Document ID: SEC-2007-1233-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: American Stock Exchange LLC
Posted Date: 2007-09-06T04:00Z

[Federal Register: September 6, 2007 (Volume 72, Number 172)]
[Notices]               
[Page 51281-51283]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06se07-109]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56336; File No. SR-Amex-2007-35]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change as Modified by Amendment No. 1 
Thereto Relating to the Criteria for Securities That Underlie Options 
Traded on the Exchange

 August 29, 2007.
    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 April 5, 2007, 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, II, 
and III below, which Items have been substantially prepared by the 
Amex. On August 20, 2007, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 superseded and replaced the original filing 
in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to permit the initial and continued listing 
and trading on the Exchange of options on Index Multiple Exchange 
Traded Fund Shares (``Multiple Fund Shares'') and Index Inverse 
Exchange Traded Fund Shares (``Inverse Fund Shares'') (collectively, 
the ``Fund Shares'').
    The text of the proposed rule change is available at Amex, the 
Commission's Public Reference Room, and http://www.amex.com.

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 Amex 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 IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

[[Page 51282]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to revise Amex Rules 915 
and 916 to enable the listing and trading on the Exchange of options on 
Multiple Fund Shares and Inverse Fund Shares. Multiple Fund Shares seek 
to provide investment results, before fees and expenses, that 
correspond to a specified multiple of the percentage performance on a 
given day of a particular foreign or domestic stock index. Inverse Fund 
Shares seek to provide investment results, before fees and expenses, 
that correspond to the inverse (opposite) of the percentage performance 
on a given day of a particular foreign or domestic stock index by a 
specified multiple. Multiple and Index Fund Shares differ from 
traditional exchange-traded fund (``ETFs'') shares in that they do not 
merely correspond to the performance of a given index, but rather 
attempt to match a multiple or inverse of such underlying index 
performance. Current Multiple Fund Shares trading on the Exchange 
include the ProShares Ultra Funds while the Index Inverse Fund Shares 
include the Short Funds and UltraShort Funds.\4\
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    \4\ See Securities Exchange Act Release Nos. 52553 (October 3, 
2005), 70 FR 59100 (October 11, 2005) (SR-Amex-2004-62) (approving 
the listing and trading of the Ultra Funds and Short Funds) and 
54040 (June 23, 2006), 71 FR 37629 (June 30, 2006) (SR-Amex-2006-41) 
(approving the listing and trading of the UltraShort Funds). The 
Ultra Funds are expected to gain, on a percentage basis, 
approximately twice (200%) as much as the underlying benchmark index 
and should lose approximately twice (200%) as much as the underlying 
benchmark index when such prices decline. The Short Funds are 
expected to achieve investment results, before fees and expenses, 
that correspond to the inverse or opposite of the daily performance 
(-100%) of an underlying benchmark index. Lastly, the UltraShort 
Funds are expected to achieve investment results, before fees and 
expenses that correspond to twice the inverse or opposite of the 
daily performance (-200%) of the underlying benchmark index.
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    In order to achieve investment results that provide either a 
positive multiple or inverse of the benchmark index, Multiple Fund 
Shares or Inverse Fund Shares may hold a combination of financial 
instruments, including, among other things, stock index futures 
contracts; options on futures; options on securities and indices; 
equity caps, collars and floors; swap agreements; forward contracts; 
repurchase agreements; and reverse repurchase agreements (the 
``Financial Instruments''). The underlying portfolios of Multiple Fund 
Shares generally will hold at least 85% of their assets in the 
component securities of the underlying relevant benchmark index. The 
remainder of any assets are devoted to Financial Instruments that are 
intended to create the additional needed exposure to such Underlying 
Index necessary to pursue its investment objective. Normally, 100% of 
the value of the underlying portfolios of Inverse Fund Shares will be 
devoted to Financial Instruments and money market instruments, 
including U.S. government securities and repurchase agreements (the 
``Money Market Instruments'').
    Currently, Commentary .06 to Amex Rule 915 provides securities 
deemed appropriate for options trading shall include shares or other 
securities (``Exchange-Traded Fund Shares'') that are principally 
traded on a national securities exchange or through the facilities of a 
national securities association and defined as an ``NMS stock'' under 
Rule 600 of Regulation NMS, and that (i) represent an interest in a 
registered investment company organized as an open-end management 
investment company, a unit investment trust or a similar entity which 
holds securities constituting or otherwise based on or representing an 
investment in an index or portfolio of securities; (ii) represent 
interest in a trust or other similar entity that holds a specified non-
U.S. currency and/or currencies deposited with the trust or similar 
entity when aggregated in some specified minimum number may be 
surrendered to the trust by the beneficial owner to receive the 
specified non-U.S. currency and/or currencies and pays the beneficial 
owner interest and other distributions on the deposited non-U.S. 
currency and/or currencies, if any, declared and paid by the trust; or 
(iii) represent commodity pool interests principally engaged, directly 
or indirectly, in holding and/or managing portfolios or baskets of 
securities, commodity futures contracts, options on commodity futures 
contracts, swaps, forward contracts and/or options on physical 
commodities and/or non-U.S. currency (``Commodity Pool ETFs'').
    The Exchange proposes to amend Commentary .06 to Amex Rule 915 to 
expand the type of options to include the listing and trading of 
options based on Multiple Fund Shares and Inverse Fund Shares \5\ that 
may hold or invest in any combination of securities, Financial 
Instruments and/or Money Market Instruments. Multiple Fund Shares and 
Inverse Fund Shares will continue to otherwise satisfy the listing 
standards in Commentary .06 to Amex Rule 915. In addition, the Exchange 
proposes to remove the reference to a ``national securities 
association'' in Commentary .06 to Amex Rule 915.
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    \5\ See Amex Rule 1000A--AEMI(b)(2).
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    As set forth in proposed amended Commentary .06 to Amex Rule 915, 
Multiple Fund Shares and Inverse Fund Shares must be traded on a 
national securities exchange and must be an ``NMS stock'' as defined 
under Rule 600 of Regulation NMS. In addition, Multiple Fund Shares and 
Inverse Fund Shares must meet either: (i) The criteria and guidelines 
under Commentary .01 to Amex Rule 915; or (ii) be available for 
creation or redemption each business day in cash or in kind from the 
investment company at a price related to net asset value. In addition, 
the investment company shall provide that shares may be created even 
though some or all of the securities and/or cash (in lieu of the 
Financial Instruments) needed to be deposited have not been received by 
the investment company, provided the authorized creation participant 
has undertaken to deliver the shares and/or cash as soon as possible 
and such undertaking has been secured by the delivery and maintenance 
of collateral consisting of cash or cash equivalents satisfactory to 
the fund which underlies the option as described in the prospectus.
    The current continuing or maintenance listing standards for options 
on Exchange Traded Fund Shares will continue to apply.
    The Exchange proposes to amend Commentary .07 to Amex Rule 916 to 
indicate that the index or portfolio may consist of securities, 
Financial Instruments and/or Money Market Instruments. The Exchange 
also seeks to delete references to ``national market securities,'' 
``national securities association'', and ``national market 
association'' set forth in Commentary .07 to Amex Rule 916.
    Under the applicable continued listing criteria in Commentary .07 
to Amex Rule 916, options on Fund Shares may be subject to the 
suspension of opening transactions as follows: (1) Following the 
initial twelve-month period beginning upon the commencement of trading 
of the Fund Shares, there are fewer than 50 record and/or beneficial 
holders of the Fund Shares for 30 or more consecutive trading days; (2) 
the value of the index, non-U.S. currency, portfolio of commodities 
including commodity futures contracts, options on commodity futures 
contracts, swaps, forward contracts and/or options on physical 
commodities, or portfolio of securities and/or Financial Instruments on 
which the Fund Shares are based is no longer

[[Page 51283]]

calculated or available; or (3) such other event occurs or condition 
exists that in the opinion of the Exchange makes further dealing on the 
Exchange inadvisable. Additionally, the Fund Shares shall not be deemed 
to meet the requirements for continued approval, and the Exchange shall 
not open for trading any additional series of option contracts of the 
class covering such Multiple Fund Shares or Inverse Fund Shares, if the 
Shares are halted from trading on their primary market or if the Shares 
are delisted in accordance with the terms of Amex Rule 916 or the value 
of the index or portfolio on which the Shares are based is no longer 
calculated or available.
    The expansion of the types of investments that may be held by 
Multiple Fund Shares or Inverse Fund Shares under Commentary .06 to 
Amex Rule 915 will not have any effect on the rules pertaining to 
position and exercise limits \6\ or margin.\7\
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    \6\ See Amex Rules 904 and 905.
    \7\ See Amex Rule 462.
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    This proposal is necessary to enable the Exchange to list and trade 
options on the shares of the Ultra Fund, Short Fund and UltraShort Fund 
of the ProShares Trust.\8\ We believe the ability to trade options on 
Multiple and Inverse Fund Shares will provide investors with greater 
risk management tools. The proposed amendment to the Exchange's listing 
criteria for options on Exchange Traded Fund Shares is necessary to 
ensure that the Exchange will be able to list options on the Funds of 
the ProShares Trust as well as other Multiple Fund Shares or Inverse 
Fund Shares that may be introduced in the future.
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    \8\ See supra, note 4.
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    The Exchange in this proposal also seeks to add ``reverse 
repurchase agreements'' within the rule text of Amex Rule 1000A-
AEMI(b)(2)(ii) in order to correct the definition of Financial 
Instruments.
    The Exchange represents that its existing surveillance procedures 
applicable to trading in options are adequate to properly monitor the 
trading in Multiple Fund Shares options and Inverse Fund Shares 
options.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\9\ in general, and furthers the objectives of Section 6(b)(5) of 
the Act,\10\ in particular, in that it is 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change 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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) by order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change 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 No. SR-Amex-2007-35 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 No. SR-Amex-2007-35. 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 at 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 Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. 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 No. SR-Amex-2007-35 and should be 
submitted on or before September 27, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
Florence E. Harmon,
Deputy Secretary.
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    \11\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E7-17544 Filed 9-5-07; 8:45 am]

BILLING CODE 8010-01-P