Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Notices 33557

2Currently, Thomas G. Fox serves as chief

investment officer, Darrel R. Lynn serves as

operations manager, and Wayne R. Eskew serves as

assistant portfolio manager.

3 If, in the future, Kommerstad’s marketing and

sales efforts for Trend bring him into contact with

a prospective client that is a registered investment

company, Kommerstad immediately will refrain

from developing the registered investment company

as a client and will refer the prospective client to

Trend. Kommerstad will not be compensated,

directly or indirectly, for such referrals.

5. Trend asserts that its investment

advisory services are and will be

developed and managed by Trend’s

chief investment officer, operations

manager, or assistant portfolio manager

(the ‘‘Investment Management Team’’).2

Kommerstad is not, nor will be become,

a member of the investment

management team. He does not and will

not serve in a policy-making role. He

does not and will not participate in the

management of Trend relating to

providing investment advice to

registered investment companies.3

Kommerstad is not, and will not

become, a member of Trend’s board of

directors and is not, and will not

become, an officer of Trend.

6. Kommerstad is affiliated with

Trend solely due to his status as an

employee. He presently owns less than

5% of the outstanding voting securities

of Trend. Kommerstad will not be

permitted to own 5% or more of the

outstanding voting securities, or

otherwise become affiliated with Trend

for any reason other than employment,

absent any future relief that may

specifically cover affiliations other than

employment.

7. Trend believes, for the reasons

stated above, that the section 9(a)

prohibitions regarding the Injunction

would be unduly or disproportionately

severe and Kommerstad’s conduct was

not such as to make it against the public

interest or protection of investors for the

SEC to grant the requested relief.

Applicant’s Condition

Applicant agrees that any order

granted by the SEC pursuant to the

application will be subject to the

following conditions:

Neither Trend, nor any affiliated

person of Trend relying upon the relief

granted pursuant to the application, will

employ Kommerstad in any capacity

related directly to the provision of

investment advice to, or acting as

depositor of, any registered investment

company, or to acting as principal

underwriter for any registered open-end

company, registered unit investment

trust, or registered face amount

certificate company.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–16453 Filed 6–26–96; 8:45 am]

BILLING CODE 8010–01–M

[Investment Company Act Release No.

22036; 811–6689]

Van Eck Trust; Notice of Application

June 21, 1996.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of Application for

Deregistration under the Investment

Company Act of 1940 (the ‘‘Act’’).

APPLICANT: Van Eck Trust.

RELEVANT ACT SECTION: Section 8(f).

SUMMARY OF APPLICATION: Applicant

requests an order declaring that it has

ceased to be an investment company.

FILING DATE: The application was filed

on May 14, 1996, and amended on June

14, 1996.

HEARING OR NOTIFICATION OF HEARING: An

order granting the application will be

issued unless the SEC orders a hearing.

Interested persons may request a

hearing by writing to the SEC’s

Secretary and serving applicant with a

copy of the request, personally or by

mail. Hearing requests should be

received by the SEC by 5;30 p.m. on July

16, 1996, and should be accompanied

by proof of service on the applicant, in

the form of an affidavit or, for lawyers,

a certificate of service. Hearing requests

should state the nature of the writer’s

interest, the reason for the request, and

the issues contested. Persons may

request notification of a hearing by

writing to the SEC’s Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, N.W., Washington, D.C. 20549.

Applicant, 99 Park Avenue, New York,

New York 10016.

FOR FURTHER INFORMATION CONTACT:

Diane L. Titus, Paralegal Specialist, at

(202) 942–0584, or Alison E. Baur,

Branch Chief, at (202) 942–0564

(Division of Investment Management,

Office of Investment Company

Regulation).

SUPPLEMENTARY INFORMATION: The

following is a summary of the

application. The complete application

may be obtained for a fee from the SEC’s

Public Reference Branch.

Applicant’s Representations

1. Applicant is an open-end, nondiversified management investment

company organized as a Massachusetts

business trust. Applicant is a ‘‘feeder’’

fund in a ‘‘master/feeder fund’’ complex

and is composed of two series: Shortterm World Income Fund—Class A and

Class B.

2. On June 1, 1992, applicant

registered under the Act and filed a

registration statement on Form N–1A.

No registration was filed under the

Securities Act of 1933 (‘‘Securities Act’’)

because applicant’s beneficial interests

were issued solely in private placement

transactions that did not involve any

public offering within the meaning of

section 4(2) of the Securities Act. All of

applicant’s investors were ‘‘accredited

investors’’ within the meaning of

Regulation D under the Securities Act.

Applicant’s beneficial interests were

never offered to the public.

3. Applicant’s board of trustees

determined that it was in the best

interest of shareholders to liquidate its

Class A and Class B shares, after being

informed by Van Eck Associates

Corporation, applicant’s adviser

(‘‘Adviser’’) that it no longer planned to

reimburse applicant’s expenses. On

November 23, 1993, the board approved

a plan of liquidation.

4. Proxy materials were filed with the

SEC and mailed to shareholders for a

shareholders meeting held on December

27, 1993. Applicant’s shareholders

approved the liquidation plan at the

meeting.

5. On December 30, 1993, applicant

redeemed the units held in Short-term

World Income Fund Class A and Class

B and satisfied its known obligations.

On December 31, 1993, the liquidation

value was distributed in cash to the

Class A and B shareholders. The

liquidation value was determined in the

same manner as the Fund’s net asset

value.

6. All expenses incurred in

connection with the liquidation were

absorbed by the Adviser. No brokerage

commissions were paid in connection

with the liquidation.

7. Applicant has no security holders,

liabilities or assets. Applicant is not a

party to any litigation or administrative

proceeding. Applicant is not now

engaged, nor does it propose to engage,

in any business activities other than

those necessary for the winding up of its

affairs.

8. Applicant will file a Certificate of

Dissolution and other appropriate

documentation in Massachusetts, as

required by Massachusetts law.

For the SEC, by the Division of Investment

Management, under delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–16454 Filed 6–26–96; 8:45 am]

BILLING CODE 8010–01–M
33558 Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Notices

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

2 17 CFR 240.19b–4.

3 In Amendment No. 1 to its proposed rule

change, the Amex proposes: (1) Position and

exercise limits for FLEX Equity Options that are

three times the limits for Non-FLEX Equity Options;

(2) crossing procedures and a guaranteed minimum

right of participation for a Submitting Member

seeking to cross a public customer FLEX Equity

Option order; and (3) settlement of FLEX Index

Options in designated foreign currencies, in

addition to U.S. dollars as currently provided. See

Letter from Claire McGrath, Special Counsel,

Derivatives Securities, to Michael Walinskas,

Special Counsel, Office of Market Supervision

(‘‘OMS’’), Division of Market Regulation (‘‘Market

Regulation’’), Commission, dated March 14, 1996.

(‘‘Amendment No. 1’’).

4See Securities Exchange Act Release No. 37053

(March 29, 1996), 61 FR 15537.

5 In Amendment No. 2, the Exchange proposes to:

(1) Include a reference to the specific indexes

approved for FLEX Options trading in Rules

903G(a)(2)(i) and 906G(a); (2) revise Amendment

No. 1 regarding the proposed guaranteed minimum

right of participation for a Submitting Member

seeking to cross a public customer FLEX Equity

Option order, such that the Submitting Member will

be permitted to execute the contra side of the trade

that is the subject of the Request for Quotes, to the

extent of at least 25% of the trade under specific

circumstances; and (3) include subparagraph (c) to

Rule 909G so that FLEX Equity Options specialists

shall comply with Rules 171 and 950(h) regarding

equity option specialist’s financial requirements.

See Letter from Claire McGrath, Special Counsel,

Derivatives Securities, Amex, to Michael Walinskas,

Special Counsel, OMS, Market Regulation,

Commission, dated April 15, 1996 (‘‘Amendment

No. 2’’).

6 In Amendment No. 3, the Amex proposes to

amend Rule 903G(a)(3) to make it clear that bids

and offers responsive to FLEX Requests for Quotes

must be stated in terms of the designated currency

in the Request for Quotes. See Letter from Claire

McGrath, Special Counsel, Amex, to John Ayanian,

Attorney, OMS, Market Regulation, Commission,

dated June 19, 1996 (‘‘Amendment No. 3’’).

7See Amex Rules 900G through 909G.

8An American-style equity option is one that may

be exercised at any time on or before the expiration

date.

9A European-style equity option is one that may

be exercised only during a limited period of time

prior to expiration of the option.

10A capped-style equity option is one that is

exercised automatically prior to expiration when

the cap price is less than or equal to the closing

price of the underlying security for calls or when

the cap price is greater than or equal to the closing

price of the underlying security for puts.

11The proposal, however, requires that the

expiration date of a FLEX Equity Option may not

fall on a day that is on, or within two business days

of the expiration date of a Non-FLEX Equity Option.

12See Securities Exchange Act Release Nos.

32781 (August 20, 1993), 58 FR 45360 (August 27,

1993) (order approving the trading of FLEX Index

Options on the Major Market, Institutional, and S&P

MidCap Indexes), and 33262 (December 1, 1993), 58

FR 64622 (December 8, 1993) (order approving the

trading of FLEX Index Options on the Japan Index).

13 In addition to the term FLEX Equity Options,

the proposal also defines the terms ‘‘FLEX Index

Options,’’ ‘‘Non-FLEX Options,’’ and ‘‘Non-FLEX

Equity Option.’’ See Amex Rule 900G.

14See Securities Exchange Act Release No. 31910

(February 23, 1993), 58 FR 12056 (March 2, 1993)

(‘‘9b–1 Order’’). As described in Section V infra,

and for the same reasons stated in the 9b–1 Order,

FLEX Equity Options are deemed ‘‘standardized

options’’ for purposes of the Rule 9b–1 options

disclosure framework.

15See Amex Rule 903G.

16Amex Rule 915 contains initial listing

standards for a security to be eligible for options

trading. The Exchange proposes to be able to trade

FLEX Options on any options-eligible security

regardless of whether standardized Non-FLEX

options overlie that security, and regardless of

whether such Non-FLEX options trade on the

Exchange.

[Release No. 34–37336; File No. SR–Amex–

95–57]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change and

Notice of Filing and Order Granting

Accelerated Approval of Amendment

Nos. 2 and 3 to the Proposed Rule

Change by the American Stock

Exchange, Inc., Relating to the Listing

of Flexible Exchange Options on

Specified Equity Securities

June 19, 1996.

I. Introduction

On December 26, 1995, the American

Stock Exchange, Inc. (‘‘Amex’’ or

‘‘Exchange’’) filed a proposed rule

change with 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 to provide for the listing

and trading of Flexible Exchange

Options (‘‘FLEX Options’’) on specified

equity securities (‘‘FLEX Equity

Options’’). The Amex submitted to the

Commission Amendment No. 1 to its

proposal on March 18, 1996.3

Notice of proposal, as amended, was

published for comment and appeared in

the Federal Register on April 8, 1996.4

The Amex submitted to the Commission

Amendment No. 2 to its proposal on

April 15, 1996.5 The Amex submitted to

the Commission Amendment No. 3 to

the Commission on June 19, 1996.6 No

comment letters were received on the

proposed rule change. This order

approves the Exchange’s proposal, as

amended.

II. Background

The purpose of the Exchange’s

proposal is to provide a framework for

the Exchange to list and trade equity

options that give investors the ability,

within specified limits, to designate

certain of the terms of the options. In

recent years, an over-the-counter

(‘‘OTC’’) market in customized equity

options has developed which permits

participants to designate the basic terms

of the options, including size, term to

expiration, exercise style, exercise price,

and exercise settlement value, in order

to meet their individual investment

needs. Participants in this OTC market

are typically institutional investors, who

buy and sell options in large-size

transactions through a relatively small

number of securities dealers. To

compete with this growing OTC market

in customized equity options, the

Exchange propose to expand its FLEX

Options rules 7 to permit the

introduction of trading in FLEX Options

on specified equity securities that

satisfy the Exchange’s listing standards

for equity options. The Exchange’s

proposal will allow FLEX Equity Option

market participants to designate the

following contract terms: (1) Exercise

price; (2) exercise style (i.e., American,8

European,9 or capped 10); (3) expiration

date; 11 and (4) option type (put, call, or

spread).

Currently, the Amex can list and trade

FLEX Options on several broad-based

market indexes composed of equity

securities (‘‘FLEX Index Options’’).12

The Exchange believes that FLEX Equity

Options will further broaden the base of

institutional investors that use FLEX

Options to manage their trading and

investment risk.

For the most part, the Exchange

represents that its current rules

governing FLEX Index Options will

apply to FLEX Equity Options. Certain

changes to the Exchange’s existing FLEX

Options rules, however, are proposed to

address the special characteristics of

FLEX Equity Options. Specifically, the

Exchange proposes to add several new

definitions to accommodate the

introduction of trading in FLEX Equity

Options,13 and to revise certain other

rules governing FLEX Options and their

trading, as described below.

As with FLEX Index Options, The

Options Clearing Corporation (‘‘OCC’’)

will be the issuer and guarantor of all

FLEX Equity Options. Similarly, as with

FLEX Index Options, the Commission

has designated FLEX Equity Options as

standardized options for purposes of the

options disclosure framework

established under Rule 9b–1 of the

Act.14

III. Description of the Proposal

The Exchange proposes to revise its

rules concerning the terms of FLEX

Options to make specific reference to

FLEX Equity Options.15 In particular,

FLEX Option transactions will be

limited to transactions in options on

underlying securities that have been

approved by the Exchange inaccordance

with Rule 915.16 Additionally, FLEX

Equity Options will have (1) a

maximum term of three years, (2) a

minimum size of 250 contracts for an

opening transaction in a new series, and

(3) a minimum size of 100 contracts for
Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Notices 33559

17See Amex Rule 900G(b)(4).

18See Amex Rule 900(b)(3).

19OCC Rule 805 provides for automatic exercise

of in-the-money options at expiration without the

submission of an exercise notice to the OCC if the

price of the security underlying the option is at or

above a certain price (for calls) or at or below a

certain price (for puts); and the non-exercise of an

option at expiration if the price of the security

underlying the option does not satisfy such price

levels. See OCC Rule 805.

20See Amex Rule 909G(a).

21See Amex Rule 909G(c). See also Amendment

No. 2, supra note 5.

22See Amex Rule 904G(e)(iii).

23See Amendment No. 1, supra note 3.

24See Amendment No. 1, supra note 3.

25See Securities Exchange Act Release Nos.

36409 (October 23, 1995), 60 FR 55399 (October 31,

1995) (File Nos. SR–NYSE–95–31; SR–PSE–95–25;

SR–Amex–95–42; and SR–Phlx–95–71); and 36371

(October 13, 1995), 60 FR 54269 (October 20, 1995)

(File No. SR–CBOE–95–42) (Collectively the

‘‘Equity Option Position Limit Approval Orders’’).

26The Exchange currently provides that the

expiration date of a FLEX Index Option may not

occur during this time period. The proposed rule

change merely clarifies this requirement.

27See Securities Exchange Act Release No. 34203

(June 13, 1994), 59 FR 31658 (June 20, 1994) (File

No. SR–CBOE–93–33).

28 15 U.S.C. 78f(b)(5).

29 15 U.S.C. 78k–1.

an opening or closing transaction in a

series in which there is already open

interest (or any lesser amount in a

closing transaction that represents the

remaining underlying size). The

minimum value size for FLEX Quotes 17

in response to a Request for Quotes 18 in

FLEX Equity Options is the lesser of 100

contracts or the remaining underlying

size in a closing transaction.

The Exchange also proposes to allow

exercise prices and premiums for FLEX

Equity Options to be stated in dollar

amounts or percentages, with premiums

rounded to the nearest minimum tick

and exercise prices rounded to the

nearest one-eighth. The exercise of

FLEX Equity Options will be by

physical delivery of the underlying

security, and the exercise-by-exception

procedures of OCC will apply.19

The trading procedures applicable to

FLEX Equity Options will be subject to

many of the same rules that apply to

equity options traded on the Exchange,

and are similar to those that apply to

FLEX index Options. In particular,

FLEX registered specialists are obligated

to respond to a Request for Quotes in

respect of FLEX Equity Options as they

are with FLEX Index Options. Financial

requirements for FLEX Equity Option

registered specialists, however, differ

from those imposed upon FLEX Index

Option registered specialists. FLEX

Index Option registered specialists are

required to maintain at least $1 million

net liquidating equity and/or $1 million

net capital, as applicable.20 FLEX Equity

Option registered specialists must

maintain a cash or liquid asset position

in the amount of $600,000 or in an

amount sufficient to assume a position

of sixty option contracts of each class of

FLEX Equity options in which such

specialist is registered, whichever

amount is greater.21

The Exchange represents that the

rules governing priority of bids and

offers for FLEX Equity Options are also

similar to those that apply to FLEX

Index Options, except that in the case of

FLEX Equity Options, a guaranteed

minimum right of participation is

provided to an Exchange member that

initiates a Request for Quotes and

indicates an intention to cross or act as

principal on the trade.22 The proposed

rule change would provide that a

member who submits a Request for

Quotes in respect of a FLEX Equity

Option and indicates an intention to

cross or act as principal on the trade,

and who matches or improves the BBO

during the BBO Improvement Interval,

has a priority right to execute the contra

side of the trade for at least twenty-five

percent (25%) of the trade.23

The Exchange is proposing position

limits and exercise limits for FLEX

Equity Options that are larger than the

limits applicable to Non-FLEX Equity

Options for the same reasons that the

position and exercise limits for FLEX

Index Options are larger than those

applicable to Non-FLEX Index Options.

The limits have been set at three times

the limit applicable to Non-FLEX Equity

Options. Position and exercise limits for

FLEX Equity Options are set forth below

as compared to existing limits for NonFLEX Equity Options on the same

underlying security.24

Non-FLEX equity position limitFLEX equity position

limit

4,500 contracts .......... 13,500 contracts.

7,500 contracts .......... 22,500 contracts.

10,500 contracts ........ 31,500 contracts.

20,000 contracts ........ 60,000 contracts.

25,000 contracts ........ 75,000 contracts.

The applicable position and exercise

limit tiers for Non-FLEX Equity Options

are based on the number of outstanding

shares and trading volume of the

underlying security.25 This proposal

does not alter the applicable tier criteria

set forth in the Equity Option Position

Limit Approval Orders.

As is currently the case for FLEX

Index Options, it is proposed that there

will be no aggregation of positions or

exercises in FLEX Equity Options with

positions or exercises in Non-FLEX

Equity Options for purposes of the

limits.

The Exchange also proposes to

provide that the expiration date of a

FLEX Equity Option may not occur on

a day that falls on, or within, two

business days of the expiration date of

a Non-FLEX Equity Option. This is

intended to eliminate the possibility

that the exercise of FLEX Equity

Options at expiration will cause any

untoward pressure on the market for an

underlying security at the same time as

Non-FLEX Equity Options expire. The

Exchange proposes that this change will

also apply to FLEX Index Options.26

The Exchange also proposes to amend

FLEX Index Option rules to conform to

certain rules currently in place at the

Chicago Board Options Exchange, Inc.

27 Specifically, the Exchange proposes

to amend its rules to provide for the

trading and settlement of FLEX Index

Options in select foreign currencies.

Currently, FLEX Index Options trade

and settle in U.S. dollars only. The

Exchange now proposes to trade and

settle FLEX Index Options in Canadian

Dollars, British Pounds, Japanese Yen,

Deutsche Marks, Swiss Francs, French

Francs, or European Currency Units.

The Exchange believes that this change

will increase the utility and, thus, the

attractiveness of FLEX Index Options,

which in turn should broaden the base

of domestic and international

institutional investors that use

exchange-traded FLEX Index Options to

manage their trading and investment

risk.

The Exchange believes the proposed

rule change will improve the efficiency

and transparency of the equity option

markets and the markets in the

underlying equities, and bring

transactions which are currently subject

to little or no regulatory oversight under

a regulatory framework that is fully

consistent with the regulation of

common stock trading and reporting.

IV. Discussion

The Commission finds that the

proposals are 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 Sections

6(b)(5) 28 and 11A 29 of the Act.

Specifically, the Commission finds that

the Exchange’s proposal is designed to

provide investors with a tailored or

customized product for eligible equity

options that may be more suitable to

their investment needs. Moreover,

consistent with Section 11(a), the

proposal should encourage fair

competition among brokers and dealers

and exchange markets, by allowing the

Exchange to compete with the growing
33560 Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Notices

30 15 U.S.C. 78k(a).

31 17 CFR 240.11a1–1(T).

32See Letter from Joe Corrigan, Executive

Director, OPRA, to Michael Walinskas, Special

Counsel, OMS, Market Regulation, Commission,

dated April 19, 1996 (‘‘OPRA Capacity Letter’’).

33See Securities Exchange Act Release No. 33582

(February, 1994).

OTC market in customized equity

options.

The Commission believes the

Exchange’s proposal reasonably

addresses its desire to meet the

demands of sophisticated portfolio

managers and other institutional

investors who are increasingly using the

OTC market in order to satisfy their

hedging needs. Additionally, the

Commission believes that the

Exchange’s proposal will help promote

the maintenance of a fair and orderly

market, consistent with Sections 6(b)(5)

and 11(a) of the Act, because the

purpose of the proposal is to extend the

benefits of a listed, exchange market to

equity options that are more flexible

than current listed equity options and

that currently trade OTC. The benefits of

the Exchange’s options market include,

but are not limited to, a centralized

market center, an auction market with

posted transparent market quotations

and transaction reporting, parameters

and procedures for clearance and

settlement, and the guarantee of OCC for

all contracts traded on the Exchange.

As indicated above, the trading

procedures applicable to FLEX Equity

Options will be subject to many of the

same rules that apply to equity options

traded on the Exchange, and are similar

to those that apply to FLEX Index

Options. The Commission believes the

Exchange’s trading procedures for FLEX

Equity Options are reasonably designed

to provide some of the benefits of an

Exchange auction market along with

features of a negotiated transaction

between investors. In approving the

proposal, the Commission recognizes

that the Exchange’s proposed FLEX

Equity Option trading program will

allow the trading of option contracts of

substantial value, for which continuous

quotations may be difficult to sustain.

The Commission believes that the

Exchange has adequately addressed

these concerns by establishing

procedures for quotes upon request,

which must be firm for a designated

period of time and which will be

disseminated through the Options Price

Reporting Authority (‘‘OPRA’’).

Additionally, the Commission

believes that the Exchange’s proposal to

provide a minimum right of

participation of at least 25% of the trade

to Exchange members who initiate

Requests for Quotes in respect of FLEX

Equity Options and indicate an

intention to cross or act as principal on

the trade, is consistent with the Act. In

addition, under Amex rules, such

transactions must, in all cases, be in

compliance with the priority, parity,

and precedence requirements of Section

11(a) of the Act,30 and Rule 11al–1(T) 31

promulgated thereunder. These

provisions set forth, among other things,

the conditions in which members must

yield priority to public customers’ bids

and offers at the same price.

The Commission believes that market

impact concerns are reduced for FLEX

Equity Options because expiration of

these equity options will not correspond

to the normal expiration of Non-FLEX

Equity Options, will never expire on

any ‘‘Expiration Friday.’’ More

specifically, the expiration date of a

FLEX Option may not occur on a day

that is on, or within, two business days

of the expiration date of a Non-FLEX

Option. The Commission believes that

this should reduce the possibility that

the exercise of FLEX Options at

expiration will cause any additional

pressure on the market for underlying

securities at the same time that NonFLEX Options expire.

Nevertheless, because the position

limits for FLEX Equity Options are

much higher than those currently

existing for outstanding exchangetraded equity options and open interest

in one or more FLEX Equity Option

series could grow to significant levels, it

is possible that FLEX Equity Options

might have an impact on the securities

markets for the securities underlying

FLEX Equity Options. The Commission

expects the Exchange to monitor the

actual effect of FLEX Equity Options

once trading commences and take

prompt action (including timely

communication with the self-regulatory

organizations responsible for oversight

of trading in the underlying securities)

should any unusual market effects

develop.

The Exchange represents that FLEX

Equity Options will allow them to

compete with OTC markets and help

meet the demand for customized equity

options products by institutional

investors. The minimum value sizes for

opening transactions in FLEX Equity

Options are designed to appeal to

institutional investors, and it is unlikely

that most retail investors would be able

to engage in options transactions at that

size. Nevertheless, the FLEX Equity

Options minimum size is much smaller

than that for FLEX Index Options.

Accordingly, the Commission requests

that the Exchange monitor the

comparative levels of institutional and

retail investor open interest in FLEX

Equity Options for one year from the

commencement of its FLEX Equity

Option trading program, and provide a

report to the Commission’s Division of

Market Regulation with its findings.

The Commission notes that effective

surveillance guidelines are essential to

ensure that the Exchange has the

capacity to adequately monitor trading

in FLEX Equity Options for potential

trading abuses. The Commission’s staff

has reviewed Amex’s surveillance

program and believes it provides a

reasonable framework in which to

monitor the trading of FLEX Equity

Options on its trading floor and detect

as well as deter manipulation activity

and other trading abuses.

In order to ensure adequate systems

processing capacity to accommodate the

additional options listed in accordance

with the FLEX Equity Options program,

OPRA has concluded that the additional

traffic generated by FLEX Equity

Options traded on the Amex is within

OPRA’s capacity.32

Finally, the Commission believes that

the Amex’s proposal to expand the list

of variable FLEX Index Option contract

terms to include certain designated

foreign currencies is a reasonable

response by the Exchange to meet the

demands of sophisticated portfolio

managers and other institutional

investors. Additionally, the Commission

believes that the Amex’s proposal will

help to promote the maintenance of a

fair and orderly market because it

extends the benefits of a listed exchange

market to FLEX Index Options that trade

and settle in certain designated foreign

currencies.

The Commission believes that

investors should benefit from the

additional flexibility by permitting them

to designate quotation and settlement

terms in various foreign currencies

while continuing to ensure adequate

investor protection the trading of these

products. The potential risk of settling

FLEX Options in foreign currencies

rather than U.S. dollars is also disclosed

in the ODD pursuant to Rule 9b–1 of the

Act.33

The Commission finds good cause for

approving Amendment No. 2 prior to

the thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register. Specifically, this

amendment proposes to: (1) Include a

reference to the specific indexes

approved for FLEX Options trading in

Rules 903G(a)(2)(i) and 906G(a); (2)

revise Amendment No. 1 regarding the

proposed guaranteed minimum right of

participation for a Submitting Member
Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Notices 33561

34 17 CFR 240.9b–1(a)(4). As part of the original

approval process of the FLEX Options framework,

the Commission delegated to the Director of the

Division of Market Regulation the authority to

authorize the issuance of orders designating

securities as ‘‘standardized options’’ pursuant to

Rule 9b–1(a)(4) under the Act. See Securities

Exchange Act Release No. 31911 (February 23,

1993), 58 FR 11792 (March 1, 1993).

35 15 U.S.C. 78s(b)(2).

36 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 37051

(March 29, 1996), 61 FR 15543.

seeking to cross a public customer FLEX

Equity Option order, such that the

Submitting Member will be permitted to

execute the contra side of the trade that

is the subject of the Request for Quotes,

to the extent of at least 25% of the trade

under specific circumstances; and (3)

include subparagraph (c) to Rule 909G

to indicate the FLEX Equity Options

specialists must comply with Rules 171

and 950(h) regarding equity option

specialist’s financial requirements. The

Commission does not believe that the

amendments raise any new or unique

regulatory issues. These amendments

also strengthen the proposal by

clarifying certain crossing transaction

procedures and specialists financial

requirements as described above.

Accordingly, the Commission believes,

consistent with Section 6(b)(5) of the

Act, that good cause exists, to approve

Amendment No. 2 to the proposal on an

accelerated basis.

The Commission finds good cause for

approving Amendment No. 3 prior to

the thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register. Specifically, this

amendment proposes to amend Rule

903G(a)(3) to make it clear that bids and

offers responsive to FLEX Requests for

Quotes must be stated in terms of the

designated currency in the Request for

Quotes. The Commission notes that the

proposed amendment conforms Amex’s

rules to CBOE’s rules regarding the

trading and settlement of FLEX Index

Options in certain designated foreign

currencies. The Commission does not

believe that the amendment raises any

new or unique regulatory issues.

Accordingly, the Commission believes,

consistent with Section 6(b)(5) of the

Act, that good cause exists, to approve

Amendment No. 2 to the proposal on an

accelerated basis.

Interested persons are invited to

submit written data, views and

arguments concerning Amendment Nos.

2 and 3 to the proposed rule change.

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 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

Section, 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 Exchange. All submissions

should refer to SR–Amex-95–57 and

should be submitted by July 18, 1996.

V. Conclusion

For the reasons discussed above, the

Commission finds that the proposal is

consistent with the Act and Sections 6

and 11(a) of the Act in particular. In

addition, the Commission finds

pursuant to Rule 9b–1 under the Act,

that FLEX Options, including FLEX

Equity Options, and FLEX Index

Options traded and settled in certain

designated foreign currencies, are

standardized options for purposes of the

options disclosure framework

established under Rule 9b–1 of the

Act.34 Apart from the flexibility with

respect to strike prices, expiration dates,

exercise styles, and settlement (for FLEX

Index Options), all of the other terms of

FLEX Options are standardized

pursuant to OCC and Amex rules.

Standardized terms include matters

such as exercise procedures, contract

adjustments, time of issuance, effect of

closing transactions, restrictions on

exercise under OCC rules, margin

requirements, and other matters

pertaining to the rights and obligations

of holders and writers.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,35 that the

proposal (File No. SR–Amex-95–57), as

amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.36

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–16367 Filed 6–26–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37337; File No. SR–CBOE–

96–20]

Self-Regulatory Organizations; Order

Approving a Proposed Rule Change by

the Chicago Board Options Exchange,

Incorporated, Relating to FLEX Equity

Options

June 19, 1996.

I. Introduction

On March 18, 1996, the Chicago

Board Options Exchange, Incorporated

(‘‘CBOE’’ or ‘‘Exchange’’) filed a

proposed rule change with 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 to amend certain

rules pertaining to FLEX Equity

Options.

Notice of the proposal was published

for comment and appeared in the

Federal Register on April 8, 1996.3 No

comment letters were received on the

proposed rule change. This order

approves the Exchange’s proposal.

II. Description of the Proposal

The Exchange proposes to amend two

rules pertaining to FLEX Equity

Options. First, the Exchange proposes to

amend Interpretation and Policy .05

under Exchange Rule 5.5 in order to

provide that new series of FLEX Equity

Options may be opened during the

month in which they will expire, so

long as options of that series expire no

earlier than the day following the day

the series is added. The Exchange

believes that this will provide maximum

flexibility to users of FLEX Equity

Options, while avoiding the

administrative costs that would be

associated with options that expire on

the day they are issued.

Second, the Exchange proposes to

amend Rule 24A.5(e) in order to provide

a minimum right of participation to

Exchange members who initiate

Requests for Quotes in respect of FLEX

Equity Options and indicate an

intention to cross or act as principal on

the trade, similar to the right of

participation that applies under existing

Exchange rules in respect of FLEX Index

Options. Under existing Rule

24A.5(e)(iii), a member who submits a

Request for Quotes in respect of a FLEX

Index Option and indicates an intention

to cross or act as principal on the trade,

and who matches the current best bid or

offer (‘‘BBO’’) during the BBO