[Federal Register Volume 61, Number 95 (Wednesday, May 15, 1996)]
[Notices]
[Pages 24520-24521]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-12174]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37179; File No. SR-Amex-96-11]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 to Proposed 
Rule Change by the American Stock Exchange, Inc., To Establish a Firm 
Facilitation Exemption

May 8, 1996.
    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 April 9, 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 self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4 (1994).
    \3\ On May 2, 1996, the Amex filed Amendment No. 1 to the 
proposed rule change to include within the rule text the requirement 
that if the Exchange grants a facilitation exemption on the basis of 
oral representations, the member organization must file the 
appropriate forms and documentation substantiating the basis for the 
exemption within either two business days or a period of time to be 
designated by the Exchange (``Amendment No. 1''). See Letter from 
Claire P. McGrath, Managing Director and Special Counsel, Derivative 
Securities, Amex, to Michael Walinskas, Branch Chief, Derivatives 
Regulation, Division of Market Regulation, Commission, dated May 2, 
1996.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex proposes to amend Exchange Rules 904, 905, 904C, and 906G 
to provide for an exemption from standardized equity and index and 
Flexible Exchange option position and exercise limits for member firms 
seeking to facilitate customer orders.

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
    The Amex is proposing to establish a firm facilitation exemption 
\4\ for all non-multiply-listed Exchange option classes. This exemption 
would be available to the Exchange's standardized equity and index and 
Flexible Exchange option classes. In addition, the firm facilitation 
exemption will be twice the standard limit.
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    \4\ The Commission notes that a facilitation trade is defined as 
a transaction that involves crossing an order of a member firm's 
public customer with an order for the member firm's proprietary 
account.
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    Under the proposal, the procedures set forth in Exchange Rule 
950(d) Commentary .02 for crossing a customer order with a firm 
facilitation order must be followed. In this regard, before a customer 
order can be crossed with a firm facilitation order, the trading crowd 
must be given a reasonable opportunity to participate. Moreover, only 
after it has been determined that the trading crowd will not fill the 
order, may the firm's customer order be crossed with the firm's 
facilitation order.
    The Amex notes that the firm facilitation exemption will be in 
addition to and separate from the standard limit, as well as other 
exemptions available under the Exchange's position limit rules. For 
example, if a firm desires to facilitate customer orders in the XYZ 
option

[[Page 24521]]

class, which is assumed not to be multiply-listed and also assumed to 
have a 25,000 contract standard position limit, the firm may qualify 
for a firm facilitation exemption of up to twice the standard limit 
(50,000 contracts), as well as an equity hedge exemption of up to twice 
the standard limit (50,000 contracts), in addition to the 25,000 
contract standard limit. If both exemptions are allowed, the 
facilitation firm may hold or control a combined position of up to 
125,000 XYZ contracts on the same-side of the market.
    Initially, the Exchange intends to provide the facilitation 
exemption to member firms only for positions in equity options that are 
solely listed on the Exchange and not for multiply-listed equity 
options. The reason for this temporary limitation is to allow the 
options exchanges, working through the Intermarket Surveillance Group 
(``ISG''), to develop uniform procedures to assure that all market 
participants at each exchange are given an opportunity to participate 
in an order before a member firm is given an exemption from the 
position limit rules.
    Under the proposal, member firms must receive approval from the 
Exchange prior to executing the facilitating order which would result 
in the firm exceeding position limits. Although permission may be 
obtained based on oral representations, the facilitation firm is 
required to furnish to the Exchange, within two business days or such 
other time period designated by the Exchange, forms and documentation 
substantiating the basis for the exemption. Further, to remain 
qualified for the exemption, the member firm must, within five business 
days after the execution of the exempted order, hedge all exempt option 
positions that have not previously been liquidated, and furnish to the 
Exchange documentation reflecting the resulting hedging position. In 
meeting this requirement, the facilitation firm must liquidate and 
establish its customer's and its own option and stock positions or 
their equivalent in an orderly fashion, and not in a manner calculated 
to cause unreasonable price fluctuations or unwarranted price changes. 
In addition, a facilitation firm is not permitted to use the 
facilitation exemption for the purpose of engaging in index arbitrage. 
Moreover, the facilitation firm is required to promptly provide to the 
Exchange any information or documents requested concerning the exempted 
option positions and the positions hedging them, as well as to promptly 
notify the Exchange of any material change in the exempted option 
positions or the hedge.
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.

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 its review at least five 
business days prior to the filing date; and (4) does not become 
operative for 30 days from April 9, 1996, the date on which it was 
filed, 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 proposed amendments do not 
significantly affect the protection of investors or the public interest 
and do not impose any significant burden on competiton. 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. Sec. 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 Amex. All 
submissions should refer to File No SR-Amex-96-11 and should be 
submitted by June 5, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-12174 Filed 5-14-96; 8:45 am]
BILLING CODE 8010-01-M