Document ID: SEC-2005-0263-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: American Stock Exchange LLC
Posted Date: 2005-11-23T05:00Z

[Federal Register: November 23, 2005 (Volume 70, Number 225)]
[Notices]               
[Page 70898-70901]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23no05-145]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52781; File No. SR-Amex-2005-069]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change and Amendment Nos. 1, 2, 3 and 4 Relating to Listing 
Standards for Broad-Based Index Options and Concentration Limits for 
Narrow-Based Index Option Listing Standards

November 16, 2005.
    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 June 24, 2005, 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 August 17, 
2005, the Amex filed Amendment No. 1 to the proposed rule change.\3\ On 
September 13, 2005, the Amex filed Amendment No. 2 to the proposed rule 
change.\4\ On September 28, 2005, the Amex filed Amendment No. 3 to the 
proposed rule change.\5\ On September 30, 2005, the Amex filed 
Amendment No. 4 to the proposed rule change.\6\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons and is approving 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\ Amendment No. 1 replaced the original filing in its 
entirety.
    \4\ In Amendment No. 2, the Amex made minor revisions to the 
proposed rule text and clarified that the request for expedited 
review and accelerated effectiveness set forth in Amendment No. 1 
includes the revision to concentration limits for narrow-based index 
options.
    \5\ In Amendment No. 3, the Amex set forth its interpretation of 
the term ``major market data vendor'' in proposed Commentary 
.02(a)(11) to Rule 901C to include the Options Price Reporting 
Authority (OPRA) and the Consolidated Tape Association (CTA), as 
well as other securities information processors. The Exchange also 
set forth how the term ``vendor'' is defined in Rule 600(b)(83) of 
Regulation NMS under the Act.
    \6\ In Amendment No. 4, the Amex made minor revisions to the 
proposed rule text.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt new Commentary .02 to Amex Rule 901C 
and amend Amex Rule 904C to adopt generic listing standards and 
position and exercise limits for broad-based index options. The 
Exchange also proposes to revise the concentration limitation for 
narrow-based index option generic listing standards in Commentary .03 
to Amex Rule 901C. The text of the proposed rule change is available on 
the Amex's Web site (http://www.amex.com), at the Amex's Office of the 

Secretary 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 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 III below. The Amex 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
Listing and Maintenance Standards and Position and Exercise Limits for 
Broad-Based Index Options
    The Amex proposes to adopt new Commentary .02(a) to Amex Rule 901C 
to establish initial listing standards for broad-based index options. 
The proposal will allow the Amex to list, pursuant to Rule 19b-4(e) 
under the

[[Page 70899]]

Act,\7\ broad-based index options that meet the ``generic'' listing 
standards in new Commentary .02(a) to Amex Rule 901C. The listing 
standards require, among other things, that the underlying index be a 
broad stock index group, as defined in Amex Rule 900C(b)(1); that 
options on the index be a.m.-settled; that the index be capitalization-
weighted, modified capitalization-weighted, price-weighted, or equal 
dollar-weighted; and that the index be comprised of at least 50 
securities, all of which must be ``NMS stocks,'' as defined in Rule 600 
of Regulation NMS.\8\ In addition, new Commentary .02(a) to Amex Rule 
901C requires that the index's component securities meet certain 
minimum market capitalization and average daily trading volume 
requirements; that no single component account for more than 10% of the 
weight of the index and that the five highest weighted components 
represent no more than 33% of the weight of the index; that the index 
value be widely disseminated at least every 15 seconds; and that the 
Amex have written surveillance procedures in place with respect to the 
index options.
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    \7\ 17 CFR 240.19b-4(e).
    \8\ See Amendment No. 4, supra note 6. Rule 600 of Regulation 
NMS defines an ``NMS stock'' to mean ``any NMS security other than 
an option.'' An ``NMS security'' is ``any security or class of 
securities for which transaction reports are collected, processed, 
and made available pursuant to an effective transaction reporting 
plan, or an effective national market system plan for reporting 
transactions in listed options.'' See 17 CFR 242.600.
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    The Amex also proposes to adopt new Commentary .02(b) to Amex Rule 
901C, which establishes maintenance standards for broad-based index 
options listed pursuant to new Commentary .02(a) to Amex Rule 901C. In 
addition, the Amex proposes to amend Amex Rule 904C to establish 
position limit and exercise limits of 25,000 contracts on the same side 
of the market for broad-based index options listed pursuant to new 
Commentary .02(a) to Amex Rule 901C.\9\
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    \9\ See Amendment No. 4, supra note 6. Amex Rule 905C 
establishes exercise limits for index options at the same levels as 
the corresponding index option's position limits. The Exchange also 
proposes to make minor technical changes to the rule text of Amex 
Rule 904C. Telephone conversation between Jeffrey Burns, Associate 
General Counsel, Amex, and Kate Robbins, Attorney, Division of 
Market Regulation, Commission, on August 30, 2005.
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Narrow-Based Index Options ``Generic'' Listing Standards
    Commentary .02(a)(7) (redesignated as Commentary .03(a)(7)) to Amex 
Rule 901C provides that no single component security may represent more 
than 25% of the weight of the index, and that the five highest weighted 
component securities in the index may not, in the aggregate, account 
for more than 50% (60% for an index consisting of fewer than 25 
component securities) of the weight of the index. The Exchange proposes 
to amend Commentary .02(a)(7) to increase the 25% concentration limit 
for the highest weighted component stock to 30%, and to increase the 
concentration limit for the five most highly weighted stocks in an 
index consisting of fewer than 25 component securities from 60% to 65%. 
In addition, the continuing listing standard found in Commentary 
.02(d)(1) (redesignated as Commentary .03(d)(1)) to Amex Rule 901C will 
be similarly revised to reflect the proposed increase in percentage 
weights of a single issuer to 30% and the five most highly weighted 
stocks in an index consisting of fewer than 25 component securities to 
65%. The Exchange believes that the proposed revision to Commentary .02 
to Amex Rule 901C should provide additional flexibility in the listing 
and trading of narrow-based index options while continuing to serve the 
intended purpose of preventing a single security or small number of 
securities from dominating an index.\10\
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    \10\ See Securities Exchange Act Release No. 51267 (February 25, 
2005), 70 FR 10715 (March 4, 2005) (approving an identical proposal 
by the International Securities Exchange, Inc. (``ISE'') to increase 
the concentration limits for narrow-based index option generic 
listing standards).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6 of the Act \11\ in general and furthers the objectives 
of section 6(b)(5) \12\ 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 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.

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

    The Exchange did not receive any written comments on 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-2005-069 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-Amex-2005-069. 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 Room. 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-2005-069 and should be submitted on or before 
December 14, 2005.

[[Page 70900]]

IV. Commission's Findings and Order Granting Accelerated Approval of 
the 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.\13\ In particular, the Commission finds that the 
proposed rule change, as amended, is consistent with section 6(b)(5) of 
the Act,\14\ 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 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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    \13\ 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).
    \14\ 15 U.S.C. 78f(b)(5).
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    To list options on a particular broad-based index, the Amex 
currently must file a proposed rule change with the Commission pursuant 
to section 19(b)(1) of the Act and Rule 19b-4 thereunder. However, Rule 
19b-4(e) provides that the listing and trading of a new derivative 
securities product by a self-regulatory organization (``SRO'') will not 
be deemed a proposed rule change pursuant to Rule 19b-4(c)(1) if the 
Commission has approved, pursuant to section 19(b) of the Act, the 
SRO's trading rules, procedures, and listing standards for the product 
class that would include the new derivative securities product, and the 
SRO has a surveillance program for the product class.
    As described more fully above, the Amex proposes to establish 
listing standards for broad-based index options. The Commission's 
approval of the Amex's listing standards for broad-based index options 
will allow options that satisfy the listing standards to begin trading 
pursuant to Rule 19b-4(e), without constituting a proposed rule change 
within the meaning of section 19(b) of the Act and Rule 19b-4, for 
which notice and comment and Commission approval is necessary.\15\ The 
Amex's ability to rely on Rule 19b-4(e) to list broad-based index 
options that meet the requirements of Commentary .02(a) to Amex Rule 
901C potentially reduces the time frame for bringing these securities 
to the market, thereby promoting competition and making new broad-based 
index options available to investors more quickly.
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    \15\ When relying on Rule 19b-4(e), the SRO must submit Form 
19b-4(e) to the Commission within five business days after the SRO 
begins trading the new derivative securities product. See Securities 
Exchange Act Release No. 40761 (December 8, 1998), 63 FR 70952 
(December 22, 1998) (File No. S7-13-98).
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    The Commission notes that the Amex has represented that it has 
adequate trading rules, procedures, listing standards, and surveillance 
program for broad-based index options. Amex's existing index option 
trading rules and procedures will apply to broad-based index options 
listed pursuant to Commentary .02(a) to Amex Rule 901C. Other existing 
Amex rules, including provisions addressing sales practices and margin 
requirements, also will apply to these options. In addition, the Amex 
proposes to establish position and exercise limits of 25,000 contracts 
on the same side of the market for broad-based index options listed 
pursuant to Commentary .02(a) to Amex Rule 901C.\16\ The Commission 
believes that the proposed position and exercise limits should serve to 
minimize potential manipulation concerns.
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    \16\ See Amendment No. 4, supra note 6.
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    The Amex represents that it has adequate surveillance procedures 
for broad-based index options and that it intends to apply its existing 
surveillance procedures for index options to monitor trading in broad-
based index options listed pursuant to Commentary .02(a) to Amex Rule 
901C. In addition, because Commentary .02(a) to Amex Rule 901C requires 
that each component of an index be an ``NMS stock,'' as defined in Rule 
600 of Regulation NMS under the Act, each index component must trade on 
a registered national securities exchange or through Nasdaq. 
Accordingly, the Amex will have access to information concerning 
trading activity in the component securities of an underlying index 
through the Intermarket Surveillance Group (``ISG'').\17\ Commentary 
.02(a) to Amex Rule 901C also provides that non-U.S. index components 
that are not subject to a comprehensive surveillance sharing agreement 
between the Amex and the primary market(s) trading the index components 
may comprise no more than 20% of the weight of the index.\18\ The 
Commission believes that these requirements will help to ensure that 
the Amex has the ability to monitor trading in broad-based index 
options listed pursuant to Commentary .02(a) to Amex Rule 901C and in 
the component securities of the underlying indexes.
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    \17\ The ISG was formed on July 14, 1983, to, among other 
things, coordinate more effectively surveillance and investigative 
information sharing arrangements in the stock and options markets. 
All of the registered national securities exchanges and the National 
Association of Securities Dealers, Inc., are members of the ISG. In 
addition, futures exchanges and non-U.S. exchanges and associations 
are affiliate members of the ISG.
    \18\ However, such non-U.S. index components, as ``NMS stocks,'' 
would be registered under Section 12 of the Act and listed and 
traded on a national securities exchange or Nasdaq, where there is 
last sale reporting.
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    The Commission believes that the requirements in Commentary .02(a) 
to Amex Rule 901C regarding, among other things, the minimum market 
capitalization, trading volume, and relative weightings of an 
underlying index's component stocks are designed to ensure that the 
markets for the index's component stocks are adequately capitalized and 
sufficiently liquid, and that no one stock dominates the index. In 
addition, Commentary .02(a) to Amex Rule 901C requires that the 
underlying index be a ``broad stock index group,'' as defined in Amex 
Rule 900C(b)(1).\19\ The Commission believes that these requirements 
minimize the potential for manipulating the underlying index.
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    \19\ Amex Rule 900C(b)(1) defines ``broad stock index group'' to 
mean a stock index group relating to a stock index which reflects 
representative stock market values or prices of a broad segment of 
the stock market.
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    The Commission believes that the requirement in Commentary .02(a) 
to Amex Rule 901C that the current index value be widely disseminated 
at least once every 15 seconds by the one or more major market data 
vendors \20\ during the time an index option trades on the Amex should 
provide transparency with respect to current index values and 
contribute to the transparency of the market for broad-based index 
options. In addition, the Commission believes, as it has noted in other 
contexts, that the requirement in Commentary .02(a) to Amex Rule 901C 
that an index option be settled based on the opening prices of the 
index's component securities, rather than on closing prices, could help 
to reduce the potential impact of expiring index options on the market 
for the index's component securities.\21\
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    \20\ The Amex has set forth its interpretation of the term 
``major market data vendor'' for the purposes of Commentary 
.02(a)(11) to Amex Rule 901C to include the OPRA and the CTA, as 
well as other securities information processors. See Amendment No. 
3, supra note 5.
    \21\ See, e.g., Securities Exchange Act Release No. 30944 (July 
21, 1992), 57 FR 33376 (July 28, 1992) (order approving a Chicago 
Board Options Exchange, Incorporated proposal to establish opening 
price settlement for S&P 500 Index options).
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    The Commission believes that increasing the concentration limits 
for narrow-based index options listed pursuant to Commentary .03 to 
Amex

[[Page 70901]]

Rule 901C should provide additional flexibility to the Exchange in 
listing and trading narrow-based index options and reduce the instances 
in which the addition of a new series is restricted. The proposed rule 
change should also reduce instances where an index option listed on the 
Exchange is temporarily out of compliance with the concentration limits 
set forth under Commentary .03 to Amex Rule 901C because of changes in 
the market value of the underlying index components. Lastly, the 
Commission believes that that the concentration limit listing standards 
should continue to serve the purpose for which they were originally 
intended of not permitting a single security or a small number of 
securities to dominate an index.
    The Commission finds good cause for approving the proposed rule 
change, as amended, prior to the 30th day after the date of publication 
of the notice of filing in the Federal Register. The Exchange has 
requested accelerated approval of the proposed rule change. The 
proposal implements listing and maintenance standards and position and 
exercise limits for broad-based index options substantially identical 
to those recently approved for the ISE.\22\ In addition, the proposal 
implements concentration limits for narrow-based index options 
substantially identical to those previously approved for the 
Philadelphia Stock Exchange, Inc., which were subject to the full 
comment period with no comments received,\23\ and for the ISE, which 
were approved by the Commission on an accelerated basis.\24\
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    \22\ See Securities Exchange Act Release No. 52578 (October 7, 
2005); 70 FR 60590 (October 18, 2005).
    \23\ See Securities Exchange Act Release No. 50945 (December 29, 
2004), 70 FR 1498 (January 7, 2005).
    \24\ See supra note 10.
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    The Commission does not believe that the Exchange's proposal raises 
any novel regulatory issues. Therefore, the Commission finds good 
cause, consistent with section 19(b)(2) of the Act,\25\ to approve the 
proposed rule change, as amended, on an accelerated basis.
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    \25\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\26\ that the proposed rule change (SR-Amex-2005-069), as amended, 
is hereby approved on an accelerated basis.
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    \26\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
 [FR Doc. E5-6447 Filed 11-22-05; 8:45 am]

BILLING CODE 8010-01-P