Federal Register / Vol. 62, No. 20 / Thursday, January 30, 1997 / Notices 4555

6 17 CFR 200.30–3(a)(29).

1 15 U.S.C. § 78s(b)(1) (1988).

2 17 CFR 240.19b–4.

3See letter from Claudia Crowley, Special

Counsel, Legal and Regulatory Policy, Amex, to

Matthew Morris, Division of Market Regulation

(‘‘Division’’), Commission, dated November 15,

1996 (‘‘Amendment No. 1’’). In Amendment No. 1,

the Amex amended its rule filing to restate Item 3(a)

in order to correct various errors contained in the

original filing and withdrew its request that the

proposed rule change be given accelerated

effectiveness pursuant to Section 19(b)(2) of the

Act.

4See letter from Claudia Crowley, Special

Counsel, Legal and Regulatory Policy, Amex, to

Matthew Morris, Division, Commission, dated

January 16, 1997 (‘‘Amendment No. 2’’). In

Amendment No. 2, the Amex withdrew its request

that the Computer Technology Index be given

preferential treatment with respect to position and

exercise limits and renewed its request that the

proposed rule change be given accelerated

effectiveness pursuant to Section 19(b)(2) of the

Act.

5Position limits impose a ceiling on the number

of option contracts which an investor or group of

investors acting in concert may hold or write in

each class of options on the same side of the market

(i.e., aggregating long calls and short puts or long

puts and short calls). Exercise limits prohibit an

investor or group of investors acting in concert from

exercising more than a specified number of puts or

calls in a particular class within five consecutive

business days.

6See Securities Exchange Act Release No. 36537

(November 30, 1995), 60 FR 62916 (December 7,

1995) (order establishing position and exercise

limits for narrow-based index options at 6,000,

9,000 or 12,000 contracts) (Amex–95–45).

submissions should refer to file number

SR–OPRA–97–1 and should be

submitted by February 15, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority. 6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–2257 Filed 1–29–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38202; File No. SR–Amex–

96–41]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change and Amendments Nos. 1

and 2 Thereto by the American Stock

Exchange, Inc., Relating to an Increase

in Narrow-Based Index Option Position

and Exercise Limits

January 23, 1997.

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 November

1, 1996, the American Stock Exchange,

Inc. (‘‘Amex’’ or ‘‘Exchange’’) filed with

the Securities Exchange Commission

(‘‘Commission’’) the proposed rule

change as described in Items I and II

below, which Items have been prepared

by the self-regulatory organization. The

Amex subsequently filed Amendment

No. 1 to the proposed rule change on

November 15, 1996 3 and Amendment

No. 2 to the proposed rule change on

January 16, 1997.4 The Exchange has

requested accelerated approval for the

proposal. This order approves the

Amex’s proposal, as amended, on an

accelerated basis and solicits comments

from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Amex is proposing to amend

Exchange Rule 904C to increase position

and exercise limits for narrow-based

index options from 6,000, 9,000, or

12,000 contracts to 9,000, 12,000, or

15,000 contracts.5

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 III 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

Exchange Rules 904C and 905C

provide that position and exercise limits

for narrow-based index options be set at

one of three levels depending upon the

weightings of the component securities

in such narrow-based index. Currently,

a narrow-based index option will have

a 6,000 contract limit if a single

component security accounts for more

than 30% of the index value; a 9,000

contract limit if a single component

security accounts for more than 20%

(but less than 30%) of the index value

or any five component securities

together account for more than 50% of

the index value; and a 12,000 contract

limit for those narrow-based indexes

that do not fall within any one of the

other categories.

According to the Exchange, stringent

position limits create difficulties for

investors in narrow-based index

options, especially for those

institutional investors who own large

portfolios of the component securities

and who generally use the options

markets to hedge those portfolios.

Therefore, the Exchange proposes an

increase in the position and exercise

limits to 9,000 for the lowest level;

12,000 for the middle level; and 15,000

for the highest level.

The Exchange believes that this

increase in position and exercise limits

is appropriate in that the current limits

have been in place since November 30,

1995,6 and the proposed increases are

consistent with the Commission’s

gradual approach to increase position

and exercise limits. According to the

Exchange, in the past year, there has

been a notable increase in narrow-based

index option trading. For example,

through September 1996, narrow-based

index option volume has increased 42%

over all of 1995. As discussed above, the

Exchange believes that these increases

are needed by investors and will thus

increase the depth and liquidity of the

market for narrow-based index options

without causing any market disruption.

In addition, the Exchange will continue

to monitor and surveil for manipulation

and violations of the position and

exercise limits through the use of the

monitoring systems currently in place.

2. Statutory Basis

The Exchange believes that the

proposed rule change is consistent with

Section 6(b) of the 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, and is not

designed to permit unfair

discrimination between customers,

issuers, brokers or dealers.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Amex does not believe that the

proposed rule change will impose any

inappropriate burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

Comments were neither solicited nor

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.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,
4556 Federal Register / Vol. 62, No. 20 / Thursday, January 30, 1997 / Notices

7The Commission continues to believe that

proposals to increase position limits and exercise

limits must be justified and evaluated separately.

After reviewing the proposed exercise limits, along

with the eligibility criteria for each tier, the

Commission has concluded that the proposed

exercise limit increases for the three-tiered

framework do not raise manipulation problems or

increase concerns over market disruption in the

underlying securities.

8See Securities Exchange Act Release No. 37863

(October 24, 1996), 61 FR 56599 (November 1, 1996)

(order establishing position and exercise limits for

narrow-based index options at 9,000, 12,000, or

15,000 contracts) (Phlx–96–33).

9 15 U.S.C. 78s(b)(2) (1988).

10 17 CFR 200.30–3(a)(12).

Washington, D.C. 20549. Copies of the

submission, all subsequent

amendments, all written statements

with respect to the proposed rule

changes that are filed with the

Commission, and all written

communications relating to the

proposed rule changes 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

Section, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of such

filings also will be available for

inspection and copying at the principal

office of the Amex. All submissions

should refer to File No. SR–Ames–96–

41 and should be submitted by February

20, 1997.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The Commission finds that the

proposed rule change is consistent with

the Act and the rules and regulations

thereunder applicable to a national

securities exchange, and, in particular,

the requirements of Section 6(b)(5)

thereunder.

Since the inception of standardized

options trading, the options exchanges

have had rules imposing limits on the

aggregate number of option contracts

that a member or customer can hold or

exercise. These rules are intended to

prevent the establishment of large

options positions that can be used or

might create incentives to manipulate or

disrupt the underlying market so as to

benefit the options position. At the same

time, the Commission has recognized

that option position and exercise limits

must not be established at levels that are

so low as to discourage participation in

the options market by institutions and

other investors with substantial hedging

needs or to prevent specialists and

market makers from adequately meeting

their obligations to maintain a fair and

orderly market.

In this regard, the Amex has stated

that the current position limits

discourage market participation by

certain large investors and the

institutions that compete to facilitate

their trading. In addition, the Amex

notes that index option trading volume

has increased significantly since 1995,

when the current industry index option

position limits were established. In light

of the increased volume of narrow-based

index option trading and the needs of

investors and market makers, the

Commission believes that the Amex’s

proposal is a reasonable effort to

accommodate the needs of market

participants.

In addition, the Commission notes

that the proposal, while increasing the

positions limits for narrow-based index

options, continues to reflect the unique

characteristics of each index option and

maintains the structure of the current

three-tiered system. Specifically, the

lowest proposed limit, 9,000 contracts,

will apply to narrow-based index

options in which a single underlying

stock accounts for 30% or more of the

index value during the 30-day period

immediately preceding the Exchange’s

review of industry index option

positions limits. A position limit of

12,000 contracts will apply if any single

underlying stock accounts, on average,

for 20% or more of the index value or

any five underlying stocks account, on

average for more than 50% of the index

value, but no single stock in the group

accounts, on average, for 30% or more

of the index value during the 30-day

period immediately preceding the

Exchange’s review of industry index

option position limits. The 15,000

contract limit will apply only if the

Exchange determines that the

conditions requiring either the 9,000

contract limit or the 12,000 contract

limit have not occurred.

The Commission believes that the

proposed increases for the three tiers of

25%, 33%, and 50%, for highest to

lowest, respectively, appear to be

appropriate and consistent with the

Commission’s evolutionary approach to

position and exercise limits. In this

regard, the absence of discernible

manipulative problems under the

current three-tiered position and

exercise limit system for narrow-based

index options leads the Commission to

conclude that the increases proposed by

the Exchange are warranted. The

Commission recognizes that there are no

ideal limits in the sense that options

positions of any given size can be stated

conclusively to be free of any

manipulative concerns. Based upon the

absence of discernible manipulation or

disruption problems under current

limits, however, the Commission

believes that the proposed limits can be

safely considered. Accordingly, the

Commission believes that the Amex’s

proposed increases of existing position

and exercise limits for narrow-based

index options is appropriate.7

The Commission notes that the

Exchange has had considerable

experience monitoring the current threetiered framework in narrow-based index

options. The Commission has not found

that differing position and exercise limit

requirements based on the particular

options product to have created

programming or monitoring problems

for securities firms, or to have led to

significant customer confusion. Based

on the current experience in handling

position and exercise limits, the

Commission believes that the proposed

increase in position and exercise limits

for narrow-based index options will not

cause significant problems.

Finally, the Commission believes that

the Exchange’s surveillance programs

are adequate to detect and to deter

violations of position and exercise

limits as well as to detect and deter

attempted manipulative activity and

other trading abuses through the use of

such illegal positions by market

participants.

The Commission finds good cause to

approve the proposal, as amended, prior

to the thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register. On October 24,

1996, the Commission approved an

identical proposal for the Philadelphia

Stock Exchange, Inc. (‘‘Phlx’’).8 The

Phlx’s proposal was subject to the full

comment period and generated no

responses. Amendments Nos. 1 and 2

conformed the Amex’s rule filing to the

Phlx’s proposal. Accordingly, the

Commission believes that it is

consistent with Sections 6(b)(5) and

19(b)(2) of the Act to approve the

proposed rule change, as amended, on

an accelerated basis.

V. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) 9 of the Act, that the

proposed rule change (File No. SR–

Amex–96–41), as amended, is hereby

approved on an accelerated basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.10

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–2260 Filed 1–29–97; 8:45 am]

BILLING CODE 8010–01–M