[Federal Register Volume 73, Number 190 (Tuesday, September 30, 2008)]
[Notices]
[Pages 56869-56872]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-22962]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58625; File No. SR-Amex-2008-51]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing of Proposed Rule Change as Modified by Amendment Nos.
1 and 2 Thereto Related to Amendments to Rule 991 (Communications to
Customers) and Rule 921 (Opening of Accounts)
September 23, 2008.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the
[[Page 56870]]
``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby
given that on June 25, 2008, the American Stock Exchange LLC (the
``Amex'' or the ``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 prepared by the
Exchange. Amex filed Amendment Nos. 1 and 2 to the proposed rule change
on August 22, 2008, and September 5, 2008, respectively.\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 Nos. 1 and 2 modified certain definitions in and
made non-substantive corrections to proposed Rule 991.
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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 Amex Rule 991 (``Communications to
Customers'') to delete references to certain provisions of the
Securities Act of 1933 (the ``Securities Act'') that no longer apply to
standardized options \4\ issued by registered clearing agencies and
update and reorganize the rule for greater clarity. In addition, the
proposal seeks to amend Amex Rule 921 (``Opening of Account'') in
connection with the information member organizations must obtain from
customers. The text of the proposed rule change is available at the
Exchange, the Commission's Public Reference Room and http://
www.amex.com.
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\4\ ``Standardized Option'' is defined in Rule 19b-1 under the
Exchange Act to mean options contracts trading on a registered
national securities exchange, an automated quotation system of a
registered national securities association, or a foreign exchange
which relate to options classes the terms of which are limited to
specific expiration dates and exercise prices, or such other
securities as the Commission man, by order, designate.
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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 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
a. Rule 991 (Communications to Customers)
On December 23, 2002, the Commission published final rules that
exempt standardized options issued by registered clearing agencies and
traded on a registered national securities exchange or registered
national securities association from the Securities Act (other than the
anti-fraud provisions) and the registration requirements of the
Exchange Act.\5\ Since the Securities Act and the rules thereunder
(other than the anti-fraud provisions) are no longer applicable to such
standardized options, the Amex proposes to remove elements of the
Securities Act that are embedded in Amex Rule 991. In particular, the
Exchange proposes to remove all references to a ``prospectus'' from
Rule 991. Prospectuses are no longer required for standardized options,
and The Options Clearing Corporation (``OCC'') has, in fact, ceased
publication of a prospectus.\6\ In addition, the proposed amendments
would update and reorganize Rule 991. For uniformity, the Financial
Industry Regulatory Authority, Inc. and the Chicago Board Options
Exchange, Inc. have filed proposed rule amendments with the Commission
to implement similar rule language and format changes.\7\
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\5\ See ``Exemption for Standardized Options From Provisions of
the Securities Act of 1933 and From the Registration Requirements of
the Securities Exchange Act of 1934; Final Rule,'' Securities Act
Release No. 8171 and Securities Exchange Act Release No. 47082 (Dec.
23, 2002), 68 FR 188 (Jan. 2, 2003).
\6\ The options disclosure document (the ``ODD'') prepared in
accordance with Rule 9b-1 under the Exchange Act is not deemed to be
a prospectus. 17 CFR Sec. 230.135b. See, e.g., Securities Act
Release No. 8049 (Dec. 21, 2001), 67 FR 228 (Jan. 2, 2002).
\7\ See Exchange Act Release No. 57720 (Apr. 25, 2008) 73 FR
24332 (May 2, 2008) (SR-FINRA-2008-13) and Exchange Act Release No.
58138 (Jul. 10, 2008), 73 FR 20886 (Jul. 16, 2008) (SR-CBOE-2007-
30).
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i. Deletion of Certain Provisions of Rule 991
Amex Rule 991 contains a number of references to a prospectus and
other Securities Act requirements. The Exchange proposes to delete the
following from Rule 991:
Rule 991(a)(iv), which references the Securities Act
prospectus definition;
Rule 991(d), which incorporates Securities Act principles
in that it prohibits written material concerning options (i.e., an
offering) from being furnished to any person who has not previously or
contemporaneously received the current ODD;
Rule 991(e)(ii), which defines the term ``Educational
Material;'' \8\
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\8\ This paragraph essentially incorporates language of Rule
134a under the Securities Act. While this amendment would eliminate
the separate educational material category, as discussed below, the
Exchange also proposes to revise the definition of Sales Literature
to include educational material.
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Commentary.02A to Rule 991, which outlines what is
permitted in an ``Advertisement;'' \9\ and
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\9\ This paragraph essentially incorporates language of Rule 134
under the Securities Act.
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Commentary.03 to Rule 991, which concerns educational
material.\10\
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\10\ See note 7, supra.
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ii. Re-designation of Rule 991(a) to Proposed Rule 991(d) and Related
Amendments
Amex Rule 991(a) currently provides an outline of the ``General
Rule'' for options communications. The Exchange proposes to re-
designate paragraph (a) as paragraph (d), and to incorporate
limitations on the use of options communications contained in current
Commentary.01 to Rule 991 into proposed Rule 991(d). In addition,
proposed Rule 991(d)(iii) would amend Rule 991(a)(iii) by clarifying
the types of cautionary statements and caveats that are prohibited. As
previously noted, the Amex proposed to delete Rule 991(a)(iv).
iii. Proposed Amendments to Rule 991(b)
Amex proposes to amend Rule 991(b) to include the types of
communications proposed to be added to the definition of ``Options
Communications'' in proposed Rule 991(a). Proposed Rule 991(b)(ii) and
(b)(iii) would also amend the current requirement to obtain advanced
approval by a Registered Options Principal (``ROP'') for most options
communications by exempting certain options communications, defined as
``Correspondence'' and ``Institutional Sales Material.'' Specifically,
proposed Rule 991(b)(ii) would exempt Correspondence from the pre-
approval requirement unless the Correspondence is distributed to 25 or
more existing retail customers within any 30 calendar day period, and
make any financial or investment recommendation or otherwise promotes a
product or service of the member. All correspondence would be subject
to the supervision and review requirements of Rule 922. Proposed Rule
991(b)(iii) would exempt Institutional Sales Material from the pre-
approval requirement if the material is
[[Page 56871]]
distributed to ``qualified investors'' as defined in Section 3(a)(54)
of the Exchange Act.\11\
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\11\ See 15 U.S.C. Sec. 78c(a)(54).
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Pre-approval by a ROP would, however, be required with respect to
independently prepared reprints. In addition, proposed Rule 991(b)(iv)
would require that firms retain options communications in accordance
with the recordkeeping requirements of Rule 17a-4 under the Exchange
Act.\12\ The proposed rule would also require that firms retain other
related documents in the form and for the time periods required for
options communications by Rule 17a-4.
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\12\ 17 CFR Sec. 240.17a-4. More specifically, Rule 17a-4(b)(4)
requires that a broker-dealer retain ``originals of all
communications received and copies of all communications sent * * *
including all communications which are subject to rules of a self-
regulatory organization of which the member, broker or dealer is a
member regarding communications with the public.''
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iv. Proposed Amendments to Rule 991(c)
Amex Rule 991(c) currently requires members and member
organizations to obtain approval for every advertisement and all
educational material from the Exchange. This requirement applies
regardless of whether the options communications are used before or
after delivery of a current ODD. The Exchange proposes to amend this
provision to require approval by the Exchange only with respect to
communications used prior to the delivery of a current ODD. The
Exchange's pre-approval requirement for options communications used
subsequent to the delivery of the ODD would be eliminated because the
ODD should help alert the customer to the characteristics and risks
associated with trading in options and because Rule 991(b) requires the
ROP of a member organization to pre-approve options communications,
subject to exceptions for ``Correspondence'' and ``Institutional Sales
Material.'' Rule 991(c) would also be amended to include the types of
communications added to the definition of ``Options Communications'' in
proposed Rule 991(a).
v. Re-designation of Rule 991(e) as Proposed Rule 991(a) and Related
Amendments
Rule 991(e) currently defines the terms used in Rule 991. The Amex
proposes to re-designate paragraph (e) as paragraph (a). The Exchange
also proposes to amend the definition of ``Options Communications'' in
proposed Rule 991(a) to expand the types of communications governed by
Rule 991 to include independently prepared reprints and other
communications between a member or member organization and a customer.
The Exchange proposes to amend the definitions of ``Advertisement'' and
``Sales Literature''; and define ``Correspondence,'' ``Institutional
Sales Material,'' ``Public Appearances'' and ``Independently Prepared
Reprints'' to clarify the rule. In addition, as previously noted, Amex
proposes to delete the definition of ``Educational Material.''
vi. Proposed Rule 991(e)
Proposed Rule 991(e) would set forth (i) standards for options
communications that are not preceded or accompanied by an ODD and (ii)
standards for options communications used prior to delivery of an ODD.
These requirements generally clarify and restate the requirements
contained in current Commentary .02 to Rule 991.
vii. Related Commentaries
Proposed Rule 991(e)(i)(B) would require options communications to
contain contact information for obtaining a copy of the ODD. Proposed
Commentary .01 to Rule 991 would include the provisions found in
current Commentary .02A to Rule 991 regarding how this requirement may
be satisfied. In addition, as noted above, the provisions of current
Commentary .01 to Rule 991 regarding limitations on the use of options
communications would be incorporated into proposed Rule 991(d).
As previously noted, the provisions of current Commentary .02 to
Rule 991 that outline what is permitted in an advertisement would be
deleted, and the provisions relating to standards for options
communications used prior to delivery of the ODD would be incorporated
into proposed Rule 991(e)(ii).
Current Commentary .03 to Rule 991 regarding educational materials
also would be deleted, as noted above.
Current Commentary .04 to Rule 991 sets forth the standards
applicable to Sales Literature. Current Commentary .04A sets forth the
requirement that Sales Literature shall state that supporting
documentation for any claims, comparisons, recommendations, statistics
or other technical data will be supplied upon request. The Exchange
proposes to re-designate current Commentary .04A as proposed Rule
991(d)(vii).
Current Commentary .04B to Rule 991 relates to standards for Sales
Literature that contain projected performance figures. Current
Commentary .04C relates to standards for Sales Literature that contains
historical performance figures. The Exchange proposes to re-designate
current Commentary .04B as proposed Commentary .02 to Rule 991 and
current Commentary .04C as proposed Commentary .03 to Rule 991.
Rule 991 currently requires that a copy of the ODD precede or
accompany options related sales literature. The Exchange proposes to
modify the ODD delivery requirement applicable to sales literature to
provide that an ODD must precede or accompany any communication that
conveys past or projected performance figures involving options or
constitutes a recommendation pertaining to options.\13\
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\13\ See proposed Rule 991(e)(i)(C) and proposed Commentaries
.02 and .03 to Rule 991.
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A notice providing the name and address of a person from whom the
ODD may be obtained would be required in sales literature that does not
contain a recommendation of past or projected performance figures.
Because Amex is proposing to merge educational material into the sales
literature category,\14\ this amendment would continue to allow
communications that are educational in nature to be disseminated
without being preceded or accompanied by a copy of the ODD.
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\14\ See proposed Rule 991(a)(ii).
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The Exchange proposes to re-designate current Commentary .04D to
Rule 991 as proposed Commentary .04 to Rule 991. The Exchange proposes
to delete current Commentaries .04E, F and G to Rule 991. The Exchange
believes Commentaries .04E and F are unnecessary because worksheets are
included in the definition of Sales Literature. In addition, the
Exchange believes Commentary .04G is no longer necessary because the
Exchange is proposing to clarify the recordkeeping requirements
applicable to options communications in proposed Rule 991(b)(iv).
b. Rule 921 (Opening of Accounts)
The proposal would also amend Rule 921 in connection with the
opening of options accounts. Currently, Commentary .01 to Rule 921
requires a member organization to obtain certain information about its
options customers in order to comply with the due diligence requirement
in opening a new account under Rule 921(c). In order to conform to the
requirements of Rule 17a-3(a)(17) under the Exchange Act, the proposed
amendments would require that in addition to all the essential
information to determine suitability, a member organization must
[[Page 56872]]
also obtain the customer's name, Tax Identification Number, address,
and telephone number.
2. Statutory Basis
The Exchange believes that the proposed rule changes are consistent
with Section 6 of the Act,\15\ in general, and further the objectives
of Section 6(b)(5),\16\ in particular, in that they are 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, by providing the investing
public with options communications rules that are designed to provide
appropriate safeguards and greater clarity by promoting harmonization
between the Amex and other SRO options communications rules and
conforming Rule 921 to the requirements of Rule 17a-3(a)(17) under the
Exchange Act. The Exchange also believes that the proposal is
consistent with Section 6(b)(5) of the Exchange Act because the
proposed amendments to Amex Rule 991 reflect amendments to the
Securities Act that generally exempt standardized options, and will
update and reorganize the Rule.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Exchange 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
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 Number SR-Amex-2008-51 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-Amex-2008-51. 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 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-2008-51 and should be
submitted on or before October 21, 2008.
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-22962 Filed 9-29-08; 8:45 am]
BILLING CODE 8010-01-P