market manipulation or 
disruption in the underlying markets. The Amex believes that the NDX is 
similarly capitalized. As of June 1, 2005, the market capitalization of 
XMI and XII was $2.20 trillion and $6.65 trillion, respectively, while 
NDX had a market capitalization of $1.86 trillion. In addition, the 
average daily trading volume (``ADTV''), in aggregate, for the 
component securities of the XMI, XII, and NDX from January 1, 2005 
through May 31, 2005 was 113.9, 524.8, and 425.8 million shares, 
respectively. During the same time period, the ADTV for an average 
single component security of the XMI, XII, and NDX was 5.87, 7.014, and 
4.25 million shares, respectively. The ADTV for options on the XMI \5\ 
and NDX was 948 and 45,820 contracts, respectively.
    Second, the Commission noted in the XMI/XII Permanent Approval 
Order that the financial requirements imposed by both the Exchange and 
the Commission help to address concerns that an Exchange member or its 
customer(s) may try to maintain an inordinately large unhedged position 
in options on these indexes. These financial requirements equally apply 
to NDX options. Under Amex rules, the Exchange also has the authority 
to impose additional margin upon accounts maintaining underhedged 
positions, and is further able to monitor accounts to determine when 
such action is warranted. As noted in the Exchange's rules, the 
clearing firm carrying such an account would be subject to capital 
charges under Rule 15c3-1 under the Act \6\ to the extent of any 
resulting margin deficiency.\7\
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    \5\ Options on the XII are no longer listed and traded on the 
Exchange.
    \6\ 17 CFR 240.15c3-1.
    \7\ See Commentary .03 to Amex Rule 904C. Clarified as per 
telephone conversation between Ira Brandriss, Special Counsel, and 
Theodore Venuti, Attorney, Division of Market Regulation, 
Commission, and Jeffery P. Burns, Associate General Counsel, Amex, 
on August 16, 2005 (``Telephone Conversation of August 16, 2005'').
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    The Amex believes that the Commission in the XMI/XII Permanent 
Approval Order relied substantially on the Exchange's ability to 
provide surveillance and reporting safeguards to detect and deter 
trading abuses arising from the elimination of position and exercise 
limits on XMI and XII options. The Exchange represents that it monitors 
the trading in NDX options in the same manner as trading in XMI options 
and that the current Amex surveillance procedures are adequate to 
continue monitoring NDX options. In addition, the Exchange proposes to 
impose a reporting requirement on Amex members (other than Amex 
specialists and registered options traders) and member organizations 
that trade NDX options. This reporting requirement, which is currently 
imposed on members and member organizations that trade XMI options, 
would require each member or member organization that maintains in 
excess of 100,000 NDX option contracts on the same side of the market, 
for its own accounts or for the account of customer, to report 
information as to whether the positions are hedged and provide 
documentation as to how such contracts are hedged, in a manner and form 
required by the Exchange.\8\ The Exchange may also specify other 
reporting requirements, as well as the limit at which the reporting 
requirement may be triggered.\9\
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    \8\ See Amex Rule 906C.
    \9\ Pursuant to Amex Rule 906, as referenced in Amex Rule 
906C(a). Telephone conversation between Ira Brandriss, Special 
Counsel, and Theodore Venuti, Attorney, Division of Market 
Regulation, Commission, and Jeffery P. Burns, Associate General 
Counsel, Amex, on August 18, 2005.
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    For consistency, the Exchange also proposes to amend its rules 
relating to the trading of FLEX broad-based index options to reflect 
that there shall be no position or exercise limits on NDX options and 
to adopt the 100,000 contract reporting requirement for NDX FLEX 
options.\10\ Thus, the provisions in Amex Rule 906G(b) applicable to 
XMI FLEX options shall also apply to NDX FLEX options.\11\
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    \10\ See Amex Rules 906G and 907G. The text of Rule 907G is not 
amended by this proposed rule change.
    \11\ This would include the authority of the Exchange to impose 
additional margin on accounts maintaining underhedged positions in 
these options. Telephone Conversation of August 16, 2005, supra note 
7.
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    The Exchange believes that eliminating position and exercise limits 
for NDX options and FLEX options is consistent with Amex rules relating 
to similar broad-based indexes and also allows Amex members and their 
customers greater hedging and investment opportunities.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\12\ in general, and furthers the objectives 
of Section 6(b)(5),\13\ 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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    \12\ 15 U.S.C. 78f.
    \13\ 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 would impose no 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

[[Page 50433]]

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which the Amex consents, the Commission will:
    (A) By order approve such proposed rule change; or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2005-063 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303. All submissions should refer to 
File Number SR-Amex-2005-063. 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 Section, 100 F Street, NE., Washington, DC 20549. Copies of 
such filing also will 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 publicly available. All submissions should refer to 
File Number SR-Amex-2005-063 and should be submitted on or before 
September 16, 2005. 
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4658 Filed 8-25-05; 8:45 am]
BILLING CODE 8010-01-P