[Federal Register Volume 61, Number 124 (Wednesday, June 26, 1996)]
[Notices]
[Pages 33153-33155]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16230]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37328; File No. SR-Amex-95-35]


Self-Regulatory Organizations; Order Granting Partial Approval to 
a Proposed Rule Change and Notice of Filing and Order Granting 
Accelerated Approval to Amendment No. 2 to the Proposed Rule Change by 
the American Stock Exchange, Inc., Relating to the Amex's Enforcement 
Authority Over Members' Transactions Effected on Other Options 
Exchanges

June 19, 1996.
    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 Amex Rule 900(a), 
``Applicability,'' to confirm the Exchange's enforcement authority over 
Amex members' options transactions effected on another options 
exchange.\3\ the Amex subsequently filed Amendment Nos. 1 \4\ and 2 \5\ 
to the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4 (1995).
    \3\ The proposal also included an amendment to 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. The Amex amended that portion of its 
proposal to indicate that the Exchange 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. 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 
(``Division''), Commission, dated September 19, 1995 (``Amendment 
No. 1'').
    \4\ See note 3, supra.
    \5\ In Amendment No. 2, the Amex modified the text of Amex Rule 
900(a) to read as follows: ``The Rules in this Part V shall be 
applicable to (i) the trading on the Exchange of options contracts 
issued by the Options Clearing Corporation and the terms and 
conditions thereof; and (ii) the exercise and settlement, the 
handling of orders, and the conduct of accounts and other matters 
relating to option contracts dealt in by any member or member 
organization on any exchange.'' See Letter from Claire P. McGrath, 
Managing Director and Special Counsel, Derivative Securities, Amex, 
to Michael Walinskas, Branch Chief, Derivatives Regulation, Office 
of Self-Regulatory Oversight, Division, Commission, dated March 5, 
1996 (``Amendment No. 2'').
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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.\6\

[[Page 33154]]

No comments were received on the proposal. On December 8, 1995, the 
Commission approved the portion of the proposal (including Amendment 
No. 1) amending Amex Rules 904 and 905 regarding position and exercise 
limits.\7\ This order approves the portion of the proposal amending 
Amex Rule 900(a) (including Amendment No. 2).
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    \6\ See Securities Exchange Act Release No. 36353 (October 10, 
1995), 60 FR 54266.
    \7\ See Securities Exchange Act Release No. 36567 (December 8, 
1995), 60 FR 64463 (December 15, 1995 (``Position and Exercise Limit 
Order'').
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    The proposed amendment of Amex Rule 900(a) reflects a determination 
by the Amex that further clarity was needed in the rule regarding the 
Amex's authority to take appropriate disciplinary action against Amex 
member firms trading on another exchange. In August 1994, the 
Commission set aside an Exchange disciplinary action taken against a 
registered representative of an Amex member firm who had been found 
guilty by an Exchange disciplinary panel of violating the Exchange's 
options suitability and discretionary trading rules (Amex Rules 923, 
``Suitability,'' and 924 ``Discretionary Accounts,'') in connection 
with the trading on the Philadelphia Stock Exchange (``PHLX'') of Swiss 
Franc options listed on the PHLX.\8\ In its August 1994 Order, the 
Commission stated that Amex Rules 923 and 924, as presently written, 
apply only to options transactions effected on the Amex, not to options 
transactions effected on another options exchange.
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    \8\ See Securities Exchange Act Release No. 34622 (August 31, 
1995), 57 SEC Docket 1254 (``August 1994 Order'').
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    Subsequently, the Commission rejected the Exchange's request for 
reconsideration of that decision.\9\ In its Order Denying 
Reconsideration, the Commission suggested that the Exchange could amend 
Amex Rule 900(a) to clarify the Amex's authority over a member's 
transactions on another options exchange. Accordingly, the Amex 
proposes to amend Amex Rule 900(a) to confirm and clearly specify the 
Exchange's enforcement authority over options transactions effected by 
Amex members on another exchange.
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    \9\ See Securities Exchange Act Release No. 35658 (May 2, 1995), 
59 SEC Docket 0620 (``Order Denying Reconsideration'').
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    Specifically, Amex Rule 900(a), as amended, will provide that:

    The Rules in this Part V shall be applicable to (i) the trading 
on the Exchange of options contracts issued by the Options Clearing 
Corporation and the terms and conditions thereof; and (ii) the 
exercise and settlement, the handling of orders, and the conduct of 
accounts and other matters relating to option contracts dealt in by 
any member or member organization on any exchange.\10\

    \10\ See Amendment No. 2, supra note 5.
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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 Sections 6(b)(5) and 6(b)(6) \11\ in 
that it is designed to prevent fraudulent and manipulative acts and 
practices, to protect investors and the public interest, and to provide 
that the Amex's members are appropriately disciplined for violations of 
the Exchange's rules, by clarifying the scope of Part V, ``Rules 
Principally Applicable to Trading of Option Contracts,'' of the Amex's 
rules. Specifically, the proposed amendment to Amex Rule 900(a) states 
that the rules in Part V of the Amex's rules apply to (i) the trading 
on the Exchange of option contracts issued by the OCC and the terms and 
conditions thereof; and (ii) the exercise and settlement, the handling 
of orders, and the conduct of accounts and other matters relating to 
option contracts dealt in by an Amex or member organization on any 
exchange. The Commission believes that Amex Rule 900(a)(ii) strengthens 
the Amex's rules and provides for appropriate discipline of Amex 
members by indicating clearly that the Amex's rules governing the 
exercise and settlement, the handling of orders and the conduct of 
accounts and other matters relating to options apply to an Amex 
member's options transactions on other exchanges as well as to the 
member's options transactions on the Amex.
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    \11\ 15 U.S.C. 78f(b) (5) and (6) (1988 & Supp. V 1993).
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    By clarifying the Amex's authority over a member's transactions on 
another exchange, the proposal will allow the Amex to discipline its 
members more effectively. Accordingly, the proposal protects investors 
and the public interest by extending the prohibitions and requirements 
of the options rules listed in Amex Rule 900(a)(ii) to include all 
exchange-traded options transactions entered into by Amex members, 
regardless of the exchange where the transactions occur. Thus, for 
example, if an Amex member violates Amex rules governing conduct of 
accounts through options transactions effected on another options 
exchange, Amex Rule 900(a)(ii) will allow the Amex to discipline that 
member for violating the Amex's rules governing the conduct of 
accounts, even though the member's options transactions were executed 
on another exchange.\12\ In addition, the current proposal is 
consistent with the Amex's proposal to extend its disciplinary 
jurisdiction to include members' violations of the position and 
exercise limits of other options exchanges, which previously was 
approved by the Commission.\13\
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    \12\ To discipline a member for violations of Amex rules in 
connection with over-the-counter derivatives, the Amex would charge 
the member with ``conduct inconsistent with just and equitable 
principles of trade'' under Article V, Section 4(h), ``Violation of 
Constitution, rules or resolutions--Inequitable conduct,'' of the 
Amex's Constitution, or with another generally applicable Amex rule. 
See Letter from Stephen L. Lister, Executive Vice President, Member 
Firm Regulation, Amex, to Michael Walinskas, Branch Chief, 
Derivatives Regulation, Office of Self-Regulatory Oversight, 
Division, Commission, dated May 7, 1996.
    \13\ See Position and Exercise Limit Order, supra note 7. See 
also 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).
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    The Commission finds good cause for approving Amendment No. 2 to 
the proposal prior to the thirtieth day after the date of publication 
of notice of filing thereof in the Federal Register. Specifically, 
Amendment No. 2 strengthens the Exchange's proposal by clarifying the 
text of Amex Rule 900(a). Accordingly, the Commission finds good cause 
for approving Amendment No. 2 to the proposed rule change on an 
accelerated basis and believes that the proposal, as amended, is 
consistent with Sections 6(b)(5) and 19(b)(2) of the Act.

Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 2. 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

[[Page 33155]]

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 
NW., Washington, DC. Copies of such filing will also be available for 
inspection and copying at the principal office of the above-mentioned 
self-regulatory organization. All submissions should refer to the file 
number in the caption above and should be submitted by [insert date 21 
days after the date of this publication].
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the portion of the proposed rule change (SR-Amex-95-35) 
relating to Amex Rule 900(a), as amended, is approved.

    \14\ 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.\15\
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    \15\ 17 CFR 200.30-3(a)(12) (1995).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-16230 Filed 6-25-96; 8:45 am]
BILLING CODE 8010-01-M