Federal Register / Vol. 62, No. 37 / Tuesday, February 25, 1997 / Notices 8467

7 15 U.S.C. 78s(b)(2).

8 17 CFR 200.30–3(a)(12).

1 In Amendment No. 1, the Exchange states: (1)

that the proposal is limited to the listing and

trading of options on those exchange-traded fund

shares that have received approval from the

Commission; and (2) the Exchange will list and

trade options on exchange-traded funds shares that

hold foreign country securities only if: (i) the

Exchange has a market information sharing

agreement with the primary exchange for each of

the securities held by the fund, or (ii) the fund is

classified as a diversified fund as that term is

defined by Section 5(b) of the Investment Company

Act of 1940 and the securities held in the fund are

issued by issuers based in five or more countries.

See letter from Claire P. McGrath, Managing

Director and Special Counsel, Derivative Securities,

Amex, to Ivette Lopez, Assistant Director, Office of

Market Supervision (‘‘OMS’’, Division of Market

Regulation (‘‘Division’’), Commission, dated

January 15, 1997. (‘‘Amendment No. 1’’).

2Amendment No. 2 supersedes and replaces

Amendment No. 1 to the extent that it modifies

proposed Commentary .06(4) to state that the Amex

will list and trade options on exchange-traded fund

shares that hold foreign country securities only if:

(i) the exchange has an effective surveillance

sharing agreement with the primary exchange for

each of the securities held by the fund, or (ii) the

fund is classified as a diversified fund as that term

is defined by Section 5(b) of the Investment

Company Act of 1940 and the securities held in the

fund are issued by issuers based in five or more

countries. The Exchange defines an ‘‘effective

surveillance sharing agreement’’ as an agreement

that would permit the Exchange to obtain trading

information relating to the securities held by the

fund including the identity of the customers

transacting in those securities. See letter from Claire

P. McGrath, Managing Director and Special

Counsel, Amex, to Ivette Lopez, Assistant Director,

OMS, Division, Commission, dated February 18,

1997 (‘‘Amendment No. 2’’).

3Currently, the Exchange trades unit investment

trust securities known as Portfolio Depositary

Receipts SM (‘‘PDRs’’) based on the Standard &

Poor’s 500 Composite Stock Price Index and the

Standard & Poor’s MidCap 400 Index TM. In

addition, the Exchange trades Index Fund Shares

which are issued by an open-end management

investment company consisting of seventeen

separate series known as World Equity Benchmark

Shares SM (‘‘WEBS’’) based on seventeen foreign

equity market indexes. PDRs and WEBS are listed

on the Amex pursuant to Rule 1000, et seq. and

Rule 1000A et seq., respectively, and trade like

shares of common stock.

notes that the Exchange will limit

distribution of such information to

officers and directors of the Exchange

and other employees directly

responsible for conducting market

surveillance and enforcement

proceedings relating to the matter in

connection with which the SEC

provided the information to the Amex.

In view of the importance of

maintaining the confidentiality of this

information, the SEC believes that the

officers and/or directors overseeing the

exchange employees conducting the

relevant market surveillance and

enforcement proceedings would be

responsible for ensuring the

confidentiality of the information

provided by the SEC pursuant to the

MOU with the CONSOB and should

take reasonable measures to ensure that

the information does not become

available to unauthorized persons.

Thus, the Commission believes that the

Exchange will undertake to maintain the

confidentiality of such information and

to take appropriate disciplinary action

in the event it learns of a breach of such

confidentiality, including referral to the

SEC for any action the SEC deems

necessary or appropriate.

The Commission believes that the

Amex, by adopting a policy that

provides access to information on the

underlying securities for market

surveillance and enforcement purposes,

will be in a position to list options and

other derivative products containing

Italian component securities, provided

that all other applicable product listing

standards are met. Therefore, the

Exchange’s proposed rule change could

potentially provide investors with the

opportunity to invest in such products

and hedge their exposure to the Italian

securities market. Accordingly, the

Commission believes that the proposed

rule change is consistent with and

furthers the objectives of Section 6(b)(5)

of the Act, in that it is designed to

perfect the mechanisms of a free and

open market and to protect investors

and the public interest.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,7 that the

proposed rule change (SR–AMEX–96–

36) is approved, as amended.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–4604 Filed 2–24–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38308; File No. SR–Amex–

96–44]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment Nos. 1 and 2 Thereto by

the American Stock Exchange, Inc.

Relating to the Listing and Trading of

Options on Exchange-Traded Fund

Shares

February 19, 1997.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on November 21,

1996, 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 Amex. On

January 16, 1997, the Exchange filed

Amendment No. 1 to the proposal.1 On

February 19, 1997, the Exchange filed

Amendment No. 2 to the proposed rule

change.2 The Commission is publishing

this notice to solicit comments on the

proposed rule change and Amendment

Nos. 1 and 2 from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Amex proposes the adoption of

rules to permit the trading of options on

securities representing interests in openend, exchange-listed investment

companies that hold securities

constituting or based on an index or a

portfolio of securities.

The text of the proposed rule change

is available at the Office of the

Secretary, the Amex, and at the

Commission.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

Exchange included statements

concerning the purpose of and basis for

the proposed rule change and discussed

any comments it received on the

proposed rule change. The text of these

statements may be examined at the

places specified in Item IV below. The

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

The purpose of the proposed rule

change is to provide for the trading of

options on exchange-listed securities

representing interests in open-end unit

investment trusts or open-end

management investment companies that

hold securities based on an index or a

portfolio of securities (referred to

hereinafter as ‘‘Exchange-Traded Fund

Shares’’ or ‘‘Fund Shares’’).3

As noted above, a characteristic of all

Exchange-Traded Fund Shares is that

they are open-ended, and new shares

may be created on any business day at

a cost related to the net asset value in

a transaction with the fund itself. The

ability of the seller of a call on any of

these Fund Shares to deliver upon

exercise will thus be a function of the
8468 Federal Register / Vol. 62, No. 37 / Tuesday, February 25, 1997 / Notices

4As set forth in Rules 1002 and 1002A, the

Exchange establishes a minimum number of units

to be outstanding before trading in a series of

Exchange-Traded Fund Shares may commence.

Although there is no comparable maintenance

standard, as a practical matter there can never be

trading in a series of Fund Shares in which there

is less than one Creation Unit outstanding, since

Fund Shares may only be created and redeemed in

Creation Unit size, and if the last outstanding

Creation Unit should ever be redeemed, the series

(and options on that series) will cease to trade.

availability of shares from the fund itself

(which is itself a function of the creation

mechanism and the shares underlying

the index or portfolio) and not of the

bid/ask spread, trading volume, or the

portfolio size of the fund. ExchangeTraded Fund Shares are also redeemable

on any business day, at a price related

to the net asset value. Consequently, the

ability to liquidate shares received on

the exercise of a put will be a function

of the ability to redeem the shares from

the fund (which is itself a function of

the creation mechanism and the shares

underlying the index or portfolio), not

the bid/ask spread, trading volume, or

the portfolio size of the fund.

Options on Exchange-Traded Fund

Shares are proposed to be traded on the

Exchange pursuant to the same rules

and procedures that apply generally to

trading in options on equity securities

or indexes of equity securities.

However, the Exchange proposes some

different listing criteria for options on

Exchange-Traded Fund Shares and

intends to have each option contract

cover 1000 Exchange-Traded Fund

Shares. Also, reflecting the open-ended

nature of the Fund Shares, the Exchange

is not proposing any position or exercise

limits to apply to options on ExchangeTraded Fund Shares.

The listing standards proposed for

options on Exchange-Traded Fund

Shares are set forth in proposed

Commentary .06 under Exchange Rule

915 and in proposed Commentary .08

under Exchange Rule 916. These

standards, which provide for the listing

of European-style options only, are

substantially the same as those that

apply to the initial and continued listing

of the Fund Shares pursuant to

Exchange Rules 1002 and 1002A.

Conforming the listing standards for

options on Exchange-Traded Fund

Shares to the listing standards that

apply to Fund Shares themselves will

assure that whenever there is trading in

the underlying Fund Shares, options on

these same Fund Shares will also be

available. The Exchange believes that

the contemporaneous availability of

both options and Fund Shares is

particularly necessary for Fund Shares

on indexes or portfolios of securities

when there already exist Fund Shares

based on the same or a similar index or

portfolio of securities. It is expected that

Fund Shares with underlying options

will be more useful to investors seeking

to modify their risk in such Fund

Shares, the underlying indices, markets

or market segments. Demand for and

creation of Fund Shares with overlying

options is likely to exceed demand for

and creation of Fund Shares without

overlying options on the same or a

similar index or portfolio of securities.

Correspondingly, a new fund without

options will have a difficult time

competing with an established fund

with overlying options. A new fund

based on a Japanese index, for example,

would encounter major obstacles in

achieving a reasonable size when in

competition with an established fund

that has overlying options if the new

fund does not have options. The

Exchange’s proposed listing standards

provide that if a particular series of

Exchange-Traded Fund Shares 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 Fund Shares, and all such options

will trade on a liquidation-only basis.

The Amex believes the availability of

these options will be beneficial to

investors, since options will permit

investors to adjust the risks and rewards

of investing in the unit investment trust

or fund to their individual needs.

Options also will add depth and

liquidity to the market for ExchangeTraded Fund Shares by permitting

market makers in that market to hedge

the risks of their market-making

activities efficiently. Options traders

and market makers, in turn, will obtain

liquidity from the market in Fund

Shares and the market in the underlying

securities represented in the portfolio.

Reflecting the open-ended nature of

Exchange-Traded Fund Shares,

maintenance or continued listing

standards for these Fund Shares do not

include criteria based on either the

number of Fund Shares outstanding or

trading volume.4 Similarly, the

Exchange believes it is neither necessary

nor appropriate to apply traditional

position or exercise limits to Fund

Share options, and it is proposing to

amend Rules 904 and 905 to provide

that these limits shall not ordinarily

apply. Since it should always be

possible to create more Fund Shares at

a cost related to their net asset value by

tendering a specified in-kind deposit of

the securities that constitute the

underlying index or portfolio and/or

cash, there is no meaningful limit on the

available supply underlying Fund

Shares. The diversification inherent in

the satisfaction of regulated investment

company requirements for pass-through

tax treatment of dividends and other

income insures that the market value of

the shares underlying any fund will be

very large. Accordingly, the Exchange

believes there is no need for option

position and exercise limits to protect

the underlying market against squeezes

and other attempts at manipulation, or

inadvertent market disruption stemming

from temporary supply and demands

imbalances. The Amex believes the

proposed Exchange-Traded Fund Shares

options’ European-style exercise (which

gives the option seller ample advance

knowledge of the time and size of any

possible exercise transaction), physical

settlement of the option, Creation Unit

size share and/or cash deposits, and a

substantial underlying market in the

securities held by the Fund, combine to

insure against successful attempts at

manipulation or material market

disruptions stemming from trading

activity in the Fund Shares, multiple

Creation Unit sized baskets of portfolio

securities, or options on Fund Shares.

Furthermore, in the absence of any

maintenance or continued listing

requirements in the underlying market

that call for a minimum number of

outstanding Exchange-Traded Fund

Shares or for minimum trading volume,

the Exchange believes that position and

exercise limits would not be meaningful

or useful as a percentage of any of these

measures. For these reasons, and to

assure that as long as there is trading in

the underlying Fund Shares there can

also be trading in the related options,

the Exchange is not proposing any

position or exercise limits for Fund

Shares options. The Exchange reserves

the right, however, to impose position

and exercise limits if, for reasons not

now conceivable, such limits should

ever be needed in the interest of fair and

orderly markets in the options, the

underlying Fund Shares, or the portfolio

securities underlying the Fund Shares.

Reflecting that the underlying

portfolios of Exchange-Traded Fund

Shares are diversified and generally less

volatile than a typical component of the

portfolios, it is also proposed that each

option contract cover 1000 ExchangeTraded Fund Shares and that the

minimum strike price intervals for

options on Exchange-Traded Fund

Shares will be $2.50 where the strike

price is $200 or less, and $5.00 where

the strike price is over $200. These are

comparable to the strike price intervals

applicable to index options having

strike prices at about the level expected

for Fund Share options.

The proposed margin requirements

for options on Exchange-Traded Fund
Federal Register / Vol. 62, No. 37 / Tuesday, February 25, 1997 / Notices 8469

5See letter from Joseph P. Corrigan, Executive

Director, OPRA, to Ivette Lopez, Assistant Director,

OMS, Division, Commission, dated November 8,

1996.

6 17 CFR 200.30–3(a)(12).

1 15 U.S.C. § 78s(b)(1) (1988).

2 17 CFR 240.19b–4.

3The components securities in the Index include:

American Management System; Analysts

International Corp.; Ciber Inc.; Computer Associates

International Inc.; Computer Horizons Corp.;

Computer Sciences Corp.; Compuware Corp.; Data

Dimensions Inc.; Dun & Bradstreet Corp; Electronic

Continued

Shares are at the same levels that apply

to options generally under Exchange

Rule 462, except, reflecting the

diversified nature of the underlying

portfolios represented by the Fund

Shares, minimum margin must be

deposited and maintained equal to

100% of the current market value of the

option plus 15% of the market value of

equivalent units of the underlying

security value. In this respect, the

margin requirements proposed for

options on Exchange-Traded Fund

Shares are comparable to margin

requirements that currently apply to

broad-based index options under

Exchange Rule 462.

The Exchange believes it has the

necessary systems capacity to support

the additional series of options that

would result from the introduction of

Fund options, and it has been advised

that the Options Price Reporting

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

capacity to support these additional

series now that it has implemented an

additional outgoing high speed line

from the OPRA processor.5

2. 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

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

Within 35 days of the date of

publication of this notice in the Federal

Register or within such longer period (i)

as the Commission may designate up to

90 days of such date if it finds such

longer period to be appropriate and

publishes its reasons for so finding or

(ii) as to which the self-regulatory

organization consents, the Commission

will:

(A) by order approve such proposed rule

change, or

(B) institute proceedings to determine

whether the proposed rule change

should be disapproved.

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, N.W.,

Washington, D.C. 20549. Copies of the

submission, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filled with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

provisions of 5 U.S.C. 552, will be

available for inspection and copying in

the Commission’s Public Reference

Section, 450 Fifth Street, N.W.,

Washington, D.C. 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–96–44 and should be

submitted by March 18, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–4611 Filed 2–24–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38307; File No. SR–Amex–

97–04]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

American Stock Exchange, Inc.,

Relating to Options on the de Jager

Year 2000 Index

February 19, 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 January

27, 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. 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 Exchange proposes to list and

trade options on The de Jager Year 2000

Index (‘‘Index’’), a new stock index

developed by the Amex and de Jager &

Company based on stocks (or American

Depositary Receipts (‘‘ADRs’’) thereon)

of companies whose business is

expected to benefit from the need of

companies, governments, and others to

address and resolve the ‘‘Year 2000’’

problem. In addition, the Amex

proposes to amend Exchange Rule 901C,

Commentary .01 to reflect that 90

percent of the Index’s numerical index

value will be accounted for by stocks

which meet the current criteria and

guidelines set forth in Exchange Rule

915.

II. Self-Regulatory Organization’s

Statement of the Propose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

self-regulatory organization 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 self-regulatory organization 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 Amex and de Jager & Company

have developed a new index called The

de Jager Year 2000 Index, based entirely

on shares of widely-held companies

whose business is expected to benefit

from the need of companies,

governments, and others to address and

resolve the ‘‘Year 2000’’ problem.3 The