Document ID: SEC-2008-1414-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: American Stock Exchange LLC
Posted Date: 2008-10-10T04:00Z

[Federal Register: October 10, 2008 (Volume 73, Number 198)]
[Notices]               
[Page 60369-60370]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10oc08-141]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58716; File No. SR-Amex-2008-60]

 
 Self-Regulatory Organizations; American Stock Exchange LLC; 
Order Granting Approval of a Proposed Rule Change Relating to Margin 
Requirements for Fixed Return Options

October 2, 2008.
    On July 21, 2008, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act''),\1\ and Rule 19b-
4\2\ thereunder, a proposed rule change to amend its margin 
requirements for fixed return options. The proposal was published in 
the Federal Register on August 18, 2008.\3\ The Commission received no 
comments on the proposal. 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\ Exchange Act Release No. 58341 (August 11, 2008), 73 FR 
48258.
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    The Exchange proposed to amend Rule 462(d)10 to clarify the margin 
requirements applicable to Fixed Return Options (``FROs'' or ``Fixed 
Return Options'').\4\ The Exchange stated that the purpose of this 
proposal is to add clarity regarding the application of FRO margin 
requirements in connection with ``spreads'' and ``straddle/
combination'' strategies. In addition, the proposal also seeks to 
clarify the use of ``cover'' and a ``cash account'' in connection with 
FROs. The Exchange stated that it believes that the proposed revision 
reducing the customer margin applicable to ``spread'' and ``straddle/
combination'' positions in FROs is appropriate because risk exposure is 
reduced under these strategies.
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    \4\ The Exchange commenced the trading of FROs on May 8, 2008. 
In August 2007, the Commission approved the Exchange proposal to 
list and trade FROs based on individual stocks and exchange-traded 
funds (``ETFs''). See Exchange Act Release No. 56251 (August 14, 
2007), 72 FR 46523 (August 20, 2007).
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    Amex Rule 462(d)10 is silent regarding the use of ``spread'' and 
``straddle/combination'' positions. With respect to a ``spread'' 
position in FROs, the Amex proposes that no margin be required on a 
Finish High\5\ FRO (Finish Low \6\ FRO) carried short in a customer's 
account that is offset by a long Finish High FRO (Finish Low FRO) for 
the same underlying security or instrument that expires at the same 
time and has an exercise or strike price that is less than (greater 
than) the exercise or strike price of the short Finish High (Finish 
Low). As set forth in Rule 462(d)10(B), the long Finish High (Finish 
Low) must be paid for in full.
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    \5\ A ``Finish High'' FRO is defined in Rule 900 FRO(b)(2) as an 
option contract which returns $100 if the underlying security closes 
above the strike price at expiration.
    \6\ A ``Finish Low'' FRO is defined in Rule 900 FRO(b)(3) as an 
option contract which returns $100 if the underlying security closes 
below the strike price at expiration.
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    In connection with a straddle/combination, when a Finish High FRO 
is carried short in a customer's account and there is also carried a 
short Finish Low FRO that expires at the same time and has an exercise 
price or strike price that is less than or equal to the exercise or 
strike price of the short Finish High, the initial and maintenance 
margin required would be the exercise settlement amount applicable to 
one contract.
    With respect to the concept of ``cover'' the Exchange proposed a 
clarification that ``cover'' is applicable only to ``cash accounts.'' 
In such a case, a FRO carried short in a customer's account will be 
deemed a covered position, and eligible for the cash account, if either 
one of the following is held in the account at the time the FRO is 
written or is received into the account promptly thereafter:

     Cash or cash equivalents equal to 100% of the exercise 
settlement amount;
     A long FRO of the same type (Finish High or Finish Low) 
for the same underlying security or instrument that is paid for in 
full and expires at the same time, and has an exercise or strike 
price that is less than the exercise or strike price of the short in 
the case of a Finish High or greater than the exercise or strike 
price of the short in the case of a Finish Low; or
     An escrow agreement.

    The escrow agreement must certify that the bank holds for the 
account of the customer as security for the

[[Page 60370]]

agreement (A) cash, (B) cash equivalents, (C) one or more qualified 
equity securities, or (D) a combination thereof having an aggregate 
market value of not less than 100% of the exercise settlement amount 
and that the bank will promptly pay the member organization the cash 
settlement amount in the event the account is assigned an exercise 
notice.
    After careful review of the proposal, 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.\7\ In particular, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\8\ which 
requires, among other things, that the rules of an exchange be designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to remove impediments to and to 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
The Commission believes that the proposal will benefit the marketplace 
and provide market participants with greater clarity in connection with 
their responsibilities in the trading and handling of FRO transactions.
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    \7\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(5).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-Amex-2008-60), be, and hereby 
is, approved.
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    \9\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
Florence E. Harmon,
Acting Secretary.
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    \10\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E8-24116 Filed 10-9-08; 8:45 am]

BILLING CODE 8011-01-P