Document ID: SEC-2008-1459-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: American Stock Exchange LLC
Posted Date: 2008-10-24T04:00Z

[Federal Register: October 24, 2008 (Volume 73, Number 207)]
[Notices]               
[Page 63527-63529]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24oc08-132]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58814; File No. SR-Amex-2008-53]

 
Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Granting Approval of Proposed Rule Change Related to Amendments to Rule 
925 (Confirmations) and Rule 921 (Opening of Accounts)

 October 20, 2008.
    On June 26, 2008, the American Stock Exchange LLC (the ``Amex'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change pursuant to section 19(b)(1) of 
the Securities Exchange Act of 1934 (the ``Exchange Act'') \1\ and Rule 
19b-4 thereunder.\2\ Notice of the proposal was published for comment 
in the Federal Register on September 12, 2008.\3\ The Commission 
received no comments on the proposed rule change. This order approves 
the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 58466 (Sept. 5, 
2008) 73 FR 53057 (Sept. 12, 2008).
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I. Description of the Proposed Rule Change

    The Exchange proposed to amend Amex Rule 925 to clarify that 
written confirmations relating to options transactions are not required 
to specify the options exchange or exchanges on which such options 
contracts were executed. The Exchange further

[[Page 63528]]

proposed to amend Amex Rule 921 to permit a General Securities Sales 
Supervisor to approve the opening of an options account.

A. Options Confirmation Rule (Rule 925)

    Amex Rule 925 requires that every member and member organization 
promptly furnish to each customer a written confirmation of each 
options transaction for such customer's account. This confirmation is 
required to disclose the type of option, the underlying security, the 
expiration month, the exercise price, the number of option contracts, 
the premium, commissions, the transaction and settlement dates, whether 
the transaction was a purchase or a sale (writing) transaction, whether 
the transaction was an opening or a closing transaction, and whether 
the transaction was effected on a principal or agency basis. In 
addition, Rule 925 requires that each confirmation, by appropriate 
symbols, must distinguish between Exchange option transactions and 
other transactions in option contracts and between such transactions 
and transactions in other options. Rule 925 has been interpreted over 
the years by market participants to require that written confirmations 
relating to options transactions specify the options exchange or 
exchanges on which such options contracts were executed. This proposal 
seeks to clarify that Rule 925 does not require the name of the options 
exchange or exchanges on which an options contract is executed.
    Prior to August 1999, an options class was typically listed on only 
one options exchange. In August 1999, the options exchanges began to 
multiply-list options classes that were previously listed on only one 
exchange. In October 1999, the Commission stated that it believed a 
linkage among options markets would benefit investors by increasing 
competition among markets (and market participants) to provide the best 
execution of customer orders.\4\ Subsequently, the Commission directed 
the options exchanges to act jointly in discussing, developing, and 
submitting for Commission approval an intermarket linkage plan for 
multiply-traded options. On July 28, 2000, the Commission approved the 
Plan for the Purpose of Creating and Operating an Intermarket Options 
Market Linkage (the ``Options Linkage Plan'' or ``Linkage Plan'') 
submitted by the Amex, the Chicago Board Options Exchange, Inc., and 
the International Securities Exchange, Inc.\5\ The Philadelphia Stock 
Exchange, Inc., and the Pacific Stock Exchange agreed to participate in 
the Options Linkage Plan in November 2000.\6\ As a result of the 
introduction of multiple trading of options and the implementation of 
the Linkage Plan, the contracts in a customer options order could be 
executed on more than one options exchange and the significance of the 
options exchange or exchanges that execute a particular options 
transaction has diminished significantly.\7\
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    \4\ See Exchange Act Release No. 42029 (Oct. 19, 1999), 64 FR 
57674 (Oct. 26, 1999).
    \5\ See Exchange Act Release No. 43086 (Jul. 28, 2000), 65 FR 
48023 (Aug. 4, 2000).
    \6\ See Exchange Act Release Nos. 43573 (Nov. 16, 2000), 65 FR 
70850 (Nov. 28, 2000) and 43574 (Nov. 16, 2000), 65 FR 70851 (Nov. 
28, 2000) (approval order).
    \7\ Modifications to this paragraph discussed in telephone 
conference between Jeffrey P. Burns, Vice-President & Associate 
General Counsel, American Stock Exchange LLC, and Max Welsh, Special 
Counsel, Division of Trading and Markets, Securities and Exchange 
Commission, on August 7, 2008.
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    Under the duty of best execution, Amex members are required to 
exercise diligence to obtain the best price when routing customer 
options trades for execution. The Exchange, as well as the other 
members of the Options Self Regulatory Council (the ``OSRC''),\8\ 
believes that in light of the existing best execution and disclosure 
requirements, the usefulness of including on an options confirmation 
the name of the options exchange or exchanges on which an options 
transaction was effected does not outweigh the operational difficulties 
of capturing the information given the multiple trading of options and 
the application of the Options Linkage Plan industry-wide. 
Consequently, the proposal would amend Amex Rule 925 to make clear that 
written confirmations relating to options transactions are not required 
to specify the options exchange or exchanges on which such options 
contracts were executed.
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    \8\ The ORSC consists of the options exchanges and the Financial 
Industry Regulatory Authority, Inc. (``FINRA'').
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B. Options Account Opening Rule (Rule 921)

    Amex Rule 921 governs the opening of options accounts by members 
and member organizations. Specifically, Rule 921(c), relating to 
``Diligence in Opening Account,'' provides that in approving a 
customer's account for options transactions, a member or member 
organization shall exercise due diligence to learn the essential facts 
as to the customer and his investment objectives and financial 
situation, and shall make a record of such information (which shall be 
retained in accordance with Amex Rule 922). Based on such information, 
the branch manager or other registered options principal (``ROP'') is 
required to approve in writing the customer's account for options 
transactions. If the branch manager is not a ROP, the branch manager's 
approval of the account must be confirmed within a reasonable time by a 
ROP. The Exchange and the other members of the ORSC believe that an 
amendment to the current options account opening procedures is 
warranted so that a general securities sales supervisor, in addition to 
a ROP, is able to open an options account without the approval of a 
ROP. The other members of the ORSC are also expected to file similar 
amendments to their options account opening rules.
    The Exchange believes that permitting a general securities sales 
supervisor to approve the opening of an options account would be 
appropriate and would properly reflects the maturity of the options 
market and the manner in which the uses of options are more integrated 
with other securities in the implementation of investment 
strategies.\9\ In particular, the Exchange believes that the proposed 
amendment to Rule 921 would further permit member firms to integrate 
their options activities into their overall supervisory and compliance 
structures that monitor all securities products.
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    \9\ The Commission recently approved the elimination of the 
Senior Registered Options Principal (``SROP'') and Compliance 
Registered Options Principal (``CROP'') supervisory categories, 
permitting member firms to supervise their options activities 
through their overall supervisory and compliance programs that 
monitor all other securities products. See Exchange Act Release No. 
57738 (April 29, 2008), 73 FR 25805 (May 7, 2008) (approval order).
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II. Discussion and Findings

    After careful review of the proposed rule change, the Commission 
finds that the proposed rule change is consistent with section 6 of the 
Exchange Act,\10\ in general, and furthers the objectives of section 
6(b)(5),\11\ in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade and to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities. The Commission also finds that the proposed rule change is 
designed to remove impediments to and perfect the mechanisms of a free 
and open market and a national market system, and, in general, to 
protect investors and the

[[Page 63529]]

public interest, by clarifying options confirmation and account opening 
procedure rules to better reflect the realities of the modern options 
market and the compliance and regulatory structures adopted by firms. 
The Commission believes that the proposal is consistent with section 
6(b)(5) Exchange Act because the proposed amendments to Amex Rules 925 
and 921 better reflect the manner in which standardized options are 
listed and traded on the options exchanges and integrated into firms' 
general securities supervision and compliance programs.
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    \10\ 15 U.S.C. 78f(b). In approving this proposal, the 
Commission has considered the proposed rule's impact on efficiency, 
competition and capital formation. See 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
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III. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-Amex-2008-53) be, and hereby 
is, approved.
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    \12\ 15 U.S.C. 78s(b)(2).
    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-25371 Filed 10-23-08; 8:45 am]

BILLING CODE 8011-01-P