Federal Register / Vol. 60, No. 241 / Friday, December 15, 1995 / Notices 64463

1 15 U.S.C. 78s(b)(1(1988).

2 17 CFR 240.19b–4 (1994).

3Position limits impose a ceiling on the number

of option contracts in each class on the same side

of the market (i.e., aggregating long calls and short

puts or long puts and short calls) that can be held

or written by an investor or group of investors

Continued

Hutchins, the party the investors have

chosen to hold accountable for

investment results, through the voting

rights pursuant to section 15(a) of the

Act and rule 18f–2 thereunder

concerning the Trust’s Management

Agreement with Mitchell Hutchins.

Applicants believe that a shareholder

vote concerning a Sub-Advisory

Agreement prior to its effective date

should not be required, particularly

when doing so will (i) increase the

Trust’s expenses and (ii) may delay

prompt implementation of the action

Mitchell Hutchins (and ultimately the

investors themselves) has determined is

most beneficial to the Trust’s

shareholders. Therefore, applicants

contend that requiring the Trust to

obtain immediate and costly

shareholder approval for every change

in control of a Sub-Adviser is

unreasonably burdensome, particularly

where shareholders have chosen

Mitchell Hutchins to determine the

impact of the proposed change on their

behalf.

5. Section 6(c) of the Act provides that

the SEC may exempt any person,

security, or transaction from any

provision of the Act, if and to the extent

that such exemption is necessary or

appropriate in the public interest and

consistent with the protection of

investors and the policies and purposes

fairly intended by the policies and

provisions of the Act. Applicants

believe that the requested relief meets

this standard.

Applicants’ Conditions

Applicants agree that the requested

exemption is subject to the following

conditions:

1. Mitchell Hutchins will not enter

into a Sub-Advisory Agreement with

any Sub-Adviser that is an affiliated

person (as defined in section 2(a)(3) of

the Act) of the Trust or Mitchell

Hutchins other than by reason of serving

as a Sub-Adviser to one or more of the

Portfolios (an ‘‘Affiliated Sub-Adviser’’)

without such agreement, including the

compensation to be paid thereunder,

being approved by the shareholders of

the applicable Portfolio.

2. At all times, a majority of the

Trustees of the Trust will be persons

each of whom is not an ‘‘interested

person’’ of the Trust (as defined in

section 2(a)(19) of the Act) (the

‘‘Independent Trustees’’), and the

nomination of new or additional

Independent Trustees will be placed

with the discretion of the then existing

Independent Trustees.

3. When a Sub-Adviser change is

proposed for a Portfolio with an

Affiliated Sub-Adviser, the Trustee of

the Trust, including a majority of the

Independent Trustees, will make a

separate finding, reflected in the Trust’s

board minutes, that the change is in the

best interests of the Portfolio and its

shareholders and does not involve a

conflict of interest from which Mitchell

Hutchins or the Affiliated Sub-Adviser

derives an inappropriate advantage.

4. Mitchell Hutchins will provide

general management and administrative

services to the Trust, and, subject to

review and approval by the Trust’s

Trustees, will: (a) Set the Portfolios’

overall investment strategies; (b) select

Sub-Advisers; (c) allocate and, when

appropriate, reallocate the Portfolios’

assets among Sub-Advisers; (d) monitor

and evaluate the performance of SubAdvisers; and (e) ensure that the SubAdvisers comply with the Trust’s

investment objectives, policies, and

restrictions.

5. Before a future Portfolio that does

not presently have an effective

registration statement may rely on the

order, its initial shareholder will

approve the multi-manager structure

before Portfolio shares are offered to the

public.

6. Within 90 days of the hiring of any

new Sub-Adviser or the implementation

of any proposed material change in a

Sub-Advisory Agreement, the Trust will

furnish shareholders all information

about a new Sub-Adviser or SubAdvisory Agreement that would be

included in a proxy statement. Such

information will include any change in

such disclosure caused by the addition

of a new Sub-Adviser or any proposed

material change in a Portfolio’s SubAdvisory Agreement. The Trust will

meet this condition by providing

shareholders, within 90 days of the

hiring of a Sub-Adviser or the

implementation of any material change

to the terms of a Sub-Advisory

Agreement, with an information

statement meeting the requirements of

Regulation 14C and Schedule 14C under

the Securities Exchange Act of 1934 (the

‘‘Exchange Act’’). The information

statement also will meet the

requirements of Schedule 14A under the

Exchange Act.

7. No Trustee or officer of the Trust

or Mitchell Hutchins will own directly

or indirectly (other than through a

pooled investment vehicle that is not

controlled by any such Trustee or

officer) any interest in a Sub-Adviser

except for: (a) ownership of interests in

Mitchell Hutchins or any entity that

controls, is controlled by, or is under

common control with Mitchell

Hutchins; or (b) ownership of less than

1% of the outstanding securities of any

class of equity or debt of a publiclytraded company that is either a SubAdviser or an entity that controls, is

controlled by, or is under common

control with a Sub-Adviser.

8. The Trust will disclose in all

prospectuses relating to any Portfolio

the existence, substance, and effect of

any order granted pursuant to the

application.

9. Shares of the Trust will be offered

exclusively to participants in the PACE

Program or other asset allocation

services offered by professional asset

managers who, for compensation,

engage in the business of advising

others as to the value of securities or as

to the advisability of investing in,

purchasing or selling securities.

For the SEC, by the Division of Investment

Management, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–30569 Filed 12–14–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36567; File No. SR-Amex–

95–35]

Self-Regulatory Organizations; Order

Granting Partial Approval to a

Proposed Rule Change by the

American Stock Exchange, Inc.,

Relating to the Members’ Compliance

With Position and Exercise Limits for

Non-Amex Listed Options

December 8, 1995.

On August 25, 1995, the American

Stock Exchange, Inc. (‘‘Amex’’ 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

amend (1) Amex Rule 900(a),

‘‘Applicability,’’ to confirm the

Exchange’s enforcement authority over

Amex members’ options transactions

effected on another options exchange;

and (2) Amex Rules 904, ‘‘Position

Limits,’’ and 905, ‘‘Exercise Limits,’’ to

require Amex members who trade nonAmex listed option contracts and who

are not members of the exchange where

the options are traded to comply with

the option position and exercise limits

set by the exchange where the

transactions are effected.3 The Amex
64464 Federal Register / Vol. 60, No. 241 / Friday, December 15, 1995 / Notices

acting in concert. 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 conservative

business days.

4 In Amendment No. 1, the Amex indicated that

it will apply the interpretations and policies of

another exchange when applying that exchange’s

position and exercise limit rules to an Amex

member’s transactions on that exchange. In

addition, the Amex stated that it will take

disciplinary action pursuant to its own rules if the

Amex finds that an Amex member has violated the

position and exercise limit rules of another

exchange. See Letter from Claire McGrath,

Managing Director and Special Counsel, Derivative

Securities, Amex, to Michael Walinskas, Branch

Chief, Derivatives Regulation, Office of SelfRegulatory Oversight, Division of Market

Regulation, Commission, dated September 19, 1995

(‘‘Amendment No. 1’’).

5Securities Exchange Act Release No. 36353

(October 10, 1995), 60 FR 54266.

6 In partially approving the Amex’s proposal, the

Commission is not approving, at this time, the

portion of the proposal amendment Amex Rule

900(a).

7See Amendment No. 1, supra note 4. The

Commission notes that the position and exercise

limits in equity options are uniform among all

options markets.

8 15 U.S.C. 78f(b)(5) (1988 & Supp. V 1993).

9Under the proposal, the Amex will also apply

the interpretations and policies of the exchange

where the options transactions are effected. The

Amex will take disciplinary action pursuant to its

own rules when it finds that an Amex member has

violated the position and exercise limit rules of

another exchange. See Amendment No. 1, supra

note 4.

10See, e.g., Securities Exchange Act Release No.

33283 (December 3, 1993), 58 FR 65204 (December

13, 1993) (order approving File No. SR–CBOE–93–

43).

11Mini-manipulation is an attempt to influence,

over a relatively small range, the price movement

in a stock to benefit a previously established

derivatives position.

12See Securities Exchange Act Release Nos.

36242 (September 18, 1995), 60 FR 49305

(September 22, 1995) (order approving File No. SR–

CBOE–95–22); 36257 (September 20, 1995), 60 FR

50228 (September 28, 1995) (order approving File

No. SR–PHLX–95–31); and 36350 (October 6, 1995),

60 FR 53654 (October 16, 1995) (order approving

File No. SR–PSE–95–17).

subsequently filed Amendment No. 1 to

the proposal.4

Notice of the proposed rule change

and Amendment No. 1 were published

for comment and appeared in the

Federal Register on October 20, 1995.5

No comments were received on the

proposal. This order grants partial

approval of the portion of the proposal

amending Amex Rules 904 and 905.6

Currently, Amex Rule 904 prohibits

Amex members from effecting, for any

account in which the member has an

interest or for any customer account,

transactions in option contracts dealt in

on the Exchange that would exceed the

Amex’s established position limits.

Similarly, Amex Rule 905 prohibits

members from exercising, for any

account in which the member has an

interest or for any customer account, a

long position in option contracts dealt

in on the Exchange that would exceed

the Amex’s established exercise limits.

As presently written, Amex Rules 904

and 905 apply only to option classes

traded on the Amex and not to opening

transactions or exercises in option

classes traded on another options

exchange. Since each options exchange

has jurisdiction only over its own

members, a jurisdictional loophole

exists where, for example, an Amex

member exceeds position or exercise

limits on another options exchange of

which it is not a member in an option

class not listed on the Amex. Under

those circumstances, the Amex could

not take disciplinary action against its

member for violating the position and

exercise limit rules in an option class

traded on another options exchange.

Similarly, the options exchange where

the option class is traded could not

bring an action since it does not have

jurisdiction over a non-member.

In order to close this jurisdictional

loophole, the Amex proposes to extend

its disciplinary jurisdiction to include

members’ violations of the position and

exercise limits of other options

exchanges. Specifically, the Amex

proposes to amend Amex Rule 904 to

prohibit Amex members who are not

members of the exchange where the

options transactions are effected from

effecting, for any account in which the

Amex member has an interest or for any

customer account, transactions in

option contracts that would exceed the

position limits established by the

exchange where the options are traded.

Similarly, the Amex proposes to amend

Exchange Rule 905 to prohibit Amex

members who are not members of the

exchange where the options transactions

are effected from exercising, for any

account in which the Amex member has

an interest or for any customer account,

a long position in option contracts that

would exceed the exercise limits

established by the exchange where the

options are traded.

The Amex notes that the proposed

extension of jurisdiction will apply only

when the Amex member is not a

member of the other options exchange.

In addition, the Amex will apply the

applicable position and exercise limit

rules of the other exchange, as well as

its interpretations and policies.7.

The Amex 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, 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.

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange, and, in particular, the

requirements of Section 6 (b) (5) 8 in that

it is designed to prevent fraudulent and

manipulative acts and practices and to

protect investors and the public interest.

Specifically, the Amex has noted that

Exchange Rules 904 and 905 currently

apply solely to option contracts dealt in

on the Amex and do not prohibit Amex

members from exceeding the position

and exercise limits set by another

exchange for non-Amex listed option

contracts. Thus, if an Amex member

exceeds the position and exercise limits

of another options exchange, and the

Amex member is not a member of the

exchange which lists the options, then

neither the Amex or the exchange that

lists the options is able to enforce its

position and exercise limits against the

Amex member. The proposal eliminates

this loophole and strengthens the

Exchange’s rules by requiring an Amex

member who trades non-Amex listed

option contracts on another exchange,

and who is not a member of that

exchange, to comply with the option

position and exercise limits set by the

exchange where the transactions are

effected.9

As the Commission has noted in the

past,10 options position and exercise

limits 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. In particular, position

and exercise limits are designed to

minimize the potential for minimanipulations 11 and for corners or

squeezes of the underlying market. The

proposal extends the benefits of the

position and exercise limit rules to

include all exchange-traded options

transactions entered into by Amex

members by bringing an Amex

member’s customer transactions in nonAmex exchange listed options within

the Amex’s jurisdiction for position and

exercise limit purposes.

Finally, the Commission notes that

the Amex’s proposal to amend Amex

Rules 904 and 905 is identical to

proposals recently approved by the

Commission.12
Federal Register / Vol. 60, No. 241 / Friday, December 15, 1995 / Notices 64465

13 15 U.S.C. 78s(b)(2) (1988).

14 17 CFR 200.30–3(a)(12) (1994).

1The Commission notes that several of the

Exchanges’ rules, such as its order guarantee and

preferencing rules, distinguish between public and

professional agency orders. Thus, the proposed rule

change would affect certain orders in these contexts

as well. See, e.g., CSE Rules 11.9(c) and (u).

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,13 that the

portion of the proposed rule change

(SR–Amex–95–35) amending Amex

Rules 904 and 905 is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–30529 Filed 12–14–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36569; File No. SR–SCE–

95–10]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

Cincinnati Stock Exchange, Inc.,

Relating to the Definitions of Public

and Professional Agency Orders

December 11, 1995.

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 29,

1995, the Cincinnati Stock Exchange,

Inc. (‘‘CSE’’ 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 CSE hereby proposes to amend

the definition of public agency order

and professional agency order as

follows, with added language in italics

and deletions in brackets:

Rule 11.9 National Securities Trading

System

(a) No Change.

(1) through (6) No Change.

(7) The term ‘‘public agency order’’

means any order for an account covered

by Section 11(a)(1)(E) of the Securities

Exchange Act of 1934 [the account of a

person other than a member, an

Approved Dealer, or a person who could

become an Approved Dealer by

complying with this Rule with respect

to his use of the System], which is

represented, as agent, by a User.

(8) The term ‘‘professional agency

order’’ means an order entered by a User

as agent for the account of a brokerdealer or for an account which is not

covered by Section 11(a)(1)(E) of the

Securities Exchange Act of 1934.

(b) through (u) No Change.

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

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

CSE Rule 11.9(l) grants ‘‘public

agency’’ orders a special time priority

on the CSE, i.e., public agency orders

have priority over professional agency

orders at the same price. The intent of

the proposed rule change is to ensure

that the privilege of this super-priority

is granted only to those for whom it was

originally intended by clarifying the

distinction between ‘‘public agency’’

and professional agency’’ order flow.1

Paragraph (1)(E) in Section 11(a) of

the Act, which addresses certain issues

related to trading by Exchange members,

segregates for special treatment ‘‘any

transaction for the account of a natural

person, the estate of a natural person, or

a trust created by a natural person for

himself or another natural person.’’ The

New York Stock Exchange (‘‘NYSE’’)

utilizes this definition of public agency

business in NYSE Rule 80A, its rule for

limiting trading during significant

market declines. Specifically, NYSE

Rule 80A(e)(iii) defines an ‘‘account of

an individual investor’’ as ‘‘an account

covered by Section 11(a)(1)(E) of the

Securities Exchange Act of 1934.’’ The

CSE is proposing to incorporate Section

11(a)(1)(E) into its definition of public

and professional agency orders. The

Exchange believes that it is appropriate

to articulate definitions of agency

business that are consistent with the

general understanding and practice of

the securities industry.

2. Statutory Basis

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 promote just and equitable

principles of trade and to protect

investors and the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The CSE 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

The CSE informed the other

Intermarket Trading System participants

of its intent to file this rule proposal,

and no comments were received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the publication of

this notice in the Federal Register or

within such other 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 the 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 forgoing.

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

purposed rule change between the

Commission and any person, other than

those that maybe 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 NW.,

Washington, DC 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the CSE. All submissions