[Federal Register Volume 60, Number 241 (Friday, December 15, 1995)]
[Notices]
[Pages 64463-64465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30529]



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SECURITIES AND EXCHANGE COMMISSION
[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 non-Amex 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 

[[Page 64464]]
subsequently filed Amendment No. 1 to the proposal.\4\

    \1\ 15 U.S.C. 78s(b)(1(1988).
    \2\ 17 CFR 240.19b-4 (1994).
    \3\ Position 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 
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 Self-Regulatory Oversight, Division of Market 
Regulation, Commission, dated September 19, 1995 (``Amendment No. 
1'').
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    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\

    \5\ Securities 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).
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    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\.

    \7\ See Amendment No. 1, supra note 4. The Commission notes that 
the position and exercise limits in equity options are uniform among 
all options markets.
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    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\

    \8\ 15 U.S.C. 78f(b)(5) (1988 & Supp. V 1993).
    \9\ Under 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.
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    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 mini-manipulations \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 non-Amex exchange 
listed options within the Amex's jurisdiction for position and exercise 
limit purposes.

    \10\ See, 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).
    \11\ Mini-manipulation is an attempt to influence, over a 
relatively small range, the price movement in a stock to benefit a 
previously established derivatives position.
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    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\

    \12\ See 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).

[[Page 64465]]

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    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.

    \13\ 15 U.S.C. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\

    \14\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-30529 Filed 12-14-95; 8:45 am]
BILLING CODE 8010-01-M