[Federal Register: July 20, 2006 (Volume 71, Number 139)]
[Notices]
[Page 41283-41287]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20jy06-93]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54137; File No. SR-Amex-2006-67]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Permit the Listing and Trading of Quarterly Options Series
July 12, 2006.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 11, 2006, the American Stock Exchange LLC (``Exchange'' or
``Amex'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been substantially prepared by the Exchange.
The Exchange has designated this proposal as non-controversial under
Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6)
thereunder,\4\ which renders the proposed rule change effective upon
filing with the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its rules to permit the listing and
trading of quarterly options series.\5\ The text of the proposed rule
change is set forth below. Proposed new language is in italics;
language proposed to be deleted is in [brackets].
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\5\ This proposal is substantially identical to a recently
approved proposal by the International Securities Exchange (``ISE'')
to list Quarterly Options Series on a pilot basis. See Securities
Exchange Act Releases No. 53857 (May 24, 2006), 71 FR 31246 (June 1,
2006) (notice of filing); and 54113 (July 7, 2006) (approval order).
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* * * * *
Rule 900--Applicability, Definitions and References
(a) No change.
(b) Definitions--The following terms as used in the Rules in this
Chapter shall, unless the context otherwise indicates, have the
meanings herein specified:
(1)-(44) No change.
(45) Quarterly Options Series--The term ``Quarterly Options
Series'' means a series in an options class that is approved for
listing and trading on the Exchange in which the series is opened for
trading on any business day and that expires at the close of business
on the last business day of a calendar quarter:
(c)-(d) No change.
* * * Commentary
.01 No change.
* * * * *
Rule 903--Series of Options Open for Trading
(a) After a particular class of options (call option contracts or
put option contracts relating to a specific underlying security or
calculated index) has been approved for listing and trading on the
Exchange, the Exchange shall from time to time open for trading series
of options therein. Prior to the opening of trading in any series of
options, the Exchange shall fix the expiration month, expiration year
(if the options series has more than one year remaining to expiration),
and exercise price of option contracts included in each such series.
For Short Term Options Series, the Exchange will fix a specific
expiration date and exercise price, as provided in paragraph (h). For
Quarterly Options Series, the Exchange will fix a specific expiration
date and exercise price, as provided in Commentary .09.
(b)-(h) No change.
[[Page 41284]]
* * * Commentary
.01-.08 No change.
.09 Quarterly Options Series Pilot Program: For a pilot period, the
Exchange may list and trade options series that expire at the close of
business on the last business day of a calendar quarter (``Quarterly
Options Series''). The Exchange may list Quarterly Options Series for
up to five (5) currently listed options classes that are either Stock
Index Options or options on exchange traded funds. In addition, the
Exchange may also list Quarterly Options Series on any options classes
that are selected by other securities exchanges that employ a similar
pilot program under their respective rules. The pilot will commence the
day the Exchange first initiates trading in a Quarterly Options Series,
which shall be no later than August 10, 2006 and will expire on July
10, 2007.
(a) The Exchange will list series that expire at the end of the
next consecutive four (4) calendar quarters, as well as the fourth
quarter of the next calendar year. For example, if the Exchange is
trading Quarterly Options Series in the month of May 2006, it will list
series that expire at the end of the second, third and fourth quarters
of 2006, as well as the first and fourth quarters of 2007. Following
the second quarter 2006 expiration, the Exchange will add series that
expire at the end of the second quarter of 2007.
(b) The Exchange will not list a Short Term Options Series on an
options class whose expiration coincides with that of a Quarterly
Options Series on that same options class.
(c) The strike price of each Quarterly Options Series will be fixed
at a price per share, with at least two strike prices above and two
strike prices below the value of the underlying security at about the
time that a Quarterly Options Series is opened for trading on the
Exchange. The Exchange shall list strike prices for a Quarterly Options
Series that are within $5 from the closing price of the underlying on
the preceding day. Additional Quarterly Options Series of the same
class may be opened for trading on the Exchange when the Exchange deems
it necessary to maintain an orderly market, to meet customer demand or
when the market price of the underlying security moves substantially
from the initial exercise price or prices. To the extent that any
additional strike prices are listed by the Exchange, such additional
strike prices shall be within $5 from the closing price of the
underlying on the preceding day. The opening of new Quarterly Options
Series shall not affect the series of options of the same class
previously opened.
(d) The interval between strike prices on Quarterly Options Series
shall be the same as the interval for strike prices for series in that
same options class that expire in accordance with the normal monthly
expiration cycle.
* * * * *
Rule 900C--Applicability and Definitions
(a) No change.
(b) Definitions--The following terms as used in the Rules in this
Section shall, unless the context otherwise indicates, have the
meanings herein specified:
(1)-(25) No change.
(26) Quarterly [Index Expiration] Options Series--The term
``quarterly [index expiration] options series'' means [an option
contract on a stock index group that expires on the first business day
of the month following the end of a calendar quarter], for the purposes
of this Section 14, a series in an index options class that is approved
for listing and trading on the Exchange in which the series is opened
for trading on any business day and that expires at the close of
business on the last business day of a calendar quarter.
(27) No change.
* * * * *
Rule 903C--Series of Stock Index Options
(a) No change.
(i)-(iii) No change.
(iv) [Quarterly Index Expiration Option Series--The Exchange may
list options on the Major Market (``XMI''), Institutional (``XII'') and
S&P MidCap 400 (``MID'') stock indices that expire on the first
business day of the month following the end of a calendar quarter. For
such options, the Exchange may list up to eight consecutive quarterly
expirations with an index multiplier no greater than 500. All other
contract terms for such options will conform to the terms of the XMI,
XII and MID options listed pursuant to the provisions of Rule
903C(a)(i) and (ii) above.] Quarterly Options Series Pilot Program: For
a pilot period, the Exchange may list and trade options series that
expire at the close of business on the last business day of a calendar
quarter (``Quarterly Options Series''). The Exchange may list Quarterly
Options Series for up to five (5) currently listed options classes that
are either Stock Index Options or options on exchange traded funds. In
addition, the Exchange may also list Quarterly Options Series on any
options classes that are selected by other securities exchanges that
employ a similar pilot program under their respective rules. The pilot
will commence the day the Exchange first initiates trading in a
Quarterly Options Series, which shall be no later than August 10, 2006
and will expire on July 10, 2007.
1. The Exchange will list series that expire at the end of the next
consecutive four (4) calendar quarters, as well as the fourth quarter
of the next calendar year. For example if the Exchange is trading
Quarterly Options Series in the month of May 2006, it will list series
that expire at the end of the second, third and fourth quarters of
2006, as well as the first and fourth quarters of 2007. Following the
second quarter 2006 expiration, the Exchange will add series that
expire at the end of the second quarter of 2007.
2. The Exchange will not list a Short Term Option Series on an
options class whose expiration coincides with that of a Quarterly
Options Series on that same options class.
3. Quarterly Options Series shall be P.M. settled.
4. The strike price of each Quarterly Options Series will be fixed
at a price per share, with at least two strike prices above and two
strike prices below the value of the underlying security at about the
time that a Quarterly Options Series is opened for trading on the
Exchange. The Exchange shall list strike prices for a Quarterly Options
Series that are within $5 from the closing price of the underlying on
the preceding day. The Exchange may open for trading additional
Quarterly Options Series of the same class if the current index value
of the underlying index moves substantially from the exercise price of
those Quarterly Options Series that already have been opened for
trading on the Exchange. The exercise price of each Quarterly Options
Series opened for trading on the Exchange shall be reasonably related
to the current index value of the underlying index to which such series
relates at or about the time such series of options is first opened for
trading on the Exchange. The term ``reasonably related to the current
index value of the underlying index'' means that the exercise price is
within thirty percent (30%) of the current index value. The Exchange
may also open for trading additional Quarterly Options Series that are
more than thirty percent (30%) away from the current index value,
provided that demonstrated customer interest exists for such series, as
expressed by institutional, corporate, or individual customers or their
brokers. Market-makers trading for their own account shall not be
considered when
[[Page 41285]]
determining customer interest under this provision.
5. The interval between strike prices on Quarterly Options Series
shall be the same as the interval for strike prices for series in that
same options class that expire in accordance with the normal monthly
expiration cycle.
(v) No change.
(b)-(c) No change.
* * * Commentary
.01-.04 No change.
Rule 904C--Position Limits
(a) No change.
(b) Broad Stock Index Groups. No change.
--Full Size Nasdaq 100 Index Options (NDX) through Eurotop 100 Index
Options--No change.
--Positions in Short Term Option Series and Quarterly Options Series
shall be aggregated with positions in options contracts on the same
index.
--Russell 1000 Index Options, etc.--No change.
(c) Stock Index Industry Groups.
(i) Subject to the procedures specified in sub-paragraph (iii) of
this paragraph (c), the Exchange shall establish a position limit with
respect to options on the Pauze[eacute] Tombstone Common Stock Index of
6,000 contracts and for each underlying stock index industry group at a
level no greater than:
--18,000 contracts if the Exchange determines, at the time of a review
conducted pursuant to subparagraph (ii) of this paragraph (c), that any
single stock in the group accounted, on average, for 30% or more of the
numerical index value during the 30-day period immediately preceding
the review; or
--24,000 contracts if the Exchange determines, at the time of a review
conducted pursuant to subparagraph (ii) of this paragraph (c), that any
single stock in the group accounted, on average, for 20% or more of the
numerical index value or that any five stocks in the group together
accounted, on average, for more than 50% of the numerical index value,
but that no single stock in the group accounted, on average, for 30% or
more of the numerical index value, during the 30-day period immediately
preceding the review; or
--31,500 contracts if the Exchange determines that the conditions
specified above which would require the establishment of a lower limit
have not occurred.
--Positions in Short Terms Option Series and Quarterly Options Series
shall be aggregated with positions in options contracts on the same
index.
(ii)-(iii) No change.
(d) No change.
* * * * *
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 IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its rules to accommodate the listing
of options series that would expire at the close of business on the
last business day of a calendar quarter (``Quarterly Options
Series'').\6\ Quarterly Options Series could be opened on any approved
options class \7\ on a business day (``Quarterly Options Opening
Date'') and would expire at the close of business on the last business
day of a calendar quarter (``Quarterly Options Expiration Date''). The
Exchange would list series that expire at the end of the next four
consecutive calendar quarters, as well as the fourth quarter of the
next calendar year. For example, if the Exchange were trading Quarterly
Options Series in the month of May 2006, it would list series that
expire at the end of the second, third, and fourth quarters of 2006, as
well as the first and fourth quarters of 2007. Following the second
quarter 2006 expiration, the Exchange would add series that expire at
the end of the second quarter of 2007.
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\6\ In 1993, the Exchange was granted SEC approval to list and
trade broad-based index options that expire at the end of each
quarter. See Securities Exchange Act Release No. 31844 (February 9,
1993); 58 FR 8796 (February 17, 1993). The Exchange listed and
traded these options on the Major Market Index (XMI), Institutional
Index (XII) and S&P Midcap Index (MID). These quarterly-style
options proved to be of limited use to investors and did not trade
particularly well, largely because they were A.M.-settled options.
\7\ Quarterly Options Series may be opened in options on indexes
or options on Exchange Traded Fund (``ETFs'') that satisfy the
applicable listing criteria under Amex rules.
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Quarterly Options Series listed on currently approved options
classes would be P.M.-settled and, in all other respects, would settle
in the same manner as do the monthly expiration series in the same
options class.
The proposed rule change would allow the Exchange to open up to
five currently listed options classes that are either index options or
options on ETFs. The strike price for each series would be fixed at a
price per share, with at least two strike prices above and two strike
prices below the approximate value of the underlying security at about
the time that a Quarterly Options Series is opened for trading on the
Exchange. The Exchange may list strike prices for a Quarterly Options
Series that are within $5 from the closing price of the underlying
security on the preceding trading day. The proposal would permit the
Exchange to open for trading additional Quarterly Options Series of the
same class when the Exchange deems it necessary to maintain an orderly
market, to meet customer demand, or when the current market price of
the underlying security moves substantially from the exercise prices of
those Quarterly Options Series that already have been opened for
trading on the Exchange. In addition, the exercise price of each
Quarterly Options Series on an underlying index would be required to be
reasonably related to the current index value of the index at or about
the time such series of options were first opened for trading on the
Exchange. The term ``reasonably related to the current index value of
the underlying index'' means that the exercise price is within thirty
percent of the current index value. The Exchange would also be
permitted to open for trading additional Quarterly Options Series on an
underlying index that are more than thirty percent away from the
current index value, provided that demonstrated customer interest
exists for such series, as expressed by institutional, corporate, or
individual customers or their brokers. Market-Makers trading for their
own account shall not be considered when determining customer interest
under this provision.
Because monthly options series expire on the third Friday of their
expiration month, a Quarterly Options Series, which would expire on the
last business day of the quarter, could never expire in the same week
in which a monthly options series in the same class expires. The same,
however, is not the case for Short Term Option Series. Quarterly
Options Series and Short Term Option Series on the same options class
could potentially expire concurrently under
[[Page 41286]]
the proposal.\8\ Therefore, to avoid any confusion in the marketplace,
the proposal stipulates that the Exchange may not list a Short Term
Option Series that expires at the end of the day on the same day as a
Quarterly Options Series in the same class expires. In other words, the
proposed rules would not permit the Exchange to list a P.M.-settled
Short Term Option Series on an ETF or an index that would expire on a
Friday that is the last business day of a calendar quarter if a
Quarterly Options Series on that ETF or index were scheduled to expire
on that day.
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\8\ The Exchange currently does not have any Short Term Option
Series listed for trading.
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However, the proposed rules would permit the Exchange to list as
A.M.-settled Short Term Option Series and a P.M.-settled Quarterly
Options Series in the same options class that both expire on the same
day (i.e., on a Friday that is the last business day of the calendar
quarter). The Exchange believes that the concurrent listing of an A.M.-
settled Short Term Option Series and a P.M.-settled Quarterly Options
Series on the same underlying ETF or index that expire on the same day
would not tend to cause the same confusion as would P.M.-settled short
term and quarterly series in the same options class, and would provide
investors with an additional hedging mechanism.
Finally, the interval between strike prices on Quarterly Options
Series would be the same as the interval for strike prices for series
in the same options class that expires in accordance with the normal
monthly expiration cycles.
The Exchange believes that Quarterly Options Series would provide
investors with a flexible and valuable tool to manage risk exposure,
minimize capital outlays, and be more responsive to the timing of
events affecting the securities that underlie option contracts. At the
same time, the Exchange is cognizant of the need to be cautious in
introducing a product that can increase the number of outstanding
strike prices. For that reason, the Exchange intends to employ a
limited pilot program (``Pilot Program'') for Quarterly Options Series.
Under the terms of the Pilot Program, the Exchange could select up to
five option classes on which Quarterly Options Series may be opened on
any Quarterly Options Opening Date. The Exchange would also be allowed
to list those Quarterly Options Series on any options class that is
selected by another securities exchange with a similar Pilot Program
under its rules. The Exchange believes that limiting the number of
options classes in which Quarterly Options Series may be opened would
help to ensure that the addition of the new series through this Pilot
Program will have only a negligible impact on the Exchange's and the
Option Price Reporting Authority's (``OPRA'') quoting capacity. Also,
limiting the term of the Pilot Program to a period of approximately one
year will allow the Exchange and the Commission to determine whether
the program should be extended, expanded, and/or made permanent.
If the Exchange were to propose an extension or an expansion of the
program, or were the Exchange to propose to make the Pilot Program
permanent, the Exchange would submit, along with any filing proposing
such amendments to the Pilot Program, a Pilot Program report
(``Report'') that will provide an analysis of the Pilot Program
covering the entire period during which the Pilot Program was in
effect. The Report would include, at a minimum: (1) Data and written
analysis on the open interest and trading volume in the classes for
which Quarterly Option Series were opened; (2) an assessment of the
appropriateness of the options classes selected for the Pilot Program;
(3) an assessment of the impact of the Pilot Program on the capacity of
the Amex, OPRA, and on market data vendors (to the extent data from
market data vendors is available); (4) any capacity problems or other
problems that arose during the operation of the Pilot Program and how
the Amex addressed such problems; (5) any complaints that the Amex
received during the operation of the Pilot Program and how the Amex
addressed them; and (6) any additional information that would assist in
assessing the operation of the Pilot Program. The Report must be
submitted to the Commission at least sixty days prior to the expiration
date of the Pilot Program.
Alternatively, at the end of the Pilot Program, if the Exchange
determines not to propose an extension or an expansion of the Pilot
Program, or if the Commission determines not to extend or expand the
Pilot Program, the Exchange would no longer list any additional
Quarterly Options Series and would limit all existing open interest in
Quarterly Options Series to closing transactions only.
Finally, the Exchange represents that it has the necessary systems
capacity to support new options series that will result from the
introduction of Quarterly Options Series.
2. Statutory Basis
The Exchange believes that the introduction of Quarterly Options
Series will satisfy institutional demand for such options and provide
additional flexibility and additional risk management tools to
investors. For these reasons, the Exchange believes that 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 promote just and equitable
principles of trade, to prevent fraudulent and manipulative acts and
practices, 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
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A) of the Act \11\ and subparagraph (f)(6) of Rule 19b-4
thereunder.\12\ Because the foregoing proposed rule change (i) Does not
significantly affect the protection of investors or the public
interest; (ii) does not impose any significant burden on competition;
and (iii) does not become operative for 30 days from the date on which
it was filed, or such shorter time as the Commission may designate, if
consistent with the protection of investors and the public interest,
the proposed rule change has become effective pursuant to Section
19(b)(3)(A) of the Act and Rule 19b-4(f)(6)(iii) thereunder.\13\
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6).
\13\ Rule 19b-4(f)(6)(iii) requires the Exchange to give written
notice to the Commission of its intent to file the proposed rule
change five business days prior to filing. The Commission has
determined to waive the five-day pre-filing requirement for this
proposal.
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the
[[Page 41287]]
date of filing. However, Rule 19b-4(f)(6)(iii) permits the Commission
to waive the operative delay if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the operative delay to permit the Pilot Program
extension to become effective prior to the 30th day after filing.
The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
The Commission notes that the proposal is substantially identical to
the ISE's Quarterly Option Series Pilot Program, previously published
for comment and approved by the Commission,\14\ and thus the Exchange's
proposal raises no new issues of regulatory concern. Moreover, waiving
the operative delay will allow the Exchange to immediately compete with
other exchanges that list and trade quarterly options under similar
programs, and consequently will benefit the public. Therefore, the
Commission has determined to waive the 30-day delay and allow the
proposed rule change to become operative immediately.\15\
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\14\ See supra note 5.
\15\ For purposes only of waiving the operative delay of this
proposal, the Commission notes that it has considered the proposed
rule's impact on efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
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-2006-67 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-Amex-2006-67. 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 Commissions 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
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 Number SR-
Amex-2006-67 and should be submitted on or before August 10, 2006.
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\16\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-11489 Filed 7-19-06; 8:45 am]
BILLING CODE 8010-01-P