46390 Federal Register / Vol. 62, No. 169 / Tuesday, September 2, 1997 / Notices

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

2 17 CFR 240.19b–4.

3The AMEX submitted additional information

regarding the component securities. This

information is available in the Commission’s public

reference room, as described in section IV below,

or at the Office of the Secretary, AMEX.

4See Securities Exchange Act Release No. 34157

(June 3, 1994), 59 FR 30062 (June 10, 1994) (SR–

AMEX–92–35) (approval order relating to narrowbased index options listing standards) (‘‘Generic

Index Approval Order’’).

25. Applicants assert that, although

the Equity Growth Fund invests

primarily in the securities of relatively

small companies, while the Growth

Portfolio does not focus on companies

with small market capitalizations, the

investment objective of each of the

Equity Growth Fund and the Growth

Portfolio is capital growth and each

invests primarily in equity securities.

Because capital growth is the

investment objective for both the Equity

Growth Fund and the Growth Portfolio,

Applicants believe that the investment

goals of owners will continue to be

achieved after the substitution and that

the differences between the investment

policies are non-material to the

achievement of the investment goals of

the owners.

26. Applicants generally submit that

the proposed substitutions meet the

standards that the Commission and its

staff have applied to substitutions that

have been approved in the past in that:

a. The expense ratios of each of the

Funds of the ML Fund are substantially

lower than the expense ratios of the

corresponding VIST Portfolios and are

expected to remain so;

b. The substitution will be at net asset

value of the respective shares, without

the imposition of any transfer or similar

charge;

c. Monarch Life has undertaken to

assume the expenses and transaction

costs, including among others, legal and

accounting fees and any brokerage

commissions, relating to the

substitution;

d. The substitution in no way will

alter the insurance benefits to Contract

owners or the contractual obligations of

Monarch Life;

e. The substitution in no way will

alter tax benefits to Contract owners;

f. Contract owners may choose simply

to withdraw amounts credited to them

following the substitution under the

conditions that currently exist without

incurring any charges; and

g. The substitution is expected to

confer certain economic benefits to

Contract owners by virtue of the

enhanced asset size of the substitute

funds. Conclusion:

Applicants submit, for the reasons

summarized above, that the proposed

substitution is consistent with the

protection of investors and the purposes

fairly intended by the policy and

provisions of the 1940 Act.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–23185 Filed 8–29–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38968; File No. SR–AMEX–

97–31]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

American Stock Exchange, Inc.,

Relating to Options on The Disk Drive

Index

August 25, 1997.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Exchange Act’’) 1 and Rule 19b–4

thereunder,2 notice is hereby given that

on August 19, 1997, 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.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The AMEX proposes to trade options

on The Disk Drive Index (‘‘the Index’’),

a new stock index developed by the

AMEX based on stocks, or American

Depositary Receipts (‘‘ADRs’’) thereon,

of companies involved in the design

and/or manufacture of disk drives,

components of disk drives, and/or

software designed to interact with disk

drives. AMEX proposes to amend its

Rule 901C, Commentary .01, to provide

for the listing and trading of the Index.

In addition, the AMEX proposes to

amend Rule 901C, Commentary .01, to

reflect that 90 percent of the Index’s

numerical index value will be

accounted for by stocks that meet the

current criteria and guidelines set forth

in AMEX Rule 915.

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 AMEX has developed a new

index called The Disk Drive Index

(‘‘Index’’), based entirely on shares of

widely held companies involved in the

design and/or manufacture of disk

drives, components of disk drives, and/

or software designed to interact with

disk drives. The companies represented

in the index include: Applied Magnetics

Corp., a supplier of magnetic heads for

disk-drive applications; HMT

Technologies Corp., a designer and

manufacturer of thin-film disks for highcapacity computer disk drives;

Hutchinson Technology, a supplier of

suspension assemblies for rigid disk

drives; Iomega Corp., a manufacturer of

removable data-storage devices; Komag

Inc., a manufacturer of components for

hard-disk drives, including thin-film

disks and recording heads; Quantum

Corp., a manufacturer of storage

products for computer systems; ReadRite Corp., a producer of thin-film

magnetic recording heads for hard-disk

drives; Seagate Technology, a designer

of rigid, magnetic disk drives and

components for computer systems;

Storage Technology, a manufacturer of

information storage and retrieval

subsystems and networking products;

and Western Digital Corp., a

manufacturer of hard-disk drives.3 The

AMEX intends to trade standardized

option contracts on the newly

developed Index. The AMEX is filing

this proposal pursuant to AMEX Rule

901C, Commentary .02, which provides

for the commencement of the trading of

options on the Index thirty days after

the date of this filing. The proposal

meets all the criteria set forth in

Commentary .02 and the Commission’s

order approving that rule as outlined

below.4

Eligibility criteria for index

components. Pursuant to Commentary

.02 to Rule 901C, (1) each of the

component securities has a minimum

market capitalization of at least $75

million and has a trading volume in
Federal Register / Vol. 62, No. 169 / Tuesday, September 2, 1997 / Notices 46391

5The Index’s value at the close of trading on

August 12, 1997, was 278.28.

each of the last six months of not less

than 1,000,000 shares; (2) at least 90%

of the Index’s numerical index value

and at least 80% of the total number of

component securities meet the current

criteria for standardized option trading

set forth in Exchange Rule 915 (in fact,

all of the component securities in the

Index currently underlie standardized

options); (3) the Index contains no

ADRs; (4) all component stocks are

listed on the AMEX, the New York

Stock Exchange, or traded through the

facilities of the Nasdaq stock market and

are reported National Market System

securities (‘‘Nasdaq/NMS’’); and (5) no

component security represents more

than 25% of the weight of the Index,

and the five highest weighted

component securities in the Index do

not in the aggregate account for more

than 60% of the weight of the Index.

Maintenance of the Index. The

Exchange will maintain the Index in

accordance with AMEX Rule 901C,

Commentary .02, so that, (1) the Index

is comprised of no less than nine and no

more than 13 underlying stocks; (2)

component stocks constituting the top

90% of the Index by weight, will have

a minimum market capitalization of $75

million and the component stocks

constituting the bottom 10% of the

Index, by weight, may have a minimum

market capitalization of $50 million; (3)

90% of the Index’s numerical index

value and at least 80% of the total

number of component securities will

meet the then current criteria for

standardized option trading set forth in

AMEX Rule 915; (4) foreign country

securities or ADRs thereon that are not

subject to comprehensive surveillance

agreements will not in the aggregate

represent more than 20% of the weight

of the Index; (5) all component stocks

will either be listed on AMEX, the New

York Stock Exchange, or be Nasdaq/

NMS securities; (6) no component

security will represent more than 25%

of the weight of the Index, and the five

highest weighted components will not

in the aggregate account for more than

60% of the Index; and (7) trading

volume of each component security

shall be at least 500,000 shares for each

of the last six months, or for each of the

lowest weighted components in the

Index that in the aggregate account for

no more than 10% of the weight of the

Index, the monthly trading volume may

be at least 400,000 shares for each of the

last six months.

The Exchange shall not open for

trading any additional option series

should the Index fail to satisfy any of

the maintenance criteria set forth above

unless such failure is determined by the

Exchange not to be significant and the

Commission concurs in that

determination.

Index calculation. The Exchange will

calculate the Index using an ‘‘equaldollar weighting’’ methodology. The

following is a description of the

methodology. As of the market close on

November 15, 1996, a portfolio of stocks

was established representing an

investment of approximately $100,000

in the stock (rounded to the nearest

whole share) of each of the companies

in the Index. The value of the Index

equals the current market value (i.e.,

based on U.S. primary market prices) of

the sum of the assigned number of

shares of each of the stocks in the Index

portfolio divided by the Index divisor.

The Index divisor was initially

determined to yield the benchmark

value of 200.00 at the close of trading

on November 15, 1996.5 Quarterly

thereafter, following the close of trading

on the third Friday of February, May,

August and November, the Index

portfolio will be adjusted by changing

the number of whole shares of each

component stock so that each company

is again represented in ‘‘equal’’ dollar

amounts. If necessary, a divisor

adjustment is made during the

rebalancing to ensure continuity of the

Index’s value. The newly adjusted

portfolio becomes the basis for the

Index’s value on the first trading day

following the quarterly adjustment.

As noted above, the number of shares

of each component stock in the Index

portfolio remain fixed between quarterly

reviews except in the event of certain

types of corporate actions such as the

payment of a dividend other than an

ordinary cash dividend, stock

distribution, reorganization,

recapitalization, or similar event with

respect to the component stocks. In a

merger or consolidation of an issuer of

a component stock, if the stock remains

in the Index, the Exchange may adjust

the number of shares of that security in

the portfolio, to the nearest whole share,

to maintain the component’s relative

weight in the Index at the level

immediately prior to the corporate

action. In the event of a stock addition

or replacement, the Exchange will

calculate the average dollar value of the

remaining components and that amount

invested in the stock of the new

component to the nearest whole share.

In all cases, the divisor will be adjusted,

if necessary, to ensure Index continuity.

Similar to other stock index values

published by the Exchange, the value of

the Index will be calculated

continuously and disseminated every 15

seconds over the Consolidated Tape

Association’s Network B by the

Exchange.

Expiration and settlement. The

proposed options on the Index will be

European style (i.e., exercises are

permitted at expiration only), and cash

settled. Standard option trading hours

(9:30 a.m. to 4:02 p.m. New York time)

will apply. The options on The Disk

Drive Index will expire on the Saturday

following the third Friday of the

expiration month (‘‘Expiration Friday’’).

The last trading day in an expiring

option series will normally be the

second to last business day preceding

the Saturday following the third Friday

of the expiration month (normally a

Thursday). Trading in expiring options

will cease at the close of trading on the

last trading day.

The Exchange plans to list options

series with expirations in the three nearterm calendar months and in the two

additional calendar months in the

January cycle. In addition, longer term

option series having up to thirty-six

months to expiration may be traded. In

lieu of such long-term options on a full

value Index level, the Exchange may

instead list long-term, reduced value put

and call options based on one-tenth

(1⁄10) the Index’s full value. In either

event, the interval between expiration

months for either a full value or reduced

value long-term option will not be less

than six months. The trading of any long

term options would be subject to the

same rules which govern the trading of

all the Exchange’s index options,

including sales practice rules, margin

requirements and floor trading

procedures. Position limits on reduced

value long term Disk Drive Index

options will be equivalent to the

position limits for regular (full value)

Index options and would be aggregated

with such options (e.g., if the position

limit for the full value options is 15,000

contracts on the same side of the

market, then the position limit for the

reduced value options will be 150,000

contracts on the same side of the

market).

The exercise settlement value for all

of the Index’s expiring options will be

calculated based upon the primary

exchange regular way opening sale

prices for the component stocks. In the

case of Nasdaq/NMS listed securities,

the first reported regular way sale price

will be used. If any component stock

does not open for trading on its primary

market on the last trading day before
46392 Federal Register / Vol. 62, No. 169 / Tuesday, September 2, 1997 / Notices

6The Commission notes that pursuant to Article

XVII, Section 4 of the Options Clearing

Corporation’s (‘‘OCC’’) by-laws, OCC is empowered

to fix an exercise settlement amount in the event

it determines a current index value is unreported

or otherwise unavailable. Further, OCC has the

authority to fix an exercise settlement amount

whenever the primary market for the securities

representing a substantial part of the value of an

underlying index is not open for trading at the time

when the current index value (i.e., the value used

for exercise settlement purposes) ordinarily would

be determined. See Securities Exchange Act Release

No. 37315 (June 17, 1996), 61 FR 42671 (order

approving SR–OCC–95–19).

7See Securities Exchange Act Release No., 34157

(June 3, 1994), 59 FR 30062 (June 10, 1994) (SR–

AMEX–92–35).

8The AMEX represented to the Commission that

it has the necessary systems capacity to support the

new series of options to be generated by the Index.

The AMEX also stated that it requested a written

representation from the Options Price Reporting

Authority (‘‘OPRA’’) confirming the adequacy of its

systems capacity. The AMEX will not permit

trading of options on the index until it confirms

with the Commission that OPRA has given the

AMEX a written representation that it has the

necessary systems capacity. See Letter from Claire

P. McGrath, Vice President & Special Counsel,

Derivative Securities, the AMEX, to Ivette Lopez,

Assistant Director, Office of Market Supervision,

Division of Market Regulation, Commission, dated

August 18, 1997.

9 In approving this rule, the Commission notes

that it has considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

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

10 17 CFR 200.30–3(a)(12).

1 15 U.S.C. § 78s(b)(1).

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 38718

(June 5, 1997), 62 FR 32132 (June 12, 1997).

4Letter from David T. Rusoff, Esq., Foley &

Lardner, to Ivette Lo ́pez, Division of Market

Regulation, SEC, dated June 20, 1997 (‘‘Amendment

No. 1’’). Amendment No. 1 conformed the CHX’s

proposal to similar rules of the New York Stock

Exchange and the American Stock Exchange by

slightly modifying the level at which trading

securities in increments of 1⁄32 of a dollar may

occur.

expiration, then the prior day’s last sale

price will be used in the calculation.6

Exchange rules applicable to Stock

Index options. AMEX Rules 900C

through 980C will apply to the trading

of option contracts based on the Index.

These rules cover issues such as

surveillance, exercise prices, and

position limits. Surveillance procedures

currently used to monitor trading in

each of the Exchange’s other index

options will also be used to monitor

trading in options on the Index. The

Index is deemed to be a Stock Index

Option under Rule 901C(a) and a Stock

Index Industry Group under Rule

900C(b)(1). With respect to Rule

903C(b), the Exchange proposes to list

near-the-money (i.e., within ten points

above or below the current index value)

option series on the Index at 21⁄2 point

strike (exercise) price intervals when the

value of the Index is below 200 points.

In addition, the Exchange expects that

the review required by Rule 904C(c) will

result in a position limit of 15,000

contracts with respect to options on this

Index.

2. Basis

The proposed rule change is

consistent with Section 6(b) of the

Exchange Act in general and furthers

the objectives of Section 6(b)(5) 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

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

The foregoing rule change has become

effective pursuant to Section 19(b)(3)(A)

of the Exchange Act. Pursuant to the

Generic Index Approval Order,7 the

AMEX may not list options for trading

on the Index prior to 30 days after

August 19, 1997.8 At any time within 60

days of the filing of such 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 Exchange Act.9

IV. Solicitation of Comments

Interested person are invited to

submit written data, views and

arguments concerning the foregoing.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth street, N.W.,

Washington, DC 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 U.S.C. 552, will be

available for inspection and copying in

the Commission’s Public Reference

Section, 450 Fifth Street, N.W.,

Washington, DC 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–

97–31 and should be submitted by

September 23, 1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.10

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–21384 Filed 8–29–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38965; File No. SR–CHX–

97–13]

Self-Regulatory Organizations Chicago

Stock Exchange, Incorporated; Order

Granting Approval to Proposed Rule

Change and Notice of Filing and Order

Granting Accelerated Approval to

Amendment No. 1 to Proposed Rule

Change Relating to Trading Variations

August 22, 1997.

I. Introduction

On June 2, 1997, the Chicago Stock

Exchange, Incorporated (‘‘CHX’’ or

‘‘Exchange’’) submitted to the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 1 and Rule 19b–4

thereunder,2 a proposed rule change to

decrease the minimum variation for

certain securities from an eighth to a

sixteenth of a dollar and to make

conforming changes to its rule regarding

when a security is quoted ‘‘exdividend,’’ ‘‘ex-distribution,’’ ‘‘exrights,’’ or ‘‘ex-interest.’’

The proposed rule change was

published for comment in the Federal

Register on June 12, 1997.3 No

comments were received concerning the

proposal. On July 1, 1997, the Exchange

submitted Amendment No. 1 to the

proposed rule change.4 This order

approves the proposal, including