Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the American Stock Exchange, Inc. Relating to Opening Transactions in Flexible Equity Options

[Federal Register Volume 63, Number 204 (Thursday, October 22, 1998)]
[Notices]
[Pages 56668-56669]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28318]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40559; File No. SR-Amex-98-35]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the American Stock Exchange, 
Inc. Relating to Opening Transactions in Flexible Equity Options

October 15, 1998.
    Pursuant to Section 19(b)(1) of the Securities and Exchange Act of 
1934\1\ notice is hereby given that on September 28, 1998, the American 
Stock Exchange, Inc. (``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 Exchange. 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).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Amex proposes to change the required minimum value size for 
opening transactions in FLEX Equity Options series that have no open 
interest, so that the minimum value size will be the lesser of 250 
contracts or the number of contracts overlying $1 million of the 
underlying securities. The text of the proposed rule change is 
available at the Office of the Secretary, 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, the Amex included statements 
concerning the purpose of, and statutory 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 Exchange is proposing to change the minimum value size for 
opening transactions (other than FLEX Quotes responsive to FLEX Request 
for Quotes) in any FLEX Equity Option series in which there is no open 
interest at the time the Request for Quotes is submitted. Currently, 
Rule 903G states that the minimum value size for these opening 
transactions shall be 250 contracts. The Exchange is proposing to 
change this rule such that the minimum value size for these 
transactions shall be the lesser of 250 contracts or the number of 
contracts overlying $1 million of the underlying securities.
    The Exchange is proposing this change because it believes the 
current rule is overly restrictive. The rule was originally put in 
place to limit participation in FLEX Equity options to sophisticated, 
high end worth individuals. However, the Exchange believes that this 
limit tied to the number of contracts alone hurts the liquidity and 
trading interest in FLEX Equity Options for higher priced equities. The 
Exchange believes the value of the securities underlying FLEX Equity 
Options is just as valid a restraint as one tied solely to the number 
of contracts and if set at the right limit can prevent the 
participation of investors who do not have adequate resources. In fact, 
the limitation on the minimum value size for opening transactions in 
FLEX Index Options is tied to the same type of standard, the Underlying 
Equivalent Value. The Exchange believes the number of contracts 
overlying $1 million in underlying securities is adequate to provide 
the right amount of investor protection. An opening transaction in a 
FLEX Equity series on a stock priced at more than $40 would reach this 
limit before it would reach the contract size limit i.e., 250 contracts 
times the multiplier (100) times the stock price ($40) equals $1 
million in underlying value. It should also be noted that the minimum 
value size in FLEX Equity series overlying low priced stocks may 
currently be permitted although the transaction may overlie a much 
smaller value. For example, FLEX Equity Options overlying a $10 stock 
would be permitted although the underlying value for Options may be 
$250,000 i.e., 250 times 100 (multiplier) times $10 (stock price).
(2) Basis
    The Amex believes that the proposed rule change is consistent with 
Section 6(b) of the Act,\2\ in general, and furthers the objectives of 
Section 6(b)(5),\3\ 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 mechanisms of a free and open 
market and a national market system.
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    \2\ 15 U.S.C. 78f(b).
    \2\ 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.

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 proposed rule change is based on 
substantively identical rules relating to the minimum opening 
transaction size in FLEX Equity Options at the Chicago Board Options 
Exchange, Inc.\4\ and: (1) does not significantly affect the protection 
of investors or the public interest; (2) does not impose any 
significant burden on competition; (3) does not become operative for 30 
days from September 28, 1998, the date on which it was filed, and the 
Exchange 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, it has become effective pursuant to Section 19(b)(3)(A) of 
the Act \5\ and Rule 19b-4(e)(6) \6\ thereunder.\7\ 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 furtherance of the 
purposes of the Act.
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    \4\ See Securities Exchange Act Release No. 40451 (September 18, 
1998), 63 FR 51393 9September 25, 1998).
    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(e)(6).
    \7\ In reviewing this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing,

[[Page 56669]]

including whether the proposed rule change is consistent with the Act. 
Persons making written submissions should file six copies thereof with 
the Secretary, Securities and Exchange Commission, 450 Fifth Street, 
N.W., Washington, D.C. 20549. 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 US.C. 552, will be 
available for inspection and copying in the Commission's Public 
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. 
Copies of such filing will also be available for inspection and copying 
at the principal office of the Amex. All submissions should refer to 
File No. SR-Amex-98-35 should be submitted by November 12, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-28318 Filed 10-21-98; 8:45 am]
BILLING CODE 8010-01-M