Federal Register / Vol. 62, No. 204 / Wednesday, October 22, 1997 / Notices 54889

2 17 CFR 200.30–3(a)(27).

1 15 U.S.C. § 78s(b)(1).

2 17 CFR 240.19b–4.

3See letter from Claire McGrath, Vice President

and Special Counsel, Derivative Securities, Amex,

to Ivette Lopez, Assistant Director, Office of Market

Supervision, Division of Market Regulation,

Commission, dated August 18, 1997 (‘‘Amendment

No. 1’’).

4See letter from Claire McGrath, Vice President

and Special Counsel, Derivative Securities, Amex,

to Sharon Lawson, Senior Special Counsel, Office

of Market Supervision, Division of Market

Regulation, Commission, dated September 18, 1997.

5See Securities Exchange Act Release Nos. 36858

(February 16, 1996), 61 FR 7295 (February 27, 1996)

Continued

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. Copies of such filing will also be

available for inspection and copying at

the principal office of the CTA. All

submissions should refer to the file

number in the caption above and should

be submitted by November 12, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.2

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–27902 Filed 10–21–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

Sunshine Act Meeting

Notice is hereby given, pursuant to

the provisions of the Government in the

Sunshine Act, Pub. L. 94–409, that the

Securities and Exchange Commission

will hold the following meeting during

the week of October 20, 1997.

A closed meeting will be held on

Tuesday, October 21, 1997, at 10:00 a.m.

Commissioners, Counsel to the

Commissioners, the Secretary to the

Commission, and recording secretaries

will attend the closed meeting. Certain

staff members who have an interest in

the matters may also be present.

The General Counsel of the

Commission, or his designees, has

certified that, in his opinion, one or

more of the exemptions set forth in 5

U.S.C. 552b(c) (4), (8), (9)(A) and (10)

and 17 CFR 200.402(a) (4), (8), (9)(i) and

(10), permit consideration of the

scheduled matters at the closed meeting.

Commissioner Hunt, as duty officer,

voted to consider the items listed for the

closed meeting in a closed session.

The subject matter of the closed

meeting scheduled for Tuesday, October

21, 1997, at 10:00 a.m., will be:

Institution of injunctive actions.

Institution and settlement of administrative

proceedings of an enforcement nature.

At time, changes in Commission

priorities require alterations in the

scheduling of meeting items. For further

information and to ascertain what, if

any, matters have been added, deleted

or postponed, please contact: The Office

of the Secretary at (202) 942–7070.

Dated: October 15, 1997.

Jonathan G. Katz,

Secretary.

[FR Doc. 97–28129 Filed 10–20–97; 11:46

am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39211; File No. SR–Amex–

97–27]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change and

Amendment No. 1 Thereto by the

American Stock Exchange, Inc., to

Establish Hedge Exemptions From

Narrow-Based and Broad-Based Index

Options Position and Exercise Limits

October 7, 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 August 4,

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 selfregulatory organization. On August 18,

1997, the Amex submitted to the

Commission an amendment to the

proposal.3 The Amex also submitted a

letter regarding certain aspects of its

proposal.4 This order approves the

Amex’s proposal, as amended, and

solicits comments from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to amend (1)

Amex Rule 904C to establish hedge

exemptions from narrow-based and

broad-based index option position

limits, and (2) Amex Rule 905C to

establish corresponding exemptions

from index option exercise limits.

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

Statutory Basis for, the Proposed Rule

Change

1. Purpose

Currently, position and exercise limits

for index options are the same for all

investors, regardless of whether the

investor holds a portfolio of stocks

which could hedge an index options

position. The Exchange now proposes to

adopt a hedge exemption from narrowbased and broad-based index options

position and exercise limits. The

Exchange believes that such an

exemption is necessary to meet the

needs of investors who use index

options for investment and hedging

purposes.

According to the Exchange, on

various occasions during the last few

months, member firms have, on behalf

of managers of large portfolios, such as

pension and insurance funds, indicated

that the current position limits for index

options have restricted the use of such

options in hedging stock portfolios.

Many institutional investors and

portfolio managers invest in portfolios

of stocks which could be readily hedged

with Exchange traded index options.

Current position and exercise limits,

however, hamper their ability to fully

utilize index options to hedge their

positions. According to the Exchange,

the proposed hedge exemptions from

index option position and exercise

limits should increase the depth and

liquidity of index options markets and

allow more effective hedging by

investors without increasing the

potential for market disruption. The

exemptions are similar to exemptions

previously approved by the Commission

for the Philadelphia Stock Exchange,

Inc. (‘‘Phlx’’).5
54890 Federal Register / Vol. 62, No. 204 / Wednesday, October 22, 1997 / Notices

(approval order relating to industry index option

hedge exemption) (File No. SR–Phlx–95–45); 37320

(June 18, 1996) 61 FR 32878 (June 25, 1996)

(approval order relating to market index option

hedge exemption) (File No. SR–Phlx–96–07).

6The Commission notes that the hedge

exemptions are in addition to any other exemptions

available under the Exchange’s rules.

7The Exchange notes that as the dollar value of

the hedging portfolio fluctuates, the number of

exempt contracts may need to be adjusted.

8See Amendment No. 1, supra note 3.

9The Commission notes that under Exchange

Rule 904(a), member organizations are prohibited

from effecting opening transactions in option

contracts on behalf of a customer where the

transaction would cause the customer account to be

in violation of the position limits set forth under

Rule 904. Rule 904C incorporates Rule 904 by

reference; therefore, the Commission believes that,

under Exchange rules, failure to reduce a limit in

a customer account in accordance with Amex Rule

904C, Commentary .01(f) would be considered a

violation by the member firm carrying the customer

account. See Amex Rules 904 and 904C.

Index option positions hedged in

accordance with the proposal would be

entitled to exceed existing position and

exercise limits by up to two times above

and in addition to the current limits.6

In order to qualify for an exemption,

each option position must be hedged by

a position in at least: (1) with respect to

narrow-based index options, 75% of the

number of component stocks or

securities readily convertible into

component stocks underlying the index;

or (2) with respect to broad-based index

options, 20 stocks or securities readily

convertible into stocks in four industry

groups represented in the index, of

which no one component stock

accounts for more than 15% of the value

of the portfolio hedging the index

option position.

In addition, the value of the option

position may not exceed the value of the

underlying portfolio employed as the

hedge. The value of the underlying

portfolio is determined as follows: (1)

the total market value of the net stock

position; less (2) the value of (a) any

offsetting calls and puts in the

respective index option; and (b) any

offsetting positions in related stock

index futures or options; and (c) any

economically equivalent positions.

The stock portfolio employed as the

hedge must be established prior to the

index option positions and the options

positions must be carried in an account

with an Exchange member. Also,

securities used to secure an index hedge

exemption may not also be used to

hedge other option positions.

Exercise limits under the proposal

will continue to correspond to position

limits, so that investors may exercise up

to the number of contracts set forth as

the position limit, as well as those

contracts exempted by this proposal,

during five consecutive business days.

The Amex proposes to exempt

positions in index options in a manner

which balances the hedging needs of

index options investors with the

Exchange’s obligation to maintain a fair

and orderly market. The Amex believes

that a hedge exemption of up to two

times above the current limit or index

options would considerably enhance the

attractiveness of these products for

institutional investors, who would, in

turn, trade more of the products in a

hedged manner and thereby provide

stabilizing liquidity in both the index

options and the underlying securities.

The Exchange also believes that the

proposed index option hedge

exemptions should not increase the

potential for disruption or manipulation

in the markets for the stocks underlying

each index. The proposal incorporates

several safeguards the Amex will

employ to monitor the use of the

exemptions. Specifically, prior

Exchange approval on the appropriate

form designated by the Exchange is

required, which should ensure that the

hedges are appropriate for the position

being taken and are in compliance with

Amex rules, including those governing

the composition and dollar value of the

underlying stock portfolio. The

Exchange may grant an exemption for

less than the maximum of two times

above the existing limit. The hedge

exemption form must be kept current,

with information updated as warranted.

Any information concerning the dollar

value and composition of the stock

portfolio,7 or its equivalent, the current

hedged and aggregate options positions,

and any stock index futures positions

must be promptly provided to the

Exchange.

In addition, the exemption requires

that both the options and stock

positions be initiated and liquidated in

an orderly manner. An account in

which the exempt option positions are

held must liquidate any options prior to

or contemporaneously with a decrease

in the hedged value of the underlying

portfolio to the extent the dollar value

of such options would otherwise be

excessive under the rule. Also, initiating

or liquidating positions should not be

conducted in a manner calculated to

cause unreasonable price fluctuations or

unwarranted price changes or with a

view toward taking advantage of any

differential price between a group of

securities and an overlying stock

position.

The Amex’s surveillance procedures

are designed to detect as well as to deter

manipulation and market disruptions.

In particular, the Exchange will monitor

trading activity in Amex traded index

options and the stocks underlying those

indexes to detect potential frontrunning

and manipulation, as well as review

such trading to ensure that the closing

of positions subject to the exemptions

are conducted in a fair and orderly

manner. This means that a reduction of

the option positions must occur at or

before the corresponding reduction in

the stock portfolio positions, thereby

helping to ensure that the stock

transactions are not used to impact the

market so as to benefit the option

positions. Furthermore, the Exchange

must be notified in writing for approval

prior to liquidating or initiating any

such position as well as of any material

change in the portfolio or futures

positions which materially effects the

unhedged value of the qualified

portfolio.8 On a daily basis, the

Exchange will also monitor each option

contract to ensure that it is hedged by

the equivalent dollar amount of

component securities.

If any member or member

organization that maintains an index

option position in such member’s or

member organization’s own account or

in a customer account has reason to

believe that such position is in excess of

the applicable limit, then it must

promptly take action necessary to bring

the position into compliance pursuant

to Amex Rule 904C, Commentary

.01(f).9

Lastly, violation of any of the

provisions of the index options hedge

exemption, absent reasonable

justification or excuse, will result in

withdrawal of the hedge exemption and

may form the basis for subsequent

denial of an application for an index

hedge exemption.

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, and dealers.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe the

proposed rule change will impose any

inappropriate burden on competition.
Federal Register / Vol. 62, No. 204 / Wednesday, October 22, 1997 / Notices 54891

10Because the Exchange filed Amendment No. 1

subsequent to the original filing date, the 30-day

period commences on the filing date of Amendment

No. 1.

11 17 CFR 200.30–3(a)(12).

1 15 U.S.C. § 78s(b)(1).

2The text of the proposed rule change is available

at the Office of the Secretary, CBOE and in the

Public Reference Room at the Commission.

3SR–CBOE–97–22, approved in Securities

Exchange Act Release No. 38702 (May 30, 1997), 62

FR 31184 (June 6, 1997).

4The systems enhancements specifically have

allowed for the routing of the following types of

contingency and discretionary orders: All or None

orders (AON), Immediate or Cancel orders (IOC),

Fill or Kill orders (FOK), Minimum Quantity orders

(MIN), Stop orders (STP), Stop Loss orders (STP

LOSS), Opening Only orders (OPG), Market on

Close Orders (MOC), Closing Only orders (CLO),

Market if Touched orders (MIT), Not held orders

(NH), and With Discretion orders. Due to systems

and administrative limitations, ORS has continued

to be unavailable for stop limit orders as well as

spreads, straddles, combos, and other multi-part

orders.

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

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)

was provided to the Commission for

review at least five business days prior

to the filing date; and (4) does not

become operative for 30 days from

August 18, 1997, 10 the proposed rule

change has become effective pursuant to

Section 19(b)(3)(A) of the Act and Rule

19b–4(e)(6) thereunder. In particular,

the Commission believes that the

proposal qualifies as a

‘‘noncontroversial filing’’ in that the

proposal does not significantly affect the

protection of investors or the public

interest and does not impose any

significant burden on competition. 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 for the public

interest, for the protection of investors,

or otherwise in furtherance of the

purposes of the Act.

IV. 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, NW,

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 at

the Commission’s Public Reference

Room. Copies of such filing will also 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 Amex.

All submissions should refer to File

No. SR–Amex–97–27 and should be

submitted by November 12, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–27903 Filed 10–21–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39240; File No. SR–CBOE–

97–54]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Chicago Board Options Exchange,

Incorporated Relating to Routing of

Firm and Broker-Dealer Orders to the

Par Workstations in the DJX Trading

Crowd

October 14, 1997.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

October 3, 1997, the Chicago Board

Options Exchange, Incorporated

(‘‘CBOE’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’) the proposed

rule change as described in Items I, II,

and III below, which Items have been

prepared by the CBOE. 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 Chicago Board Options Exchange,

Incorporated (‘‘CBOE’’ or the

‘‘Exchange’’) will enable its order

routing system (‘‘ORS’’) to route brokerdealer and firm orders to the trading

crowd for options based on the Dow

Jones Industrial Average (‘‘DIX’’).2

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

CBOE 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 CBOE 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

On May 30, 1997, the Securities and

Exchange Commission (‘‘SEC’’ or

‘‘Commission’’) approved a proposed

rule change of the CBOE which sought

permanent approval of a pilot program

concerning certain enhancements to the

Exchange’s electronic order routing

system.3

The changes instituted in the pilot

program, now approved on a permanent

basis, included the electronic routing

and processing of contingency and

discretionary orders,4 the recognition by

ORS of firm and broker-dealer orders,

the routing of firm and broker-dealer

orders to the Public Automated Routing

(‘‘PAR’’) system workstations in the

OEX crowd, and the execution of certain

contingency orders on the Exchange’s

Retail Automatic Execution System. In

addition, the Exchange enabled the

system to route firm and broker-dealer

orders electronically to the PAR

workstations in the trading crowd for

options on the Standard & Poor’s 100

Index (‘‘OEX’’), but not to PAR stations

in any other trading crowd. The

Exchange has now enabled its systems

to route firm and broker-dealer orders

electronically to the PAR stations in the

trading crowd for DJX, which is

scheduled to commence trading on the

Exchange on October 6, 1997. The

Exchange intends to study further

whether it should enable the system to

route such orders to equity and SPX

crowds at some future date. All other

enhancements to the ORS which were

recently approved by the Commission

will apply equally to trading in DJX as