Federal Register / Vol. 63, No. 88 /Thursday, May 7, 1998 / Notices 25251

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

2 17 CFR 240.19b–4.

3See Letter from Scott G. Van Hatten, Legal

Counsel, Derivative Securities, Amex, to Sharon

Lawson, Assistant Director, Division of Market

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

10, 1998 (‘‘Amendment No. 1’’). In Amendment No.

1, the Amex requests expedited review and

accelerated effectiveness of the proposed rule

change with respect to the provisions concerning

the Broker/Dealer Index. In addition to correcting

a clerical error, Amendment No. 1 also makes clear

that the position and exercise limits, which are

proposed to be initially doubled, will revert to their

original limits at the expiration of the furthest

expiration month for non-long term options series

(‘‘LEAPs’’) as established on the date of the split.

4See Letter from Scott G. Van Hatten, Legal

Counsel, Derivative Securities, Amex, to Sharon

Lawson, Assistant Director, Division, Commission,

dated March 19, 1998 (‘‘Amendment No. 2’’). In

Amendment No. 2, the Amex represents that, in

connection with the splitting of the Airline, Broker/

Dealer and de Jager Indices, it will issue: (1) a

circular to its members at least two weeks prior to

the split, disclosing the pre- and post-reduction

values, the doubling of the number of contracts, and

the temporary doubling of the position limits for the

options overlying such Indices; (2) a second notice

to its members just prior to implementing the index

reductions setting forth the new divisor and other

relevant information; and (3) a circular at least one

month prior to the expiration of the furthest nonLEAP options reminding members that the position

limits are scheduled to revert to the original levels.

5See Securities Exchange Act Release No. 39775

(March 20, 1998) 63 FR 14741.

6See Securities Exchange Act Release No. 38307

62 FR 8469 (February 25, 1997) (order approving

File No. SR–Amex-97–04).

7See Securities Exchange Act Relase No. 35084

59 FR 65419 (December 19, 1994) (order approving

File No. SR–Amex-94–54).

8As originally filed, the proposal incorrectly

listed the de Jager’s benchmark Index value as 200.

This clerical error was corrected by the Exchange

in Amendment No. 1. See Amendment No. 1, supra

note 3.

9 15 U.S.C. 78f.

10 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).

11 15 U.S.C. 78f(b)(5).

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39941; File No. SR–Amex–

98–11]

Self-Regulatory Organizations;

American Stock Exchange, Inc.; Order

Granting Approval of Proposed Rule

Change and Amendment No. 1 Thereto

and Notice of Filing and Order

Granting Accelerated Approval of

Amendment No. 2 to Proposed Rule

Change Relating to a Reduction in the

Value of the de Jager Year 2000 and

Amex Airline Indices

May 1, 1998.

I. Introduction

On February 23, 1997, the American

Stock Exchange, Inc. (‘‘Amex’’ or

‘‘Exchange’’) submitted to the Securities

and Exchange Commission

(‘‘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

split the de Jager Year 2000 (‘‘de Jager

Index’’), Amex Securities Broker/Dealer

Index (‘‘Broker/Dealer Index’’) and

Amex Airline (‘‘Airline Index’’) Indices

to one-half of their current values. On

March 11, 1998, the Amex filed

Amendment No. 1 to the proposed rule

change.3 On March 20, 1998, the Amex

filed Amendment No. 2 to the proposed

rule change.4

On March 26, 1998, the proposed rule

change and Amendment No. 1 were

published for comment in the Federal

Register 5 and the Commission granted

accelerated approval to the portion of

the proposal relating to the Broker/

Dealer Index. No comments were

received on the proposal. This order

approves the portions of the proposed

rule change relating to the de Jager

Index and Airline Index (collectively,

‘‘de Jager and Airline Indices’’) and

approves Amendment No. 2 on an

accelerated basis.

II. Description of the Proposal

The Commission granted the

Exchange approval to list and trade

options on the de Jager 6 and the

Airline 7 Indices on February 19, 1997

and December 12, 1994, respectively.

Initially, the aggregate value of the

stocks contained in the de Jager and

Airline Indices was reduced by divisors

to establish index benchmark values of

250 and 200, respectively. Over the past

two years, the index value of the Airline

Index has more than tripled in value

from 200 to 728. Moreover, since its

creation, the index value of the de Jager

Index has nearly doubled in value from

250 8 to 413.

As a consequence of the rising values

of the Indices, premium levels for

options on the de Jager and Airline

Indices have also risen. According to the

Exchange, these higher premium levels

have been cited as the principal factor

that has discourage retail investors and

some small market professionals from

trading these index options. As a result,

the Exchange is proposing to decrease

the de Jager and Airline Indices to onehalf of their respective present values.

To decrease the values of the Indices,

the Exchange will double the divisor

used in calculating the de Jager and

Airline Indices. The Amex proposes no

other changes to the components of the

Indices, their methods of calculation

(other than the change in the divisor),

expiration style of the options or any

other Index specification.

The Amex believes that lower values

Indices will result in substantial

lowering of the dollar values of options

premiums for options contracts on the

de Jager and Airline Indices. The

Exchange plans to adjust outstanding

series similar to the manner in which

equity options are adjusted for a 2-for1 stock split. On the effective date of the

split ‘‘ex-date,’’ the number of

outstanding options contracts on the de

Jager and Airline Indices will be

doubled and the associated strike prices

halved.

Position and Exercise Limits

Currently, position and exercise limits

for the de Jager Index equal 12,000

contracts, while position and exercise

limits for the Airline Index equal 15,000

contracts, on the same side of the

market. The Exchange proposes to

double the position and exercise limits

to 24,000 contracts for the de Jager

Index and to 30,000 contracts for the

Airline Index on the same side of the

market. This change will be made

simultaneously with the proposed

reduction of the Indices’ values and the

doubling of the number of contracts.

Since the new position and exercise

limits will be equivalent to the Indices’

present limits, the Exchange believes

there is no additional potential for

manipulation of the Indices or the

underlying securities. Further, an

investor who is currently at the de Jager

(12,000) or Airline (15,000) Indices’

contract limit will, as a result of the

Index value reductions, automatically

hold 24,000 or 30,000 contracts,

respectively, to correspond with the

lowered Index values. These increased

position and exercise limits will revert

to their original limits at the expiration

of the furthest expiration month for nonLEAPs as established on the date of the

split.

III. Discussion

The Commission finds that the

proposed rule change, as amended,

relating to the de Jager and Airline

Indices is consistent with the

requirements of Section 6 of the Act 9

and the rules and regulations

thereunder applicable to a national

securities exchange.10 Specifically, the

Commission believes that the provisions

of the proposed rule change pertaining

to the de Jager and Airline Indices are

consistent with and further the

objectives of Section 6(b)(5) of the Act 11

in that the proposed reduction in value

of the de Jager and Airline Indices and

the associated temporary increases in

the position and exercise limits should

remove impediments to and perfect the

mechanism of a free and open market in
25252 Federal Register / Vol. 63, No. 88 /Thursday, May 7, 1998 / Notices

12According to the Amex, January 1999 and

February 1999 will be the furthest expiration

months for non-LEAPs on the Airline and de Jager

Indices, respectively, for purposes of the reversion

of position and exercise limits to their original

levels. Per telephone conversation between Scott

Hatten, Legal Counsel, Derivative Securities, Amex,

and Deborah Flynn, Division, Commission, on April

29, 1998.

13See Amendment No. 2, supra note 5.

14Per telephone conversation between Scott Van

Hatten, Legal Counsel, Derivative Securities, Amex,

and Deborah Flynn, Division, Commission, on May

1, 1998.

15See Amendment No. 2, supra note 5.

16 Id.

17 Id.

18 15 U.S.C. 78f(b)(5).

19 15 U.S.C. 78s(b)(2).

20 17 CFR 200.30–3(a)(12).

a manner consistent with the protection

of investors and the public interest.

By reducing the value of the de Jager

and Airline Indices, the Commission

believes that a broader range of

investors will be provided with a means

to hedge their exposure to the market

risk associated with the stocks

underlying the Indices. Similarly, the

Commission believes that reducing the

value of the de Jager and Airline Indices

may attract additional investors, thus

creating a more active and liquid trading

market.

The Commission also believes that

Amex’s proposed adjustments to its

position and exercise limits applicable

to the de Jager and Airline Indices are

appropriate and consistent with the Act.

In particular, the Commission believes

that the temporary doubling of the

position and exercise limits are

reasonable in light of the fact that the

size of the options contracts on the de

Jager and Airline Indices will be halved

and that, as a result, the number of

outstanding options contracts an

investor holds will be doubled. The

temporary doubling of the position and

exercise limits, therefore, will ensure

that investors will not potentially be in

violation of the lower existing position

and exercise limits while permitting

market participants to maintain, after

the split of the de Jager and Airline

Indices, their current level of

investment in the de Jager and Airline

Index options contracts. As noted above,

the increased position and exercise

limits of 24,000 and 30,000 contracts

will revert to their original limits of

12,000 and 15,000 contracts,

respectively, at the expiration of the

furthest expiration month for nonLEAPs as established on the date of the

split.12

The Commission further believes that

doubling the de Jager and Airline

Indices’ divisors will not have an

adverse market impact on the trading in

these options. After the split, the de

Jager and Airline Indices will continue

to be composed of the same stocks with

the same weightings and will be

calculated in the same manner, except

for the proposed change in the divisors.

The Commission notes that the Amex’s

surveillance procedures also will

remain the same.

Finally, the Commission notes that,

prior to implementing the proposed

changes, the Exchange will provide

advance notice of the proposed changes

to the de Jager and Airline Indices to its

membership.13 The de Jager and Airline

Indices are expected to be reduced by

one-half immediately following the May

15, 1998 expiration.14 The Amex has

committed to provide notice to its

membership at least two weeks prior to

the implementation of the proposed

changes to the values of the de Jager and

Airline Indices and the resulting

adjustments to the outstanding options

contracts on the de Jager and Airline

Indices.15 In addition, the Commission

notes that the Exchange has agreed to

issue a second notice to its members just

prior to implementing the Index

reductions setting forth the new divisor

and other relevant information.16

Finally, the Exchange has agreed to

issue a circular to its members at least

one month prior to the expiration of the

furthest non-LEAP options on the de

Jager and Airline Indices reminding its

member firms that the respective

position and exercise limits will revert

to their original levels.17 The

Commission believes that the proposed

time frames should allow for adequate

notice to be provided to the holders of

all open positions in options on the de

Jager and Airline Indices and other

market participants.

The Commission finds good cause for

approving Amendment No. 2 to the

proposed rule change prior to the

thirtieth day after publication in the

Federal Register. The Commission notes

that Amendment No. 2 merely codifies

the notification procedures that the

Amex had agreed to verbally prior to the

Commission’s grant of partial

accelerated approval to the reduction in

value of the Broker/Dealer Index. The

Commission believes that Amendment

No. 2 should ensure that market

participants will receive adequate notice

prior to the implementation of the

adjustments to the values of the de Jager

and Airline Indices and the eventual

reversion to the original position and

exercise limits. Accordingly, the

Commission finds that good cause

exists, consistent with Section 6(b)(5) of

the Act,18 to accelerate approval of

Amendment No. 2 to the proposed rule

change.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning Amendment No.

2, including whether Amendment No. 2

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. Copies of the submissions, 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, 450 Fifth Street, N.W.,

Washington, D.C. 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–

98–11 and should be submitted by May

28, 1998.

V. Conclusion

For the foregoing reasons, the

Commission finds that the Amex’s

proposal, as amended, to reduce the

value of the de Jager and Airline Indices

by one-half and to temporarily double

the corresponding position and exercise

limits, is consistent with the

requirements of the Act and the rules

and regulations thereunder.

It is therefore ordered, pursuant to

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

portions of the amended proposed rule

change (SR–Amex–98–11) relating to

the de Jager and Airline Indices are

approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.20

Jonathan G. Katz,

Secretary.

[FR Doc. 98–12145 Filed 5–6–98; 8:45 am]

BILLING CODE 8010–01–M