[Federal Register Volume 73, Number 160 (Monday, August 18, 2008)]
[Notices]
[Pages 48258-48259]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-19030]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58341; File No. SR-Amex-2008-60]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing of a Proposed Rule Change Relating to Margin 
Requirements for Fixed Return Options

August 11, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934, as amended (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on July 21, 2008, the American Stock Exchange LLC 
(``Amex'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I, II and III 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240. 19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 462(d)10 to clarify the margin 
requirements applicable to Fixed Return Options (``FROs'' or ``Fixed 
Return Options'').\3\
---------------------------------------------------------------------------

    \3\ The Exchange commenced the trading of FROs on May 8, 2008. 
In August 2007, the Commission approved the Exchange proposal to 
list and trade FROs based on individual stocks and exchange-traded 
funds (``ETFs''). See Exchange Act Release No. 56251 (August 14, 
2007), 72 FR 46523 (August 20, 2007). In connection with the ability 
to trade FROs, the Options Clearing Corporation (``OCC'') also filed 
proposed rule changes as well as a revision to the Options 
Disclosure Document (``ODD''). The Commission recently approved the 
ODD revisions so that FROs may commence trading on the Exchange. See 
Exchange Act Release No. 57744 (April 30, 2008), 73 FR 25072 (May 6, 
2008) (SR-ODD-2008-01). The Commission previously approved proposed 
OCC rule changes in December 2007. See Exchange Act Release No. 
56875 (November 30, 2007), 72 FR 69274 (December 7, 2007).
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Amex's Web 
site at http://www.amex.com, the Office of the Secretary, the Amex 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposal is to add clarity regarding the 
application of FRO margin requirements in connection with ``spreads'' 
and ``straddle/combination'' strategies. In addition, the proposal also 
seeks to clarify the use of ``cover'' and a ``cash account'' in 
connection with FROs.
    Currently, Rule 462(d)10 is silent regarding the use of ``spread'' 
and ``straddle/combination'' positions. With respect to a ``spread'' 
position in FROs, the Amex proposes that no margin be required on a 
Finish High \4\ FRO (Finish Low \5\ FRO) carried short in a customer's 
account that is offset by a long Finish High FRO (Finish Low FRO) for 
the same underlying security or instrument that expires at the same 
time and has an exercise or strike price that is less than (greater 
than) the exercise or strike price of the short Finish High (Finish 
Low). As set forth in Rule 462(d)10(B), the long Finish High (Finish 
Low) must be paid for in full.
---------------------------------------------------------------------------

    \4\ A ``Finish High'' FRO is defined in Rule 900 FRO(b)(2) as an 
option contract which returns $100 if the underlying security closes 
above the strike price at expiration.
    \5\ A ``Finish Low'' FRO is defined in Rule 900 FRO(b)(3) as an 
option contract which returns $100 if the underlying security closes 
below the strike price at expiration.
---------------------------------------------------------------------------

    In connection with a straddle/combination, when a Finish High FRO 
is carried short in a customer's account and there is also carried a 
short Finish Low FRO that expires at the same time and has an exercise 
price or strike price that is less than or equal to the exercise or 
strike price of the short Finish High, the initial and maintenance 
margin required would be the exercise settlement amount applicable to 
one contract.
    With respect to the concept of ``cover'' the Exchange proposes a 
clarification that ``cover'' is applicable only to ``cash accounts.'' 
In such a case, a FRO carried short in a customer's account will be 
deemed a covered position, and eligible for the cash account, if either 
one of the following is held in the account at the time the FRO is 
written or is received into the account promptly thereafter:
     Cash or cash equivalents equal to 100% of the exercise 
settlement amount;
     A long FRO of the same type (Finish High or Finish Low) 
for the same underlying security or instrument that is paid for in full 
and expires at the same time, and has an exercise or strike price that 
is less than the exercise or strike price of the short in the case of a 
Finish High or greater than the exercise or strike price of the short 
in the case of a Finish Low; or
     An escrow agreement.
    The escrow agreement must certify that the bank holds for the 
account of the customer as security for the agreement (A) cash, (B) 
cash equivalents, (C) one or more qualified equity securities, or (D) a 
combination thereof having an aggregate market value of not less than 
100% of the exercise settlement amount and that the bank will promptly 
pay the member organization the cash settlement amount in the event the 
account is assigned an exercise notice.
    The Exchange believes that the proposed revision reducing the 
customer margin applicable to ``spread'' and ``straddle/combination'' 
positions in FROs is appropriate because risk exposure is significantly 
reduced under these strategies.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Exchange 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,

[[Page 48259]]

and to remove impediments to and perfect the mechanism of a free and 
open market and a national market system. The Exchange believes that 
the proposal will benefit the marketplace and provide market 
participants with greater clarity in connection with their 
responsibilities in the trading and handling of FRO transactions.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The Exchange did not receive any written comments on 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 Exchange 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 No. SR-Amex-2008-60 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-Amex-2008-60. 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 at (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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the Exchange. 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-2008-60 and should be 
submitted on or before September 8, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence. E. Harmon,
Acting Secretary.
[FR Doc. E8-19030 Filed 8-15-08; 8:45 am]
BILLING CODE 8010-01-P