Federal Register / Vol. 65, No. 122 / Friday, June 23, 2000 / Notices 39211

7 15 U.S.C. 78f(b).

8 15 U.S.C. 78f(b)(5).

9 In approving this proposal, the Commission has

considered its impact on efficiency, competition,

and capital formation, 15 U.S.C. 78c(f).

10 15 U.S.C. 78f(b)(5), 78k–1(a)(1)(C)(iii) and (iv).

11 15 U.S.C. 78f.

12 15 U.S.C. 78s(b)(2)

13 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3 In Amendment No. 1, the Exchange clarified the

proposed rule change with respect to opening

transactions and made several changes to the text

of the proposed rule change. See Letter to Nancy

Sanow, Assistant Director, Division of Market

Regulation (‘‘Division’’), SEC, from Scott G. Van

Hatten, Legal Counsel Derivative Securities, Amex,

dated October 21, 1999.

4 In Amendment No. 2, the Exchange revised the

proposed surveillance agreement requirements. See

Letter to Nancy Sanow, Assistant Director, Division,

SEC, from Scott G. Van Hatten, Legal Counsel

Derivative Securities, Amex, dated December 16,

1999.

5 In Amendment No. 3, the Exchange amended

the text of proposed Amex Rule 916 to make it

Continued

specialists should always attempt to

reflect a limit order by manually quoting

the stock as soon as practicable even

though the Quote Assist feature is

active.

The Exchange believes that Quote

Assist provides valuable help to enable

equity specialists to comply with their

responsibilities under the Commission’s

Display Rule. The requirement that

Quote Assist generally remain active

throughout the day will ensure that

equity specialists avail themselves of

the tools provided for managing order

flow and updating quotes.

(2) Statutory Basis

The Exchange believes that the

proposed rule change is consistent with

Section 6(b) of the Act 7 in general, and

furthers the objectives of Section

6(b)(5) 8 in particular, in that it is

designed to prevent fraudulent and

manipulative acts and practices, to

promote just and equitable principles of

trade, to remove impediments to and

perfect the mechanism of a free and

open market and national market

system, and, in general, to protect

investors and the public interest; and is

not designed to permit unfair

discrimination between customers,

issuers, brokers and dealers.

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

No written comments were solicited

or received with respect to the proposed

rule change.

III. 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.

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

Room in Washington, D.C. Copies of

such filing will also be available for

inspection and copying at the principal

office of the Amex. All submissions

should refer to the File No. SR–Amex–

00–25 and should be submitted by July

14, 2000.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The Commission has reviewed

carefully the Exchange’s proposed rule

change 9 and believes, for the reasons set

forth below, that the proposal is

consistent with the Act and the rules

and regulations thereunder applicable to

a national securities exchange.

Specifically, the Commission believes

the proposal is consistent with Sections

6(b)(5) and 11A(a)(1)(C)(iii) and (iv) of

the Act.10 Section 6(b)(5) requires that

the rules of an exchange be designed to

prevent fraudulent and manipulative

acts and practices and to remove

impediments to and perfect the

mechanism of a free and open market

and a national market system. In

enacting Section 11A, Congress found

that it is in the public interest and

appropriate for the protection of

investors and the maintenance of fair

and orderly markets to assure the

availability to brokers, dealers and

investors of information with respect to

quotations for and transactions in

securities, and to assure the

practicability of brokers executing

investors’ orders in the best market.

The Commission finds that the

proposed rule change will promote the

quality of quotation information and

promote the proper handling of

customer limit orders by limiting the

ability of specialists to deactivate Quote

Assist. In approving the proposed rule

change, however, the Commission notes

that Quote Assist does not relieve

specialists of their responsibility to

reflect limit orders by manually quoting

the stock as soon as practicable.

The Commission finds good cause for

approving the proposed rule change

prior to the 30th day after the date of

publication of notice thereof in the

Federal Register, because the proposal

facilitates compliance with the Display

Rule. The Commission believes,

therefore, that granting accelerated

approval of the proposed rule change is

appropriate and consistent with Section

6 of the Act.11

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,12 that the

proposed rule change (SR–Amex–00–

25) is hereby approved on an

accelerated basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–15877 Filed 6–22–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42947; File No. SR–AMEX–

99–37]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change and Amendment Nos. 1,

2, 3, 4, 5 and 6 by the American Stock

Exchange LLC Relating to the Trading

of Options on Trust Issued Receipts

June 15, 2000.

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

September 13, 1999, 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 and II below, which Items

have been prepared by the Exchange.

Amendment Nos. 1, 2, 3, 4, 5 and 6 were

filed on October 22, 1999,3 December

20, 1999,4 January 5, 2000,5 April 28,

39212 Federal Register / Vol. 65, No. 122 / Friday, June 23, 2000 / Notices

consistent with the purpose section of the proposed

rule change. See Letter to Nancy Sanow, Assistant

Director, Division, SEC, from Scott G. Van Hatten,

Legal Counsel Derivative Securities, Amex, dated

January 4, 2000. 6 In Amendment No. 4, the Exchange added an

additional maintenance requirement for options on

HOLDRs, a kind of trust issued receipt, requiring

that the market capitalization of the securities

underlying the options and composing the HOLDR

must constitute at least 80 percent of the market

capitalization of the HOLDR. The Exchange further

noted that the prospectus and product description

delivery requirements applicable to HOLDRs, will

apply to an exercise or assignment of options on

HOLDRs. The Exchange also represented that it has

the necessary capacity to trade the new series of

options generated by options on HOLDRs. See

Letter to Nancy Sanow, Assistant Director, Division,

SEC, from Scott G. Van Hatten, Legal Counsel

Derivative Securities, Amex, dated April 27, 2000. 7 In Amendment No. 5, the Exchange added an

additional maintenance requirement for options on

HOLDRs, requiring that at least 80 percent of the

number of securities held by a HOLDR trust

underlie standardized options. See Letter to Nancy

Sanow, Assistant Director, Division, SEC, from

Scott G. Van Hatten, Legal Counsel Derivative

Securities, Amex, dated May 3, 2000. 8 In Amendment No. 6, the Exchange clarified the

maintenance criterion added in Amendment No. 4,

that the Exchange will not open additional series

of options on any HOLDR should the weight of all

those securities that are options eligible be less than

80 percent. See Letter to Nancy Sanow, Assistant

Director, Division, SEC, from Scott G. Van Hatten,

Legal Counsel Derivative Securities, Amex, dated

May 11, 2000.

9The Exchange has confirmed that ‘‘Trust Issued

Receipts’’ should be capitalized in the proposed

rule text. Telephone conversation between Heather

Traeger, Attorney, Division, SEC, and Scott G. Van

Hatten, Legal Counsel Derivative Securities, Amex,

on June 14, 2000.

10FLEX equity options provide investors with the

ability to customize basic option features including

size, expiration date, exercise style, and certain

exercise prices.

11The Exchange’s proposal to list and trade Trust

Issued Receipts was approved by the Commission

on September 21, 1999. See Securities Exchange

Act Release No. 41892, (September 21, 1999), 64 FR

52559 (September 29, 1999).

2000,6 May 4, 2000,7 and May 12, 2000,8

respectively. The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons and to grant

accelerated approval to the proposed

rule change, as amended.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to trade

standardized equity options on trust

issued receipts. The text of the proposed

rule change follows. [Bracketing]

indicates text to be deleted and italics

indicate text to be added.

Rule 915 Criteria for Underlying

Securities

(a) through (b)—No change.

* * * Commentary

.01 through .06—No change.

.07 Securities deemed appropriate

for options trading shall include shares

or other securities (‘‘Trust Issued

Receipts’’) that are principally traded on

a national securities exchange or

through the facilities of a national

securities association and reported as a

national market security, and that

represent ownership of the specific

deposited securities held by a trust,

provided:

(a)(i) the Trust Issued Receipts meet

the criteria and guidelines for

underlying securities set forth in

Commentary .01 to this Rule 915; or

(ii) the Trust Issued Receipts must be

available for issuance or cancellation

each business day from the trust in

exchange for the underlying deposited

securities; and

(b) any ADRs in the portfolio on

which the Trust is based for which the

securities underlying the ADRs’ primary

markets are in countries that are not

subject to comprehensive surveillance

agreements, do not in the aggregate

represent more than 20% of the weight

of the portfolio.

Rule 916 Withdrawal of Approval of

Underlying Securities

No change.

* * * Commentary

.01–.08 No change.

.09 Absent exceptional

circumstances, securities initially

approved for options trading pursuant

to Commentary .07 under Rule 915

(such securities are defined and referred

to in that Commentary as ‘‘Trust Issued

Receipts’’) shall not be deemed to meet

the Exchange’s requirements for

continued approval, and the Exchange

shall not open for trading any

additional series of option contracts of

the class covering such Trust Issued

Receipts, whenever the Trust Issued

Receipts are delisted and trading in the

Receipts is suspended on a national

securities exchange, or the Trust Issued

Receipts are no longer traded as

national market securities through the

facilities of a national securities

association. In addition, the Exchange

shall consider the suspension of

opening transactions in any series of

options of class covering Trust Issued

Receipts in any of the following

circumstances:

(1) In accordance with the terms of

paragraphs 1 through 7 of Commentary

.01 of this Rule 916 in the case of

options covering Trust Issued Receipts

when such options were approved

pursuant to paragraph (a)(i) of

Commentary .07 of Rule 915;

(2) The trust has more than 60 days

remaining until termination and there

are fewer than 50 record and/or

beneficial holders of Trust Issued

Receipts for 30 or more consecutive

trading days; 9

(3) The trust has fewer than 50,000

receipts issued and outstanding;

(4) The market value of all receipts

issued an outstanding is less than

$1,000,000; or

(5) Such other event shall occur or

condition exist that in the opinion of the

Exchange makes further dealing in such

options on the Exchange inadvisable.

.10 For Holding Company

Depositary Receipts (HOLDRs), the

Exchange will not open additional series

of options overlying HOLDRs (without

prior Commission approval) if: (1) the

proportion of securities underlying

standardized equity options to all

securities held in a HOLDRs trust is less

than 80% (as measured by their relative

weightings in the HOLDRs trust); or (2)

less than 80% of the total number of

securities held in a HOLDRs trust

underlie standardized equity options.

* * * * *

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

The purpose of the proposed rule

change is to provide for the trading of

options and FLEX 10 equity options on

exchange-listed trust issued receipts.11

Trust issued receipts are exchange-listed

securities representing beneficial

ownership of the specific deposited

securities represented by the receipts.

They are negotiable receipts issued by a

trust representing securities of issuers

that have been deposited and are held

on behalf of the holders of the trust

issued receipts. Trust issued receipts,

which trade in round lots of 100, and

multiples thereof, may be issued after

their initial offering through a deposit

with the trustee of the required number

of shares of common stock of the

underlying issuers. This characteristic

Federal Register / Vol. 65, No. 122 / Friday, June 23, 2000 / Notices 39213

12The Exchange received approval to trade

options on fund shares on July 1, 1998. See

Securities Exchange Act Release No. 40157 (July 1,

1998), 63 FR 37426 (July 10, 1998).

13Specifically, Commentary .01 to Amex Rule

915 requires the underlying security to have a

public float of 7,000,000 shares, 2,000 holders,

trading volume of 2,400,000 shares in the preceding

12 months, a share price of $7.50 for the majority

of the business days during the three calendar

months preceding the date of the selection, and that

the issuer of the underlying security is in

compliance with the Act. 14Specifically, Commentary. 01 to Amex Rule

916 provides that an underlying security will not

meet the Exchange’s requirements for continued

listing when, among other things: (i) There are

fewer than 6,300,000 publicly-held shares; (ii) there

are fewer than 1,600 holders; (iii) trading volume

was less than 1,800,000 shares in the preceding

twelve months; and (iv) the share price of the

underlying security closed below $5 on a majority

of the business days during the preceding 6 months.

15The Exchange notes that even if options on

trust issued receipts were not listed under the

uniform equity option listing standards, Amex

Rules 1200 et seq. require a minimum number of

trust issued receipts to be outstanding before

trading in a series of trust issued receipts may

commence. In addition, the Amex has represented

that although there is no comparable public float

maintenance standard for the underlying trust

issued receipt, as a practical matter there can never

be trading in a series of trust issued receipts in

which there is less than one round-lot outstanding,

since trust issued receipts may only be issued and

cancelled in round lots, and if the last outstanding

round lot should ever be cancelled, the series (and

the options on that series) will cease to trade.

16The Exchange represents that the weight of

each security in a HOLDR trust will be determined

by calculating the summation of the number of

shares of each security (represented in a single

HOLDR) and underlying options multiplied by its

respective share price divided by the summation of

the number of shares of all securities (represented

in a single HOLDR) multiplied by their respective

share prices. See Amendment No. 6, supra note 8.

17An American-style option may be exercised at

any time prior to its expiration. A European-style

option, however, may be exercised only on its

expiration date.

of trust issued receipts is similar to that

of exchange-traded fund shares which

also may be created on any business day

upon deposit of the requisite securities

comprising a creation unit.12 The trust

will only issue receipts upon the

deposit of the shares of underlying

securities that are represented by a

round-lot of 100 receipts. Likewise, the

trust will cancel, and an investor may

obtain, hold, trade or surrender trust

issued receipts in a round-lot and round

lot multiples of 100 receipts. Following

their initial issuance, trust issued

receipts will be traded on the Exchange

like other equity securities, subject to

equity trading rules.

Generally, options on trust issued

receipts are proposed to be traded on

the Exchange pursuant to the same rules

and procedures that apply to trading in

options on equity securities or indexes

of equity securities. However, the

Exchange is also proposing to list FLEX

Equity options on trust issues receipts.

The Exchange will list option contracts

covering 100 trust issued receipts, the

minimum required round lot trading

size for the underlying receipts. Strike

prices for the contracts will be set to

bracket the trust issued receipts at the

same intervals that apply to

standardized equity options (i.e., 21⁄2

point intervals for underlying equity

values up to $25; 5 point intervals for

underlying equity values greater than

$25 up to $200; and 10 point intervals

for underlying equity values greater

than $200). The proposed position and

exercise limits for options on trust

issued receipts would be the same as

those established for stock options, as

set forth in Amex Rules 904 and 905.

The Amex anticipates that most options

on trust issued receipts will initially

qualify for the lowest position limit.

However, as with standardized equity

options, applicable position limits will

be increased for options if the volume

of trading in the trust issued receipts

increases to meet the requirements of a

higher limit. As is currently the case for

all FLEX Equity options, no position

and exercise limits will be applicable to

FLEX Equity options overlying trust

issued receipts.

The listing and maintenance

standards proposed for options on trust

issued receipts are set forth in proposed

Commentary .07 under Amex Rule 915

and in proposed Commentary .09 under

Amex Rule 916, respectively. Pursuant

to the proposed initial listing standards,

Amex will list only trust issued receipts

that are principally traded on a national

securities exchange or through the

facilities of a national securities

association and reported as national

market securities. In addition, the initial

listing standards require that either: (i)

The trust issued receipts meet the

uniform options listing standards in

Commentary .01 to Amex Rule 915,

which include criteria covering the

minimum public float, trading volume,

and share price of the underlying

security in order to list the option; 13 or

(ii) the trust issued receipts must be

available for issuance or cancellation

each business day from the trust in

exchange for the underlying deposited

securities.

In addition, listing standards for

options on trust issued receipts will

require that any American Depositary

Receipts (ADRs) in the portfolio on

which the Trust is based for which the

securities underlying the ADRs’ primary

markets are in countries that are not

subject to comprehensive surveillance

agreements will not in the aggregate

represent more than 20 percent of the

weight of the portfolio.

The Exchange’s proposed

maintenance standards provide that if a

particular series of trust issued receipts

should cease to trade on an exchange or

as national market securities in the overthe-counter market, there will be no

opening transactions in the options on

the trust issued receipts, and all such

options will trade on a liquidation-only

basis (i.e., only closing transactions to

permit the closing of outstanding open

options will be permitted). In addition,

the Amex will consider the suspension

of opening transactions in any series of

options of the class covering trust issued

receipts if: (i) The options fail to meet

the uniform equity option maintenance

standards in Commentary .01 to Amex

Rule 916,14 when the options were

listed pursuant to the equity option

listing standards of Commentary .01 to

Amex Rule 915; 15 (ii) the trust has more

than 60 days remaining until

termination and there are fewer than 50

record and/or beneficial holders of trust

issued receipts for 30 or more

consecutive trading days; (iii) the trust

has fewer than 50,000 receipts issued

and outstanding; (iv) the market value of

all receipts issued and outstanding is

less than $1,000,000; or (v) such other

event shall occur or condition exists

that in the opinion of the Exchange,

makes further dealing in such options

on the Exchange inadvisable.

Furthermore, the Exchange will not

open additional series of options on any

HOLDR, without prior Commission

approval, if: (1) The proportion of

securities underlying standardized

equity options to all securities held in

a HOLDRs trust is less than 80 percent

(as measured by their relative

weightings in the HOLDRs trust); 16 or

(2) less than 80 percent of the number

of securities held by a HOLDR trust

underlie standardized options.

Options on trust issued receipts will

be physically-settled and will have the

American-style exercise feature used on

all standardized equity options, and not

the European-style feature. The

Exchange, however, also proposes to

trade FLEX Equity options which will

be available with both the Americanstyle and European-style exercise

feature, as well as other FLEX Equity

features.17

The proposed margin requirements

for options on trust issued receipts are

at the same levels that apply to options

generally under Amex Rule 462, except,

with respect to trust issued receipts

based on a broad-based portfolio,

minimum margin must be deposited

and maintained equal to 10 percent of

the current market value of the option

plus 15 percent of the market value of

39214 Federal Register / Vol. 65, No. 122 / Friday, June 23, 2000 / Notices

18See Amendment No. 4, supra note 6, and letter

from Joseph P. Corrigan, Executive Director, OPRA,

to Nancy Sanow, Assistant Director, Division, SEC,

dated April 26, 2000.

19 15 U.S.C. 78f(b).

20 15 U.S.C. 78f(b)(5).

21 15 U.S.C. 78f(b)(5). 22 In approving this rule, the Commission notes

that it has also considered the proposed rule’s

impact on efficiency, competition, and capital

formation. 15 U.S.C. 78c(f).

23The Commission notes, and Amex has verified,

that holders of options on trust issued receipts who

exercise and receive the underlying trust issued

receipts must receive, like any purchaser of trust

issued receipts, a product description or

prospectus, as appropriate. See Amendment No. 4,

supra note 6.

equivalent units of the underlying

security value. Trust issued receipts that

hold securities based upon a narrowbased portfolio must have options

margin that equals at least 100 percent

of the current market value of the

contract plus 20 percent of the market

value of equivalent units of the

underlying security value. In this

respect, the margin requirements

proposed for options on trust issued

receipts are comparable to margin

requirements that currently apply to

broad-based and narrow-based index

options.

The Exchange believes it has the

necessary systems capacity to support

the additional series of options that

would result from the introduction of

options on HOLDRs, and it has been

advised that the Options Price Reporting

Authority (‘‘OPRA’’) also will have the

capacity to support these additional

series in light of the capacity allocation

in place at the OPRA processor.18

2. Statutory Basis

The proposed rule change is

consistent with Section 6(b) of the Act 19

in general and furthers the objectives of

Section 6(b)(5) 20 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.

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

Statements 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. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing,

including whether the proposed rule

change, as amended, 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 at

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to File No.

SR–AMEX–99–37 and should be

submitted by [July 14, 2000].

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The Commission finds that the

proposed rule change, as amended, is

consistent with the requirements of

Section 6(b)(5) of the Act 21 and the

rules and regulations thereunder

applicable to a national securities

exchange. Specifically, the Commission

finds that providing for the listing and

trading of options and FLEX Equity

options on Exchange-traded trust issued

receipts should give investors a better

means to hedge their positions in the

underlying trust issued receipts.

Further, the Commission believes that

pricing of the underlying trust issued

receipts may become more efficient and

market makers in these shares, by virtue

of enhanced hedging opportunities, may

be able to provide deeper and more

liquid markets. In sum, the Commission

believes that options on trust issued

receipts likely will engender the same

benefits to investors and the

marketplace that exist with respect to

options on common stock, thereby

serving to promote the public interest,

remove impediments to a free and open

securities market, and promote

efficiency, competition, and capital

formation.22

As a general matter, the Commission

believes that a regulatory system

designed to protect public customers

must be in place before the trading of

sophisticated financial instruments,

such as options on trust issued receipts,

can commence trading on a national

securities exchange. The Commission

notes that the trading of standardized

exchange-traded options occurs in an

environment that is designed to ensure,

among other things, that: (1) The special

risks of options are disclosed to public

customers; (2) only investors capable of

evaluating and bearing the risks of

options trading are engaged in such

trading; and (3) special compliance

procedures are applicable to options

accounts. With regard to position and

exercise limits, the Commission finds

that it is appropriate to adopt the tiered

approach used in setting position and

exercise limits for standardized stock

options. This approach should serve to

minimize potential manipulation and

market impact concerns. In addition, the

Commission believes that the rationale

for allowing FLEX Equity options

generally to trade without position and

exercise limits is equally applicable in

the context of FLEX Equity options on

trust issued receipts. Accordingly,

because options and Flex Equity options

of trust issued receipts will be subject to

the same regulatory regime as the other

options and FLEX Equity options

currently traded on the Amex, the

Commission believes that adequate

safeguards are in place to ensure the

protection of investors in options and

Flex Equity options on trust issued

receipts.

The Commission also believes that it

is appropriate to permit the Amex to list

and trade options, including FLEX

Equity options, on exchange-traded trust

issued receipts given that these options

must meet specific requirements related

to the protection of investors.23 First,

the Exchange’s listing and delisting

criteria for options on trust issued

receipts are adequate. With regard to

initial listing, the proposal requires that

either: (1) The underlying trust issued

receipts meet the Amex’s uniform

options listing standards; or (2) the trust

issued receipts must be available for

issuance or cancellation each business

day from the trust in exchange for the

underlying deposited securities. This

listing requirement should ensure that

there exists sufficient supply of the

underlying trust issued receipts so that

a short call writer, for example, will

have the ability to secure delivery of the

trust issued receipts upon exercise of

the option.

With respect to continued listing,

options listed pursuant to the uniform

Federal Register / Vol. 65, No. 122 / Friday, June 23, 2000 / Notices 39215

24 ISG was formed on July 14, 1983, to, among

other things, coordinate more effectively

surveillance and investigative information sharing

arrangements in the stock and options markets. See

Intermarket Surveillance Group Agreement, July 14,

1983.

25See Securities Exchange Act Release No. 40157

(July 1, 1998), 63 FR 37426 (July 10, 1998).

26 15 U.S.C. 78s(b)(2).

27 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3 In Amendment No. 1, the BSE proposes to

incorporate the BSE’s Minor Rule Violation Plan

into the Boston Stock Exchange Guide, which is its

rulebook. See letter with enclosures from William

P. Cummings, Manager of Legal and Regulation,

BSE, to Richard Strasser, Assistant Director,

Division of Market Regulation (‘‘Division’’),

Commission, dated March 12, 2000 (‘‘Amendment

No. 1’’).

4 In Amendment No. 2, the BSE seeks to amend

the Summary Fine Schedule of the Minor Rule

Violation Plan to prohibit all forms of tobacco use.

See letter with enclosures from John A. Boese,

Assistant Vice President, Rule Development and

Market Structure, BSE, to Richard Strasser,

Assistant Director, Division, Commission, dated

May 26, 2000 (‘‘Amendment No. 2’’).

options listing standards will have to

meet the options maintenance listing

standards. The maintenance criteria

provide that an underlying security will

not meet the Exchange’s requirements

for continued listing when, among other

things: (1) The trust has more than 60

days remaining until termination and

there are fewer than 50 record and/or

beneficial holders of trust issued

receipts for 30 or more consecutive

trading days; (2) the trust has fewer than

50,000 receipts issued and outstanding;

or (3) the market value of all receipts

issued and outstanding is less than

$1,000,000. The Commission believes

these criteria will help to ensure than a

minimum level of liquidity will exist for

options on trust issued receipts to

control against manipulation and allow

for the maintenance of fair and orderly

markets. Furthermore, the Exchange

will not open additional series or

options on any HOLDR, without prior

Commission approval, if: (1) The

proportion of securities underlying

standardized equity options to all

securities held in a HOLDRs trust is less

than 80 percent (as measured by their

relative weightings in the HOLDRs

trust); or (2) less than 80 percent of the

number of securities held by a HOLDR

trust underlie standardized options. The

Commission believes that these

additional criteria will ensure that a

very significant portion of the

individual component securities of the

HOLRDs trust will be options eligible

(either by market capitalization

weighting or by total number of

component securities), thereby assuring

that the component securities for the

most part will satisfy minimum

thresholds previously approved by the

Commission.

The Commission also believes that the

surveillance standard developed by the

Amex for options on trust issued

receipts is adequate to address the

concerns associated with the listing and

grading of such securities. Specifically,

the Amex has proposed to limit to 20

percent of the weight of the portfolio

any component securities that are ADRs

when the primary market for the

securities underlying those ADRs’ are in

countries that are not subject to

comprehensive surveillance agreements.

As a general matter, the Commission

believes that comprehensive

surveillance agreements provide an

important deterrent to manipulation

because they facilitate the availability of

information needed to fully investigate

a potential manipulation, if it were to

occur. These agreements are especially

important in the context of derivative

products based on foreign securities

because they facilitate the collection of

necessary regulatory, surveillance and

other information from foreign

jurisdictions. In evaluating the current

proposal, the Commission believes that

requiring comprehensive surveillance

agreements to be in place between the

Amex and the primary markets for

ADRs that comprise 20 percent or more

of the weight of the underlying portfolio

upon which trust issued receipts are

based provides an adequate mechanism

for the exchange of surveillance sharing

information necessary to detect and

deter possible market manipulations.

Further, as to the domestically-traded

trust issued receipts themselves and the

domestic stocks in the underlying

portfolio upon which trust issued

receipts are based, the Intermarket

Surveillance Group (‘‘ISG’’)

Agreement 24 will be applicable to the

trading of options on trust issued

receipts.

Finally, the Commission believes that

it is appropriate to require minimum

margin of 100 percent of the current

market value of the option plus 15

percent of the market value of the

underlying security value for options on

trust issued receipts based on a broadbased portfolio. Moreover, the

Commission believes that requiring

minimum margin of 100 percent of the

current market value of the option plus

20 percent of the market value of the

underlying security value for options on

trust issued receipts based on a narrowbased portfolio is appropriate. The

Commission notes that these margin

requirements for options on trust issued

receipts are comparable to margin

requirements that currently apply to

broad-based and narrow-based index

options.

Amex has requested that the

Commission find good cause for

approving the proposed rule change, as

amended, prior to the thirtieth day after

the day of publication of notice in the

Federal Register. The Commission

believes the proposal is similar to the

proposal to list and trade options on

exchange-traded fund shares previously

reviewed and approved by the

Commission.25 The Commission also

notes that there were no comment

letters on the initial trust issued receipts

filing. Furthermore, the Commission

finds that the proposal raises no new

regulatory issues and should benefit

holders of trust issued receipts by

permitting them to use options to

manage the risks of their positions in

the receipts. Accordingly, the

Commission finds good cause to

accelerate approval of the proposed rule

change, as amended.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,26 that the

proposed rule change (SR–AMEX–99–

37), as amended, is hereby approved on

an accelerated basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.27

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–15903 Filed 6–22–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42951; File No. SR–BSE–

99–07]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Boston Stock Exchange, Inc.

Amending its Minor Rule Violation Plan

June 16, 2000.

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 1,

1999, the Boston Stock Exchange, Inc.

(‘‘BSE’’ 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. On March

24, 2000, the BSE submitted

Amendment No. 1 to the proposed rule

change.3 On May 30, 2000, the BSE

submitted Amendment No. 2 to the

proposed rule change.4 The Commission

is publishing this notice to solicit