Document ID: SEC-2006-0193-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: American Stock Exchange LLC
Posted Date: 2006-02-15T05:00Z

[Federal Register: February 15, 2006 (Volume 71, Number 31)]
[Notices]               
[Page 8008-8010]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15fe06-137]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53244; File No. SR-Amex-2006-003]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change and Amendment No. 1 Thereto To Adjust the Close of Normal 
Trading Hours in Equity Options and Narrow-Based Index Options

February 7, 2006.
    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 January 5, 2006, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Amex. On January 31, 
2006, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons and to 
approve the amended proposal on an accelerated basis.
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    \1\ 15 U.S.C 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange requested that the 
implementation date for the new closing time be changed from 
February 1, 2006, as was originally proposed, to February 13, 2006.
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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 1, 918--ANTE, 936C--ANTE 
and 903C to adjust the close of normal trading hours in equity options 
and options based on stock index industry groups (``narrow-based index 
options'') from 4:02 p.m. eastern time (``e.t.'') to 4 p.m. e.t. The 
Exchange proposes that these changes be implemented on February 13, 
2006.\4\ The text of the proposed rule change, as amended, is available 
on the Amex's Web site at (http://www.amex.com), at the Amex's Office 

of the Secretary, and at the Commission's Public Reference Room.
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    \4\ Id.
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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 Exchange included statements 
concerning the purpose of and basis for the proposed rule change, as 
amended, and discussed any comments it received on the proposed rule 
change, as amended. The text of these statements may be examined at the 
places specified in Item III below. The Exchange 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
    According to the Exchange, the purpose of the proposed rule change, 
as amended, is to amend the Amex's rules to conform to an industry-wide 
consensus to change the close of trading hours for equity options and 
narrow-based index options from 4:02 p.m. e.t. to 4 p.m. e.t. After the 
change, the time of the close of trading in these Amex options will 
correspond to the normal time set for the close of trading on the 
primary exchanges listing the stocks underlying the Amex options. The 
primary exchanges generally close at 4 p.m. e.t.
    The Exchange notes that, on May 14, 1997, the Amex received 
approval to move the close of equity options trading from 4:10 p.m. to 
4:02 p.m.\5\ The change was prompted by improvements in the 
dissemination of closing prices in the underlying securities, the 
limited ability of public customers to reach as quickly as professional 
traders news announcements in the last ten minutes of trading, and the 
difficulties experienced by options specialists and

[[Page 8009]]

registered options traders to make orderly markets without the ability 
to hedge or otherwise offset market risk with transactions in the 
underlying stock.
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    \5\ See Securities Exchange Act Release No. 38640 (May 14, 
1997), 62 FR 28081 (May 22, 1997). According to the Exchange, from 
1978 through 1997, equity options were traded until 4:10 p.m. to 
allow investors to trade options based upon the final closing prices 
of the underlying securities.
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    The rationale to continue trading options for a period of time 
after the close of trading on the primary markets for the underlying 
securities was that the extended time period allowed options traders to 
respond to later reports of closing prices over the consolidated tape. 
If the price of a late reported trade on an underlying security was 
substantially different from the previous reported price, the extended 
trading session would give options traders the opportunity to bring 
options quotes in line with the closing price of the underlying 
security.
    However, the Exchange submits that because of technological 
advances in the processing and reporting of transactions, this two 
minute time period is no longer necessary to trade options after the 
underlying securities close trading. Additionally, price aberrations 
can occur if an option is traded when the underlying stock is no longer 
trading, since there is a close relationship in the price of the 
underlying stock and the overlying options. As a result, it is 
difficult for the market to price options accurately when the 
underlying security is not trading.
    The Exchange also proposes to change the closing time for narrow-
based index options, as defined in Amex Rule 900C, because such indexes 
are subject to the same pricing problems as options on individual 
stocks. A significant news announcement on one component of a narrow-
based index could have a significant effect on that index. The Exchange 
is not at this time proposing to change the closing time of 4:15 p.m. 
for options on a broad-based index, as defined in Amex Rule 900C, 
because it is unlikely that a significant news announcement by the 
issuer on one component stock of a broad-based index is likely to have 
a significant effect on the price of that broad-based index.
    The Exchange notes that all options exchanges have determined to 
make similar uniform changes to their rules, to modify the closing time 
in equity options and narrow-based index options from 4:02 p.m. e.t. to 
4 p.m. e.t. on a coordinated basis. These industry-wide changes are 
proposed to be effective on February 13, 2006.\6\
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    \6\ See Amendment No. 1, supra note 3.
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2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with section 6(b) of the Act \7\ in general, and furthers 
the objectives of section 6(b)(5) of the Act \8\ in particular, because 
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, 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 public interest.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5). The statutory basis with which the 
Exchange believes that the proposed rule change is consistent has 
been corrected from Section 6(b)(4) of the Act to Section 6(b)(5) of 
the Act. Telephone conversation between Nyieri Nazarian, Assistant 
General Counsel, Amex, and Johnna B. Dumler, Attorney, Division of 
Market Regulation, Commission, on January 11, 2006.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Amex does not believe that the proposed rule change, as 
amended, will impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change, as amended.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form at (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-Amex-2006-003 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Amex-2006-003. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). 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 in the Commission's Public Reference Section. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the Amex. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-Amex-2006-003 and should be submitted on or before March 
8, 2006.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\9\ In particular, the Commission finds that the 
proposal is consistent with section 6(b)(5) of the Act,\10\ which 
requires, among other things, that the rules of a national securities 
exchange be 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, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest.
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    \9\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that the Exchange believes that the need to 
continue trading options for some period of time after the close of 
trading in the underlying securities markets is no longer necessary 
because improvements in the processing and reporting of transactions 
have obviated

[[Page 8010]]

the need to respond to late reports of closing prices over the 
consolidated tape in order to bring options quotes in line with the 
closing price of the underlying security. Moreover, the Exchange 
believes that allowing two additional minutes of options trading after 
trading on the underlying primary exchanges has ended may actually 
result in pricing aberrations. Because the two minute delay between the 
close of normal trading in equity options and narrow-based index 
options and the corresponding underlying equity markets is no longer 
necessary, the Commission believes that eliminating the delay is in the 
public interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets. Therefore, the Commission 
finds that it is consistent with the Act for the Exchange to amend its 
rules to change the close of normal trading hours in equity and narrow-
based index options from 4:02 p.m. (e.t.) to 4 p.m. (e.t).
    The Commission finds good cause for approving this proposed rule 
change, as amended, before the thirtieth day after publication of 
notice thereof in the Federal Register. The Commission notes that all 
of the options exchanges have filed substantially similar proposals and 
seek to implement these industry-wide changes simultaneously on 
February 13, 2006.\11\ For example, on December 20, 2005, the 
Commission published for comment in the Federal Register a similar 
proposed rule change submitted by the Chicago Board Options Exchange, 
Incorporated (``CBOE'').\12\ The Commission received no comments on the 
CBOE's proposed rule change. The Commission believes that the Amex's 
proposed rule change, as amended, raises no new issues or novel 
regulatory questions. Accordingly, the Commission finds good cause, 
pursuant to section 19(b)(2) of the Act,\13\ for approving the proposed 
rule change, as amended, prior to the thirtieth day after publication 
in the Federal Register. In addition, because the existence of 
dissimilar closing times among the options exchanges could lead to 
confusion for options investors and broker-dealers, the Commission 
finds good cause to accelerate approval of the proposed rule change, as 
amended, to enable the six options exchanges to simultaneously amend 
their hours of trading on an industry-wide basis in a uniform 
manner.\14\
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    \11\ See note 14, infra.
    \12\ See Securities Exchange Act Release No. 52949 (December 13, 
2005), 70 FR 75513 (December 20, 2005) (SR-CBOE-2005-104). See also 
Securities Exchange Act Release No. 53055 (January 5, 2006), 71 FR 
2279 (January 13, 2006) (SR-ISE-2005-58).
    \13\ 15 U.S.C. 78s(b)(2).
    \14\ The Commission notes that it is simultaneously approving 
similar proposals from the other options exchanges. See Securities 
Exchange Act Release Nos. 53245 (SR-BSE-2006-02); 53446 (SR-CBOE-
2005-104); 53248 (SR-ISE-2005-58); 53249 (SR-PCX-2005-138); and 
53247 (SR-Phlx-2006-01) (February 7, 2006).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\15\ that the proposed rule change and Amendment No. 1 thereto (SR-
Amex-2006-003) be, and hereby are, approved on an accelerated basis.
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    \15\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-2109 Filed 2-14-06; 8:45 am]

BILLING CODE 8010-01-P