Document ID: SEC-2008-1558-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: American Stock Exchange LLC
Posted Date: 2008-11-19T05:00Z

[Federal Register: November 19, 2008 (Volume 73, Number 224)]
[Notices]               
[Page 69683-69685]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19no08-121]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58923; File No. SR-Amex-2008-51]

 
Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Granting Approval of a Proposed Rule Change, as Modified by Amendment 
Nos. 1 and 2 Thereto, Related to Amendments to Rule 991 (Communications 
to Customers) and Rule 921 (Opening of Accounts)

November 10, 2008.
    On June 25, 2008, the American Stock Exchange LLC (``Amex'' or the 
``Exchange'') \1\ 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'') \2\ and Rule 
19b-4 thereunder.\3\ Amex filed Amendment Nos. 1 and 2 to the proposed 
rule change on August 22, 2008, and September 5, 2008, respectively.\4\ 
Notice of the proposal was published for comment in the Federal 
Register on September 30, 2008.\5\ The Commission received no comments 
on the proposed rule change. This order approves the proposed rule 
change, as modified by Amendment Nos. 1 and 2.
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    \1\ On September 29, 2008, the Commission approved the merger of 
The Amex Membership Corporation, Amex's parent, with NYSE Euronext. 
See Securities Exchange Act Release No. 58673 (September 29, 2008), 
73 FR 57707 (October 3, 2008) (SR-NYSE-2008-60 and SR-Amex 2008-62) 
(approving the Merger). As a result, Amex was renamed NYSE Alternext 
US LLC. For the purposes of this order, we will still refer to Amex.
    \2\ 15 U.S.C. 78s(b)(1).
    \3\ 17 CFR 240.19b-4.
    \4\ Amendment Nos. 1 and 2 modified certain definitions in and 
made non-substantive corrections to proposed Rule 991.
    \5\ See Securities Exchange Act Release No. 58625 (Sept. 23, 
2008), 73 FR 56869 (Sept. 30, 2008).
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I. Description of the Proposed Rule Change

    The Exchange proposed to amend Amex Rule 991 (``Communications to 
Customers'') to delete references to certain provisions of the 
Securities Act of 1933 (the ``Securities Act'') that no longer apply to 
standardized options \6\ issued by registered clearing agencies and 
update and reorganize the rule for greater clarity. In addition, the 
proposal seeks to amend Amex Rule 921 (``Opening of Account'') in 
connection with the information member organizations must obtain from 
customers.
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    \6\ ``Standardized Option'' is defined in Rule 19b-1 under the 
Exchange Act to mean options contracts trading on a registered 
national securities exchange, an automated quotation system of a 
registered national securities association, or a foreign exchange 
which relate to options classes the terms of which are limited to 
specific expiration dates and exercise prices, or such other 
securities as the Commission may, by order, designate.
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A. Rule 991 (Communications to Customers)

    On December 23, 2002, the Commission published final rules that 
exempt standardized options issued by registered clearing agencies and 
traded on a registered national securities exchange or registered 
national securities association from the Securities Act (other than the 
anti-fraud provisions) and the registration requirements of the 
Exchange Act.\7\

[[Page 69684]]

Since the Securities Act and the rules thereunder (other than the anti-
fraud provisions) are no longer applicable to such standardized 
options, Amex proposed to remove elements of the Securities Act that 
are embedded in Amex Rule 991. In particular, the Exchange proposed to 
remove all references to a ``prospectus'' from Rule 991. Prospectuses 
are no longer required for standardized options, and The Options 
Clearing Corporation (``OCC'') has, in fact, ceased publication of a 
prospectus.\8\ In addition, the proposed amendments would update and 
reorganize Rule 991. The Commission has approved proposed rule 
amendments implementing similar rule language and format changes by the 
Financial Industry Regulatory Authority, Inc. and the Chicago Board 
Options Exchange.\9\
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    \7\ See ``Exemption for Standardized Options From Provisions of 
the Securities Act of 1933 and From the Registration Requirements of 
the Securities Exchange Act of 1934; Final Rule,'' Securities Act 
Release No. 8171 and Securities Exchange Act Release No. 47082 (Dec. 
23, 2002), 68 FR 188 (Jan. 2, 2003).
    \8\ The options disclosure document (the ``ODD'') prepared in 
accordance with Rule 9b-1 under the Exchange Act is not deemed to be 
a prospectus. 17 CFR 230.135b. See, e.g., Securities Act Release No. 
8049 (Dec. 21, 2001), 67 FR 228 (Jan. 2, 2002).
    \9\ See Exchange Act Release No. 58738 (Oct. 6, 2008), 73 FR 
60371 (Oct. 10, 2008) (SR-FINRA-2008-13) (approval order) and 
Exchange Act Release No. 58823 (Oct. 21, 2008), 73 FR 63747 (Oct. 
27, 2008) (SR-CBOE-2007-30) (approval order).
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1. Deletion of Certain Provisions of Rule 991
    Amex Rule 991 contains a number of references to a prospectus and 
other Securities Act requirements. The Exchange proposed to delete the 
following from Rule 991:
     Rule 991(a)(iv), which references the Securities Act 
prospectus definition;
     Rule 991(d), which incorporates Securities Act principles 
in that it prohibits written material concerning options (i.e., an 
offering) from being furnished to any person who has not previously or 
contemporaneously received the current ODD;
     Rule 991(e)(ii), which defines the term ``Educational 
Material;'' \10\
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    \10\ This paragraph essentially incorporates language of Rule 
134a under the Securities Act. While this amendment would eliminate 
the separate educational material category, as discussed below, the 
Exchange also proposed to revise the definition of Sales Literature 
to include educational material.
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     Commentary .02A to Rule 991, which outlines what is 
permitted in an ``Advertisement;'' \11\ and
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    \11\ This paragraph essentially incorporates language of Rule 
134 under the Securities Act.
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     Commentary .03 to Rule 991, which concerns educational 
material.\12\
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    \12\ See note 9, supra.
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2. Re-designation of Rule 991(a) to Proposed Rule 991(d) and Related 
Amendments
    Amex Rule 991(a) currently provides an outline of the ``General 
Rule'' for options communications. The Exchange proposed to re-
designate paragraph (a) as paragraph (d), and to incorporate 
limitations on the use of options communications contained in current 
Commentary .01 to Rule 991 into proposed Rule 991(d). In addition, 
proposed Rule 991(d)(iii) would amend Rule 991(a)(iii) by clarifying 
the types of cautionary statements and caveats that are prohibited. As 
previously noted, the Amex proposed to delete Rule 991(a)(iv).
3. Proposed Amendments to Rule 991(b)
    Amex proposed to amend Rule 991(b) to include the types of 
communications proposed to be added to the definition of ``Options 
Communications'' in proposed Rule 991(a). Proposed Rule 991(b)(ii) and 
(b)(iii) would also amend the current requirement to obtain advanced 
approval by a Registered Options Principal (``ROP'') for most options 
communications by exempting certain options communications, defined as 
``Correspondence'' and ``Institutional Sales Material.'' Specifically, 
proposed Rule 991(b)(ii) would exempt Correspondence from the pre-
approval requirement unless the Correspondence is distributed to 25 or 
more existing retail customers within any 30 calendar day period, and 
makes any financial or investment recommendation or otherwise promotes 
a product or service of the member. All correspondence would be subject 
to the supervision and review requirements of Rule 922. Proposed Rule 
991(b)(iii) would exempt Institutional Sales Material from the pre-
approval requirement if the material is distributed to ``qualified 
investors'' as defined in Section 3(a)(54) of the Exchange Act.\13\
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    \13\ See 15 U.S.C. 78c(a)(54).
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    Pre-approval by a ROP would, however, be required with respect to 
independently prepared reprints. In addition, proposed Rule 991(b)(iv) 
would require that firms retain options communications in accordance 
with the recordkeeping requirements of Rule 17a-4 under the Exchange 
Act.\14\ The proposed rule would also require that firms retain other 
related documents in the form and for the time periods required for 
options communications by Rule 17a-4.
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    \14\ 17 CFR 240.17a-4. More specifically, Rule 17a-4(b)(4) 
requires that a broker-dealer retain ``originals of all 
communications received and copies of all communications sent * * * 
including all communications which are subject to rules of a self-
regulatory organization of which the member, broker or dealer is a 
member regarding communications with the public.''
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4. Proposed Amendments to Rule 991(c)
    Amex Rule 991(c) currently requires members and member 
organizations to obtain from the Exchange approval for every 
advertisement and all educational material. This requirement applies 
regardless of whether the options communications are used before or 
after delivery of a current ODD. The Exchange proposed to amend this 
provision to require approval by the Exchange only with respect to 
communications used prior to the delivery of a current ODD. The 
Exchange's pre-approval requirement for options communications used 
subsequent to the delivery of the ODD would be eliminated because the 
ODD should help alert the customer to the characteristics and risks 
associated with trading in options and because Rule 991(b) requires the 
ROP of a member organization to pre-approve options communications, 
subject to exceptions for ``Correspondence'' and ``Institutional Sales 
Material.'' Rule 991(c) would also be amended to include the types of 
communications added to the definition of ``Options Communications'' in 
proposed Rule 991(a).
5. Re-Designation of Rule 991(e) as Proposed Rule 991(a) and Related 
Amendments
    Rule 991(e) currently defines the terms used in Rule 991. Amex 
proposed to re-designate paragraph (e) as paragraph (a). The Exchange 
also proposed to amend the definition of ``Options Communications'' in 
proposed Rule 991(a) to expand the types of communications governed by 
Rule 991 to include independently prepared reprints and other 
communications between a member or member organization and a customer. 
The Exchange proposed to amend the definitions of ``Advertisement'' and 
``Sales Literature;'' and define ``Correspondence,'' ``Institutional 
Sales Material,'' ``Public Appearances'' and ``Independently Prepared 
Reprints'' to clarify the rule. In addition, as previously noted, Amex 
proposed to delete the definition of ``Educational Material.''
6. Proposed Rule 991(e)
    Proposed Rule 991(e) would set forth (i) standards for options 
communications that are not preceded or accompanied by an ODD and (ii) 
standards for options communications used prior to delivery of an ODD. 
These

[[Page 69685]]

requirements generally clarify and restate the requirements contained 
in current Commentary .02 to Rule 991.
7. Related Commentaries
    Proposed Rule 991(e)(i)(B) would require options communications to 
contain contact information for obtaining a copy of the ODD. Proposed 
Commentary .01 to Rule 991 would include the provisions found in 
current Commentary .02A to Rule 991 regarding how this requirement may 
be satisfied. In addition, as noted above, the provisions of current 
Commentary .01 to Rule 991 regarding limitations on the use of options 
communications would be incorporated into proposed Rule 991(d).
    As previously noted, the provisions of current Commentary .02 to 
Rule 991 that outline what is permitted in an advertisement would be 
deleted, and the provisions relating to standards for options 
communications used prior to delivery of the ODD would be incorporated 
into proposed Rule 991(e)(ii).
    Current Commentary .03 to Rule 991 regarding educational materials 
also would be deleted, as noted above.
    Current Commentary .04 to Rule 991 sets forth the standards 
applicable to Sales Literature. Current Commentary .04A sets forth the 
requirement that Sales Literature shall state that supporting 
documentation for any claims, comparisons, recommendations, statistics 
or other technical data will be supplied upon request. The Exchange 
proposed to re-designate current Commentary .04A as proposed Rule 
991(d)(vii).
    Current Commentary .04B to Rule 991 relates to standards for Sales 
Literature that contain projected performance figures. Current 
Commentary .04C relates to standards for Sales Literature that contains 
historical performance figures. The Exchange proposed to re-designate 
current Commentary .04B as proposed Commentary .02 to Rule 991 and 
current Commentary .04C as proposed Commentary .03 to Rule 991.
    Rule 991 currently requires that a copy of the ODD precede or 
accompany options related sales literature. The Exchange proposed to 
modify the ODD delivery requirement applicable to sales literature to 
provide that an ODD must precede or accompany any communication that 
conveys past or projected performance figures involving options or 
constitutes a recommendation pertaining to options.\15\
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    \15\ See proposed Rule 991(e)(i)(C) and proposed Commentaries 
.02 and .03 to Rule 991.
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    A notice providing the name and address of a person from whom the 
ODD may be obtained would be required in sales literature that does not 
contain a recommendation of past or projected performance figures. 
Because Amex is proposing to merge educational material into the sales 
literature category,\16\ this amendment would continue to allow 
communications that are educational in nature to be disseminated 
without being preceded or accompanied by a copy of the ODD.
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    \16\ See proposed Rule 991(a)(ii).
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    The Exchange proposed to re-designate current Commentary .04D to 
Rule 991 as proposed Commentary .04 to Rule 991. The Exchange proposed 
to delete current Commentaries .04E, F and G to Rule 991. The Exchange 
believes Commentaries .04E and F are unnecessary because worksheets are 
included in the definition of Sales Literature. In addition, the 
Exchange believes Commentary .04G is no longer necessary because the 
Exchange is proposing to clarify the recordkeeping requirements 
applicable to options communications in proposed Rule 991(b)(iv).

B. Rule 921 (Opening of Accounts)

    The proposal would also amend Rule 921 in connection with the 
opening of options accounts. Currently, Commentary .01 to Rule 921 
requires a member organization to obtain certain information about its 
options customers in order to comply with the due diligence requirement 
in opening a new account under Rule 921(c). In order to conform to the 
requirements of Rule 17a-3(a)(17) under the Exchange Act, the proposed 
amendments would require that in addition to all the essential 
information to determine suitability, a member organization must also 
obtain the customer's name, Tax Identification Number, address, and 
telephone number.

II. Comments

    As noted above, the Commission received no comments on the proposed 
rule change.

III. 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 
Act,\17\ in general, and furthers the objectives of Section 
6(b)(5),\18\ 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, consistent with Section 
6(b)(5) of the Act,\19\ 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 
public interest, by providing the investing public with options 
communications rules that are designed to provide appropriate 
safeguards and greater clarity by promoting harmonization between the 
Amex and other SRO options communications rules and conforming Rule 921 
to the requirements of Rule 17a-3(a)(17) under the Exchange Act.\20\ 
The Commission believes that the proposal is consistent with Section 
6(b)(5) of the Act \21\ because the proposed amendments to Amex Rule 
991 reflect amendments to the Securities Act that generally exempt 
standardized options, and will update and reorganize the Rule.
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    \17\ 15 U.S.C. 78f(b). In approving this proposal, the 
Commission has considered the impact of the proposed rule change on 
efficiency, competition and capital formation. See 15 U.S.C. 78c(f).
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ Id.
    \20\ 17 CFR 240.17a-3(a)(17).
    \21\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act, that the proposed rule change (SR-Amex-2008-51), as 
modified by Amendment Nos. 1 and 2, be, and hereby is, approved.\22\
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-27420 Filed 11-18-08; 8:45 am]

BILLING CODE 8011-01-P