Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the American Stock Exchange LLC Regarding the Extension of the Pilot Program Eliminating Position and Exercise Limits in FLEX Equity Options

[Federal Register Volume 64, Number 181 (Monday, September 20, 1999)]
[Notices]
[Pages 50843-50845]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-24354]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41847; File No. SR-Amex-99-34]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the American Stock Exchange 
LLC Regarding the Extension of the Pilot Program Eliminating Position 
and Exercise Limits in FLEX Equity Options

    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 27, 1999, 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 Exchange 
has designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under 
the Act \3\ which renders the proposal effective upon receipt of this 
filing by the Commission.\4\ The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested persons 
and to accelerate the operative date of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
    \4\ The Exchange has represented that the proposed rule change: 
(i) will not significantly affect the protection of investors or the 
public interest; (ii) will not impose any significant burden on 
competition; and (iii) will not become operative for 30 days after 
the date of this filing, unless otherwise accelerated by the 
Commission. The Commission is waiving the minimum five business day 
notice requirement as permitted by Rule 19b-4(f)(6) under the Act. 
Id. The Commission notes that the Exchange has requested that the 
Commission accelerate the operative date of the rule change to 
permit uninterrupted operation of the pilot program.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Amex proposes a three month extension of the pilot program

[[Page 50844]]

eliminating position and exercise limits for FLEX Equity options.
    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 Exchange 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 Exchange 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
    On June 19, 1996, the Commission approved the Exchange's proposal 
to list and trade FLEX Equity options on specified equity 
securities.\5\ Thereafter, on September 9, 1997, to allow the Exchange 
to better compete with the over the counter (OTC) market in customized 
equity options, the Exchange received approval to eliminate position 
and exercise limits for FLEX Equity options pursuant to a two-year 
pilot program.\6\ The pilot program, which is in place at other options 
exchanges, also provides that a member or member organization (other 
than a Specialist or Registered Options Trader) must report to the 
Exchange information for each amount that maintains a position on the 
same side of the market in excess of three times the position limit 
level established pursuant to the applicable exchange rule for Non-FLEX 
Equity options of the same class. The report should include information 
regarding the FLEX Equity option position, positions in any related 
instrument, the purpose or strategy for the position, and the 
collateral used by the account.\7\
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    \5\ FLEX Equity options are equity options that give investors 
the ability, within specified limits, to designate certain of the 
terms of the option. See order approving FLEX Equity options 
trading, Securities Exchange Act Release No. 37336 (June 19, 1996), 
61 FR 33558 (June 27, 1996).
    \6\ Securities Exchange Act Release No. 39032 (September 9, 
1997), 62 FR 48683 (September 16, 1997).
    \7\ The Exchange also requires that an updated report be filed 
when a change in the options position occurs or when a significant 
change in the hedge of that position occurs. See Securities Exchange 
Act Release No. 39032 (September 9, 1997), 62 FR 48683 (September 
16, 1997).
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    The Commission, in its order approving the pilot program, required 
the Exchange to submit a report containing a description of: (i) The 
types of strategies used by FLEX Equity options market participants and 
whether FLEX Equity options are being used in lieu of existing 
standardized equity options; (ii) the type of market participants using 
FLEX Equity option both before and during the pilot program, including 
how the utilization of FLEX Equity options has changed; (iii) the 
average size of FLEX Equity option contracts both before and during the 
pilot program, the size of the largest FLEX Equity option contract on 
any given day both before and during the pilot program, and the size of 
the largest FLEX Equity option held by any single customer/member both 
before and during the pilot program; and (iv) any impact on the prices 
of underlying stocks during the establishment or unwinding of FLEX 
positions that are greater than three times the standard position 
limit. The Exchange filed this report with the Commission by letter, 
dated May 28, 1999.
    The program will expire September 9, 1999. Accordingly, the 
Exchange is requesting a temporary three month extension of the current 
program to permit the program to continue without interruption. All of 
the terms and conditions applicable under the order approving the 
elimination of position and exercise limits for FLEX Equity options 
will remain in effect throughout the temporary extension of the 
program. During the temporary three month extension of the current 
program, the Exchange anticipates submitting a request to permanently 
approve the pilot program as contemplated in the order approving the 
program.
2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with Section 6(b) \8\ of the Act in general and furthers the objectives 
of Section 6(b)(5) \9\ in particular in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and is not designed to permit unfair 
discrimination between customers, issuers, brokers or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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 that is 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

    The Exchange has neither solicited nor received written comments 
with respect to the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    This proposed rule filing has been filed by the Exchange as a 
``non-controversial'' rule change pursuant to Section 19(b)(3)(A)(i) of 
the Act \10\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\11\ 
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, (3) by its term does not 
become operative for 30 days after the date of filing, or such shorter 
time as the Commission may designate, and because (4) the Commission is 
waiving the required written notice of intent to file the proposed rule 
change at least five days prior to the filing date, it has become 
effective, for a pilot period until December 9, 1999, pursuant to 
Section 19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(6) 
thereunder.\13\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(i).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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    The Commission has determined, consistent with the protection of 
investors and the public interest, to make the proposed rule change 
operative upon filing, pursuant to Section 19(b)(3)(A) of the Act \14\ 
and Rule 19b-4(f)(6)(iii).\15\ Under Rule 19b-4(f)(6)(iii), a proposed 
``non-controversial'' rule change does not become operative for 30 days 
after the date of filing, unless the Commission designates a shorter 
time.\16\ The Commission believes that because the two-year pilot 
program is scheduled to expire on September 9, 1999, and the three 
month extension is based on the same terms and conditions of the 
original pilot, it is consistent with the protection of investors and 
the public

[[Page 50845]]

interest to make the proposed rule change operative upon filing.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ Id.
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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 the furtherance of the purposes of the Act.\17\
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    \17\15 U.S.C. 78s(b)(3)(C).
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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 
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. 20549-0609. 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, 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 number SR-Amex-99-34 and should be 
submitted by October 12, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-24354 Filed 9-17-99; 8:45 am]
BILLING CODE 8010-01-M