[Federal Register: February 15, 2006 (Volume 71, Number 31)]
[Notices]
[Page 8008-8010]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15fe06-137]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53244; File No. SR-Amex-2006-003]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing and Order Granting Accelerated Approval of a Proposed
Rule Change and Amendment No. 1 Thereto To Adjust the Close of Normal
Trading Hours in Equity Options and Narrow-Based Index Options
February 7, 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 January 5, 2006, 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 January 31,
2006, 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 and to
approve the amended proposal on an accelerated basis.
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\1\ 15 U.S.C 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, the Exchange requested that the
implementation date for the new closing time be changed from
February 1, 2006, as was originally proposed, to February 13, 2006.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Amex proposes to amend Exchange Rules 1, 918--ANTE, 936C--ANTE
and 903C to adjust the close of normal trading hours in equity options
and options based on stock index industry groups (``narrow-based index
options'') from 4:02 p.m. eastern time (``e.t.'') to 4 p.m. e.t. The
Exchange proposes that these changes be implemented on February 13,
2006.\4\ The text of the proposed rule change, as amended, is available
on the Amex's Web site at (http://www.amex.com), at the Amex's Office
of the Secretary, and at the Commission's Public Reference Room.
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\4\ Id.
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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, as
amended, and discussed any comments it received on the proposed rule
change, as amended. 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
According to the Exchange, the purpose of the proposed rule change,
as amended, is to amend the Amex's rules to conform to an industry-wide
consensus to change the close of trading hours for equity options and
narrow-based index options from 4:02 p.m. e.t. to 4 p.m. e.t. After the
change, the time of the close of trading in these Amex options will
correspond to the normal time set for the close of trading on the
primary exchanges listing the stocks underlying the Amex options. The
primary exchanges generally close at 4 p.m. e.t.
The Exchange notes that, on May 14, 1997, the Amex received
approval to move the close of equity options trading from 4:10 p.m. to
4:02 p.m.\5\ The change was prompted by improvements in the
dissemination of closing prices in the underlying securities, the
limited ability of public customers to reach as quickly as professional
traders news announcements in the last ten minutes of trading, and the
difficulties experienced by options specialists and
[[Page 8009]]
registered options traders to make orderly markets without the ability
to hedge or otherwise offset market risk with transactions in the
underlying stock.
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\5\ See Securities Exchange Act Release No. 38640 (May 14,
1997), 62 FR 28081 (May 22, 1997). According to the Exchange, from
1978 through 1997, equity options were traded until 4:10 p.m. to
allow investors to trade options based upon the final closing prices
of the underlying securities.
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The rationale to continue trading options for a period of time
after the close of trading on the primary markets for the underlying
securities was that the extended time period allowed options traders to
respond to later reports of closing prices over the consolidated tape.
If the price of a late reported trade on an underlying security was
substantially different from the previous reported price, the extended
trading session would give options traders the opportunity to bring
options quotes in line with the closing price of the underlying
security.
However, the Exchange submits that because of technological
advances in the processing and reporting of transactions, this two
minute time period is no longer necessary to trade options after the
underlying securities close trading. Additionally, price aberrations
can occur if an option is traded when the underlying stock is no longer
trading, since there is a close relationship in the price of the
underlying stock and the overlying options. As a result, it is
difficult for the market to price options accurately when the
underlying security is not trading.
The Exchange also proposes to change the closing time for narrow-
based index options, as defined in Amex Rule 900C, because such indexes
are subject to the same pricing problems as options on individual
stocks. A significant news announcement on one component of a narrow-
based index could have a significant effect on that index. The Exchange
is not at this time proposing to change the closing time of 4:15 p.m.
for options on a broad-based index, as defined in Amex Rule 900C,
because it is unlikely that a significant news announcement by the
issuer on one component stock of a broad-based index is likely to have
a significant effect on the price of that broad-based index.
The Exchange notes that all options exchanges have determined to
make similar uniform changes to their rules, to modify the closing time
in equity options and narrow-based index options from 4:02 p.m. e.t. to
4 p.m. e.t. on a coordinated basis. These industry-wide changes are
proposed to be effective on February 13, 2006.\6\
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\6\ See Amendment No. 1, supra note 3.
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2. Statutory Basis
The Exchange believes that the proposed rule change, as amended, is
consistent with section 6(b) of the Act \7\ in general, and furthers
the objectives of section 6(b)(5) of the Act \8\ in particular, because
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, to remove impediments to and perfect the
mechanisms of a free and open market and a national market system, and,
in general, to protect investors and the public interest.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5). The statutory basis with which the
Exchange believes that the proposed rule change is consistent has
been corrected from Section 6(b)(4) of the Act to Section 6(b)(5) of
the Act. Telephone conversation between Nyieri Nazarian, Assistant
General Counsel, Amex, and Johnna B. Dumler, Attorney, Division of
Market Regulation, Commission, on January 11, 2006.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Amex does not believe that the proposed rule change, as
amended, 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, as amended.
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 at (http://www.sec.gov/rules/sro.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-Amex-2006-003 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-2006-003. 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. 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-2006-003 and should be submitted on or before March
8, 2006.
IV. Commission's Findings and Order Granting Accelerated Approval of
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.\9\ In particular, the Commission finds that the
proposal is consistent with section 6(b)(5) of the Act,\10\ 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 foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, 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\ 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).
\10\ 15 U.S.C. 78f(b)(5).
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The Commission notes that the Exchange believes that the need to
continue trading options for some period of time after the close of
trading in the underlying securities markets is no longer necessary
because improvements in the processing and reporting of transactions
have obviated
[[Page 8010]]
the need to respond to late reports of closing prices over the
consolidated tape in order to bring options quotes in line with the
closing price of the underlying security. Moreover, the Exchange
believes that allowing two additional minutes of options trading after
trading on the underlying primary exchanges has ended may actually
result in pricing aberrations. Because the two minute delay between the
close of normal trading in equity options and narrow-based index
options and the corresponding underlying equity markets is no longer
necessary, the Commission believes that eliminating the delay is in the
public interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets. Therefore, the Commission
finds that it is consistent with the Act for the Exchange to amend its
rules to change the close of normal trading hours in equity and narrow-
based index options from 4:02 p.m. (e.t.) to 4 p.m. (e.t).
The Commission finds good cause for approving this proposed rule
change, as amended, before the thirtieth day after publication of
notice thereof in the Federal Register. The Commission notes that all
of the options exchanges have filed substantially similar proposals and
seek to implement these industry-wide changes simultaneously on
February 13, 2006.\11\ For example, on December 20, 2005, the
Commission published for comment in the Federal Register a similar
proposed rule change submitted by the Chicago Board Options Exchange,
Incorporated (``CBOE'').\12\ The Commission received no comments on the
CBOE's proposed rule change. The Commission believes that the Amex's
proposed rule change, as amended, raises no new issues or novel
regulatory questions. Accordingly, the Commission finds good cause,
pursuant to section 19(b)(2) of the Act,\13\ for approving the proposed
rule change, as amended, prior to the thirtieth day after publication
in the Federal Register. In addition, because the existence of
dissimilar closing times among the options exchanges could lead to
confusion for options investors and broker-dealers, the Commission
finds good cause to accelerate approval of the proposed rule change, as
amended, to enable the six options exchanges to simultaneously amend
their hours of trading on an industry-wide basis in a uniform
manner.\14\
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\11\ See note 14, infra.
\12\ See Securities Exchange Act Release No. 52949 (December 13,
2005), 70 FR 75513 (December 20, 2005) (SR-CBOE-2005-104). See also
Securities Exchange Act Release No. 53055 (January 5, 2006), 71 FR
2279 (January 13, 2006) (SR-ISE-2005-58).
\13\ 15 U.S.C. 78s(b)(2).
\14\ The Commission notes that it is simultaneously approving
similar proposals from the other options exchanges. See Securities
Exchange Act Release Nos. 53245 (SR-BSE-2006-02); 53446 (SR-CBOE-
2005-104); 53248 (SR-ISE-2005-58); 53249 (SR-PCX-2005-138); and
53247 (SR-Phlx-2006-01) (February 7, 2006).
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V. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\15\ that the proposed rule change and Amendment No. 1 thereto (SR-
Amex-2006-003) be, and hereby are, approved on an accelerated basis.
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\15\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-2109 Filed 2-14-06; 8:45 am]
BILLING CODE 8010-01-P