Document ID: SEC-2006-0136-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: American Stock Exchange LLC
Posted Date: 2006-02-06T05:00Z

[Federal Register: February 6, 2006 (Volume 71, Number 24)]
[Notices]               
[Page 6111-6116]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06fe06-92]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53191; File No. SR-Amex-2005-061]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval to Proposed 
Rule Change and Amendment No. 1 Thereto Relating to the Listing and 
Trading of Options on Certain Russell Indexes

January 30, 2006.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 3, 2005, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the 
Exchange.\3\ On July 14, 2005, Amex submitted Amendment No. 1 to the 
proposed rule change.\4\ The Commission is publishing this notice and 
order to solicit comments on the proposed rule change, as amended, from 
interested persons and to approve the proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Commission has made technical and clarifying changes to 
this notice with Amex's consent. Telephone conversation between 
Florence Harmon, Special Counsel, Division of Market Regulation 
(``Division''), Commission, Angela Muehr, Attorney, Division, 
Commission, Kristie Diemer, Attorney, Division, Commission and 
Jeffrey P. Burns, Associate General Counsel, Amex on June 29, 2005.
    \4\ In Amendment No. 1, Amex made clarifying changes to the 
contract specifications.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade on the Exchange the 
following cash-settled, European-style index options on the full value 
of the following Russell Indexes: (1) Russell 1000[supreg] Index; (2) 
Russell 1000[supreg] Growth Index; (3) Russell 1000[supreg] Value 
Index; (4) Russell 2000[supreg] Index; (5) Russell 2000[supreg] Growth 
Index; (6) Russell 2000[supreg] Value Index; (7) Russell 3000[supreg] 
Index; (8) Russell 3000[supreg] Growth Index; (9) Russell 3000[supreg] 
Value Index; (10) Russell Midcap[supreg] Index; (11) Russell 
Midcap[supreg] Growth Index; (12) Russell Midcap[supreg] Value Index 
and (13) Russell Top 50[supreg] Index (each an ``Index,'' and 
collectively, the ``Russell Indexes'' or ``Indexes''). Additionally, 
the Exchange is also proposing to be able to list and trade long-term 
options on each of the full value Russell Indexes noted above.\5\
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    \5\ Under Amex Rule 903C(a)(iii), ``Long-term Options Series,'' 
the Exchange may list long-term options that expire twelve to sixty 
months from the date of issuance.
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    The text of the proposed rule change is available on Amex's Web 
site at http://www.amex.com, at Amex's principal office and at the 

Commission's Public Reference Room.

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 and 
discussed any comments it received on the proposed rule change. 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 the 
Statutory Basis for, the Proposed Rule Change

(1) Purpose
    The purpose of the proposed rule change is to permit the Exchange 
to list and trade cash-settled, European-style, stock index options on 
the Russell Indexes. Each Russell Index is a capitalization-weighted 
index containing various groups of stocks drawn from the largest 3,000 
companies incorporated in the U.S. and its territories. All component 
securities of the Russell Indexes are traded on the Amex, New York 
Stock Exchange, Inc. (``NYSE''), or The Nasdaq Stock Market, Inc. 
(``Nasdaq''). Options contracts on the Russell Indexes (except for the 
Russell Top 50) are currently listed and traded on the Chicago Board 
Options Exchange, Incorporated (``CBOE'') and the International 
Securities Exchange, Inc. (``ISE'').\6\
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    \6\ See Securities Exchange Act Release Nos. 51619 (April 27, 
2005), 70 FR 22947 (May 3, 2005) (approving the listing and trading 
of ISE options on 21 Russell Indexes); 49388 (March 10, 2004), 69 FR 
12720 (March 17, 2004) (approving listing and trading on CBOE of 
options, including LEAPS, on the Russell Top 200 Index, Russell Top 
200 Growth Index, and the Russell Top 200 Value Index); 48591 
(October 2, 2003), 68 FR 58728 (October 10, 2003) (approving listing 
and trading on CBOE of options, including LEAPS, on the Russell 3000 
Index, Russell 3000 Value Index, Russell 3000 Growth Index, Russell 
2000 Value Index, Russell 2000 Growth Index, Russell 1000 Index, 
Russell 1000 Value Index, Russell 1000 Growth Index, Russell MidCap 
Index, Russell MidCap Value Index, and Russell MidCap Growth Index); 
and 31382 (October 30, 1992), 57 FR 52802 (November 5, 1992) 
(approving listing and trading on CBOE of options, including LEAPS, 
on the Russell 2000 Index). Amex recently listed the Rydex Russell 
Top 50 ETF and options on the Rydex Russell Top 50 ETF. See http://www.amex.com
.

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[[Page 6112]]

Index Design and Composition

    The Russell Indexes are designed to be a comprehensive 
representation of the investable U.S. equity market. These Indexes are 
capitalization-weighted and include only those common stocks of 
corporations domiciled in the U.S. and its territories and that are 
traded on Amex, NYSE, or Nasdaq. The component securities are weighted 
by their ``available'' market capitalization (also called ``float-
adjusted'' market capitalization), which is calculated by multiplying 
the primary market price by the ``available'' shares.\7\
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    \7\ ``Available shares'' are the total shares outstanding less 
corporate cross-owned shares, ESOP and LESOP-owned shares comprising 
10% or more of shares outstanding, unlisted share classes and shares 
held by an individual, a group of individuals acting together, a 
corporation not in the index that owns 10% or more of the shares 
outstanding or shares subject to IPO lock-ups. ESOP and LESOP-owned 
shares represent, generally, those shares of a corporation that are 
owned through employee stock ownership plans.
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    The following is a brief description of each Index: \8\
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    \8\ Additional information about the Russell Indexes can be 
found at http://russell.com/us/indexes/us/definitions.asp.

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    Russell 3000--Measures the performance of the 3,000 largest U.S. 
companies based on total market capitalization, which represents 
approximately 98% of the investable U.S. equity market.
    Russell 3000 Growth--Measures the performance of those Russell 3000 
Index companies with higher price-to-book ratios and higher forecasted 
growth values. The stocks in this index are also members of either the 
Russell 1000 Growth or the Russell 2000 Growth indexes.
    Russell 3000 Value--Measures the performance of those Russell 3000 
Index companies with lower price-to-book ratios and lower forecasted 
growth values. The stocks in this index are also members of either the 
Russell 1000 Value or the Russell 2000 Value.
    Russell 2000--Measures the performance of the 2,000 smallest 
companies in the Russell 3000 Index, representing approximately 8% of 
the total market capitalization of the Russell 3000 Index.
    Russell 2000 Growth--Measures the performance of those Russell 2000 
Companies with higher price-to-book ratios and higher forecasted growth 
values.
    Russell 2000 Value--Measures the performance of those Russell 2000 
Companies with lower price-to-book ratios and lower forecasted growth 
values.
    Russell 1000--Measures the performance of the 1,000 largest 
companies in the Russell 3000 Index, which represents approximately 92% 
of the total market capitalization of the Russell 3000 Index.
    Russell 1000 Growth--Measures the performance of those Russell 1000 
Companies with higher price-to-book ratios and higher forecasted growth 
values.
    Russell 1000 Value--Measures the performance of those Russell 1000 
Companies with lower price-to-book ratios and lower forecasted growth 
values.
    Russell Midcap--Measures the performance of the 800 smallest 
companies in the Russell 1000 Index, which represent approximately 26% 
of the total market capitalization of the Russell 1000 Index.
    Russell Midcap Growth--Measures the performance of those Russell 
Midcap companies with higher price-to-book ratios and higher forecasted 
growth values. The stocks are also members of the Russell 1000 Growth 
index.
    Russell Midcap Value--Measures the performance of those Russell 
Midcap companies with lower price-to-book ratios and lower forecasted 
growth values. The stocks are also members of the Russell 1000 Value 
index.
    Russell Top 50--Measures the performance of the 50 largest 
companies in the Russell 3000 Index, representing approximately 41% of 
the total market capitalization of the Russell 3000.
    All equity securities listed on Amex, NYSE, or Nasdaq are 
considered for inclusion in the universe of stocks that comprise the 
Russell Indexes, with the following exceptions: (1) Stocks trading less 
than $1.00 per share on May 31 each year; (2) non-U.S. incorporated 
companies; and (3) preferred and convertible preferred stock, 
redeemable shares, participating preferred stock, warrants and rights, 
trust receipts, royalty trusts, limited liability companies, Bulletin 
Board and Pink Sheet stocks, closed-end investment companies, limited 
partnerships, and foreign stocks. As a special exception, Berkshire 
Hathaway is also excluded. The Russell 3000 Index is comprised of the 
top 3,000 eligible stocks ranked by available market capitalization. 
All of these stocks are ``reported securities,'' as defined in Rule 
11Aa3-1(a)(4) under the Act.\9\
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    \9\ 17 CFR 240.11Aa3-1(a)(4), n/k/a Rule 600(47) of Regulation 
NMS under the Act, 17 CFR 242.600(47). Telephone conversation 
between Florence Harmon, Special Counsel, Division, Commission and 
Jeffrey P. Burns, Associate General Counsel, Amex on January 29, 
2006.
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    All of the Russell Indexes described above are subsets of the 
Russell 3000 Index. The Growth and Value versions of each of the 
Russell 1000, Russell 2000, Russell 3000 and Russell Midcap may contain 
common components, but the capitalization of those components is 
apportioned so that the sum of the total capitalization of the Growth 
and Value indexes equals the total capitalization of the respective 
primary index.
    As of May 5, 2005, the stocks comprising the Russell 3000 Index 
(and the other Russell Indexes) had an average market capitalization of 
$4.519 billion ranging from a high of $380.007 billion (General 
Electric Co.) to a low of $22.2 million (ITC Deltacom, Inc.). The 
number of available shares outstanding ranged from a high of 10.8 
billion (Microsoft Corp.) to a low of 1.26 million (Seaboard Co.), and 
averaged 144.5 million shares. The six-month average daily trading 
volume for Russell 3000 Index components was 1.072 million shares per 
day, ranging from a high of 83.2 million shares per day (Sirus 
Satellite Radio) to a low of 1,500 shares per day (Wesco Financial 
Corp.). Component securities that averaged less than 50,000 shares per 
day for the previous six months accounted for 0.75% of the index 
weight. Over 66.18% of the Russell 3000 Index components satisfied 
Amex's listing criteria for equity options as set forth in Amex Rule 
915, representing over 94.82% of the index weight.
    The Russell Indexes themselves range in capitalization from a high 
of $13.6 trillion (Russell 3000) to a low of $866.2 billion (Russell 
2000 Growth). The number of index components range from a high of 3,019 
(Russell 3000) to a low of 49 (Russell Top 50). The Russell 1000 Growth 
Index has the highest percentage of options-eligible components with 
100% by weight and 100% by number. The Russell 2000 Value Index has the 
lowest percentage of options-eligible components with 54.70% by weight 
and 44.97% by number.

Index Calculation and Index Maintenance

    The values of each Index are currently calculated by Reuters on 
behalf of the Frank Russell Company and would be disseminated at 15-
second intervals during regular Amex trading hours to market 
information vendors via the

[[Page 6113]]

Options Price Reporting Authority (``OPRA'').
    The methodology used to calculate the value of the Russell Indexes 
is similar to the methodology used to calculate the value of other 
well-known market-capitalization weighted indexes. The level of each 
Index reflects the total market value of the component stocks relative 
to a particular base period and is computed by dividing the total 
market value of the companies in each Index by its respective index 
divisor. The divisor is adjusted periodically to maintain consistent 
measurement of each Index. The following is a table of base dates and 
the respective Index levels as of May 5, 2005:

------------------------------------------------------------------------
                                        Base date/ Base     05/05/2005
                Index                     index value       Index value
------------------------------------------------------------------------
Russell 3000........................  12/31/86 = 140.00           670.29
Russell 3000 Growth.................  3/16/00 = 700.00            379.95
Russell 3000 Value..................  3/16/00 = 700.00            848.58
Russell 2000........................  12/31/86 = 135.00           595.64
Russell 2000 Growth.................  3/16/00 = 500.00            303.72
Russell 2000 Value..................  3/16/00 = 500.00            892.40
Russell 1000........................  12/31/86 = 130.00           632.33
Russell 1000 Growth.................  8/31/92 = 200.00            470.62
Russell 1000 Value..................  8/31/92 = 200.00            648.51
Russell Midcap......................  12/31/86 = 200.00           768.48
Russell Midcap Growth...............  3/16/00 = 500.00            321.56
Russell Midcap Value................  3/16/00 = 500.00            859.76
Russell Top 50......................  12/31/01 = 1,000            973.11
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    Options on the Russell Indexes would expire on the Saturday 
following the third Friday of the expiration month. Trading in options 
on the Russell Indexes would normally cease at 4:15 p.m. Eastern time 
(``ET'') on the Thursday preceding an expiration Saturday. The exercise 
settlement value at expiration of each Russell Index option would be 
calculated by Reuters on behalf of the Frank Russell Company, based on 
the opening prices of the Index's component securities on the last 
business day prior to expiration (``Settlement Day'').\10\ The 
Settlement Day would normally be the Friday preceding ``Expiration 
Saturday.'' If a component security in a Russell Index does not trade 
on Settlement Day, the last reported sales price in the primary market 
from the previous trading day would be used to calculate the settlement 
value. Settlement values for the Russell Indexes would be disseminated 
by OPRA.
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    \10\ The aggregate exercise value of the option contract is 
calculated by multiplying the Index value by the Index multiplier, 
which is 100.
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    The Russell Indexes are monitored and maintained by the Frank 
Russell Company. The Frank Russell Company is responsible for making 
all necessary adjustments to the Indexes to reflect component 
deletions, share changes, stock splits, stock dividends (other than an 
ordinary cash dividend), and stock price adjustments due to 
restructuring, mergers, or spin-offs involving the underlying 
components. Some corporate actions, such as stock splits and stock 
dividends, require simple changes to the available shares outstanding 
and the stock prices of the component securities. Other corporate 
actions, such as share issuances, change the market value of the 
Indexes and would require the use of an index divisor to effect 
adjustments.
    The Russell Indexes are re-constituted annually on June 30th, based 
on prices and available shares outstanding as of the preceding May 
31st. New index components are added only as part of the annual re-
constitution and, after which, should a component security be removed 
from an index for any reason, it cannot be replaced until the next re-
constitution.
    Although not involved in the maintenance of any of the Russell 
Indexes, the Exchange would monitor each Russell Index on a quarterly 
basis and notify the Commission's Division by filing a proposed rule 
change pursuant to Rule 19b-4 of the Act \11\ if: (i) The number of 
securities in any Index drops by one-third or more; (ii) 10% or more of 
the weight of any Index is represented by component securities having a 
market value of less than $75 million; (iii) less than 80% of the 
weight of any Index is represented by component securities that are 
eligible for options trading pursuant to Amex Rule 915; (iv) 10% or 
more of the weight of any Index is represented by component securities 
trading less than 20,000 shares per day; or (v) the largest component 
security in any Index accounts for more than 15% of the weight of the 
Index, or the largest five components in the aggregate account for more 
than 50% of the weight of the Index.
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    \11\ 17 CFR 240.19b-4.
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    The Exchange would also notify the Division immediately if the 
Frank Russell Company ceases to maintain or calculate any of the 
Russell Indexes on which Amex is proposing to list and trade options, 
or if the value of any of these Russell Indexes is not disseminated 
every 15 seconds by a widely available source. If a Russell Index 
ceases to be maintained or calculated, or its values are not

[[Page 6114]]

disseminated every 15 seconds by a widely available source, the 
Exchange would not list any additional series for trading and would 
limit all transactions in options on that Index to closing transactions 
only for the purpose of maintaining a fair and orderly market and 
protecting investors.

Contract Specifications

    The proposed contract specifications for the options on the Russell 
Indexes are based on the contract specifications of similar options 
currently listed on CBOE and ISE.\12\ The Russell Indexes are broad-
based indexes, as defined in Amex Rule 900C(b)(1). Options on the 
Russell Indexes would be European-style and a.m. cash-settled. The 
Exchange's standard trading hours for broad-based index options (9:30 
a.m. to 4:15 p.m. ET), as set forth in Commentary .02 to Amex Rule 1, 
would apply to options on the Russell Indexes. Exchange rules that 
apply to the trading of options on broad-based indexes would also apply 
to options on the Russell Indexes.\13\ The trading of these options 
would also be subject to, among others, Exchange rules governing margin 
requirements and trading halt procedures for index options.
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    \12\ See supra note 6.
    \13\ See Amex Rules 900C through 980C.
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    For options on the Russell Indexes, the Exchange proposes to 
establish in Amex Rule 904C(b) an aggregate position limit of 50,000 
contracts on the same side of the market, provided that no more than 
30,000 of such contracts are in the nearest expiration month 
series.\14\ These limits are identical to the limits applicable to 
options based on the Russell Indexes that currently trade on CBOE and 
ISE.\15\
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    \14\ 14 The same limits that apply to position limits would 
apply to exercise limits for these products.
    \15\ See CBOE Rule 24.4(e) and ISE Rule 2004.
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    However, neither CBOE nor ISE currently list and trade options on 
the Russell Top 50. The Exchange believes that the proposed position 
and exercise limits for the Russell Top 50 is appropriate because it 
measures the performance of the 50 largest companies in the Russell 
3000 Index, representing approximately 41% of the total market 
capitalization of the Russell 3000. Russell Midcap options traded on 
both CBOE and ISE have the same position and exercise limits as are 
proposed for the Russell Top 50 options. The Russell Midcap measures 
the performance of the 800 smallest companies in the Russell 1000 
Index, representing approximately 26% of the total market 
capitalization of the Russell 1000 Index. Since the Russell Top 50 
represents 41% of the Russell 3000 as compared to the Russell Midcap 
representing 26% of the Russell 1000, the Exchange believes that the 
same position and exercise limits are appropriate. Accordingly, the 
Exchange submits that the Russell Top 50 should have position and 
exercise limits of 50,000 contracts with no more than 30,000 for the 
near term.
    Commentary .01(c) to Amex Rule 904C provides that position limits 
for hedged index options may not exceed twice the established position 
limits for broad stock index groups. The Exchange proposes that a hedge 
exemption of 75,000 be available for the Russell Indexes.
    Furthermore, pursuant to Commentary .02 to Amex Rule 904C, 
proprietary accounts of member organizations could receive an exemption 
of up to three times the established position limit for the purpose of 
facilitating public customer orders, to the extent they comply with the 
procedures and criteria listed in Commentary .02 to Amex Rules 950(d) 
and 950(d)--ANTE.
    The Exchange proposes to apply broad-based index margin 
requirements for the purchase and sale of options on the Russell 
Indexes. Accordingly, purchases of put or call options with nine months 
or less until expiration would have to be paid for in full. Writers of 
uncovered put or call options would have to deposit/maintain 100% of 
the option proceeds, plus 15% of the aggregate contract value (current 
index level x $100), less any out-of-the-money amount, subject to a 
minimum of the option proceeds plus 10% of the aggregate contract value 
for call options and a minimum of the option proceeds plus 10% of the 
aggregate exercise price amount for put options.
    The Exchange proposes to set a strike price interval of at least 
2\1/2\ points for a near-the-money series in a near-term expiration 
month when the level of a Russell Index is below 200, a 5-point strike 
price interval for any options series with an expiration up to one 
year, and at least a 10-point strike price interval for any longer-term 
option. The minimum tick size for series trading below $3 would be 
$0.05, and for series trading at or above $3 would be $0.10.
    The Exchange proposes to list options on the Russell Indexes in the 
three consecutive near-term expiration months, plus up to three 
successive expiration months in the March cycle. For example, 
consecutive expirations of January, February, March, plus June, 
September, and December expirations would be listed.\16\ In addition, 
long-term option series having up to 60 months to expiration may be 
traded.\17\ The trading of long-term options on the Russell Indexes 
would be subject to the same rules that govern all the Exchange's index 
options, including sales practice rules, margin requirements, and 
trading rules.
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    \16\ See Amex Rule 903C(a).
    \17\ See Amex Rule 903C(a)(iii).
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Surveillance and Capacity

    The Exchange represents that it has an adequate surveillance 
program in place for options on the Russell Indexes and intends to 
apply those same procedures that it applies to the Exchange's other 
index options. In addition, the Exchange is a member of the Intermarket 
Surveillance Group (``ISG''). The members of the ISG include all of the 
national securities exchanges, plus the National Association of 
Securities Dealers, Inc. The ISG members work together to coordinate 
surveillance and share information regarding the stock and options 
markets. In addition, the major futures exchanges are affiliated 
members of the ISG, which allows for the sharing of surveillance 
information for potential intermarket trading abuses.
    The Exchange also represents that it has the necessary systems 
capacity to support the new options series that would result from the 
introduction of options on the Russell Indexes, including long-term 
options. The Exchange has provided the Commission with system capacity 
information to support this representation.
(2) Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\18\ in general, and furthers the objectives 
of Section 6(b)(5) of the Act,\19\ 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.
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    \18\ 15 U.S.C. 78f.
    \19\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change does not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

[[Page 6115]]

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.

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 (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-Amex-2005-061 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-2005-061. 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, 100 F Street, 
NE, Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of 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-2005-061 and should be 
submitted on or before February 27, 2006.

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

    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.\20\ In particular, the Commission believes that the proposal 
is consistent with Section 6(b)(5) of the Act,\21\ which requires 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 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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    \20\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
    \21\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that it previously has found that the listing 
and trading on CBOE and ISE of options on most of the Russell Indexes 
described above, and CBOE's position and ISE's position and exercise 
limits associated with those options, are consistent with the Act. Amex 
has proposed substantially the same contract specifications for these 
options, as well as identical position and exercise limits for these 
options. The Commission presently is not aware of any issue that would 
cause it to revisit those earlier findings or preclude the listing and 
trading of these options on Amex.
    Amex also has proposed to list and trade new options on the Russell 
Top 50 Index--options that have not previously been approved by the 
Commission for listing and trading on any national securities exchange. 
The Commission believes that the composition of this Index and the 
characteristics of Amex's proposed options on this Index will minimize 
the potential for manipulation, and that listing and trading them on 
Amex is reasonable and consistent with the Act.
    As noted above, the Russell Indexes are designed to represent broad 
segments of the U.S. equity securities markets. Furthermore, Amex has 
represented that it would notify the Commission if: (i) The number of 
securities in any Index drops by one-third or more; (ii) 10% or more of 
the weight of any Index is represented by component securities having a 
market value of less than $75 million; (iii) less than 80% of the 
weight of any Index is represented by component securities that are 
eligible for options trading pursuant to Amex Rule 915; (iv) 10% or 
more of the weight of any Index is represented by component securities 
trading less than 20,000 shares per day; or (v) the largest component 
security accounts for more than 15% of the weight of any Index or the 
largest five components in the aggregate account for more than 50% of 
the weight of any Index.
    The Commission also believes that the position and exercise limits 
for the new Russell Index options, including the index hedge exemption 
from such position limits, are reasonable and consistent with the Act. 
These limits are modeled on existing position and exercise limits for 
options on very similar Russell Indexes that previously have been 
approved by the Commission.
    In approving this proposal, the Commission has specifically relied 
on the following representations made by the Exchange:
    1. The Exchange will notify the Division immediately if the Frank 
Russell Company ceases to maintain or calculate any Russell Index on 
which an Amex option is based, or if the value of any such Russell 
Index is not disseminated every 15 seconds by a widely available 
source. If a Russell Index ceases to be maintained or calculated, or 
its values are not disseminated every 15 seconds by a widely available 
source, the Exchange will not list any additional series on that Index 
and will limit all transactions in such options to closing transactions 
only for the purpose of maintaining a fair and orderly market and 
protecting investors.
    2. The Exchange has an adequate surveillance program in place for 
the proposed options on the Russell Indexes.
    3. The additional quote and message traffic that will be generated 
by listing and trading the proposed options on the Russell Indexes will 
not exceed the Exchange's current message capacity allocated by the 
Independent System Capacity Advisor.
    The Commission further notes that, in approving this proposal, it 
relied on the Exchange's discussion of how the Frank Russell Company 
currently calculates the Russell Indexes. If the manner in which any 
Russell Index is calculated were to change substantially, this approval 
order, with respect to any Amex options on that Index, might no longer 
be effective.
    The Commission finds good cause for approving this proposal before 
the thirtieth day after the publication of notice thereof in the 
Federal Register. Most of the proposed options on the Russell Indexes 
already have been

[[Page 6116]]

approved for listing and trading on another exchange and are governed 
by contract specifications that are substantially the same as those 
proposed by Amex. The new options proposed by Amex will be governed by 
contract specifications that are substantially the same as those that 
govern the similar existing products. Therefore, accelerating approval 
of Amex's proposal should benefit investors by creating, without undue 
delay, additional competition in the market for the existing options, 
as well as an additional investment opportunity with regard to the new 
options.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\22\ that the proposed rule change, as amended (SR-Amex-2005-061), 
is hereby approved.
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a))12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-1536 Filed 2-3-06; 8:45 am]

BILLING CODE 8010-01-P