[Federal Register Volume 59, Number 34 (Friday, February 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3700]
[[Page Unknown]]
[Federal Register: February 18, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33609; File No. SR-Amex-94-01]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the American Stock Exchange, Inc. Relating to Expiring Equity
Option Exercise Advices
February 9, 1994.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on January
11, 1994, the American Stock Exchange, Inc. (``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 prepared by the Amex. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to amend Rule 980 relating to the exercise of
expiring equity option contracts to require members and member
organizations to advise the Exchange of their final exercise decisions
for such options prior to the Exchange's exercise cut-off time. The
text of the proposed rule change is available at the Office of the
Secretary, the Amex, and at the Commission.
II. Self-Regulatory Organization's Statement of the Purpose of, and
the 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 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 the
Statutory Basis for, the Proposed Rule Change
Exchange Rule 980 specifies that the cut-off time for all members
and member organizations to exercise outstanding expiring equity
options contracts is 5:30 p.m. Eastern Standard Time (``EST'')
(``exercise cut-off time'') on the business day immediately prior to
the expiration date of such options. This is the latest time that a
member organization can accept instructions to exercise an expiring
options contract from a customer or a non-clearing member. The rule
also provides that 5:30 p.m. EST is the latest time that a member
organization can prepare an internal notice with instructions to either
not exercise an options position which would otherwise automatically be
exercised, or exercise an options position that would not be
automatically exercised pursuant to Options Clearing Corporation
(``OCC'') Rule 805.\1\
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\1\The automatic exercise system (``Exercise by Exception'')
allows OCC clearing members to exercise in-the-money options at
expiration which are at or above a predetermined threshold without
submitting input entries into OCC.
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While all options exchanges have a uniform 5:30 p.m. EST exercise
cut-off time on the last business day prior to the expiration date of
the options,\2\ OCC rules permit exchanges to accept exercise
instructions for expiring options from clearing firms until 12 a.m. EST
on the options' expiration date. The Exchange believes that this
additional time within which to receive instructions was provided to
accommodate: (1) Corrections or errors made in good faith; (2) trade
reconciliations; and (3) certain exceptional circumstances that either
restrict a customer's ability to inform his brokerage firm or impact a
firm's ability to receive final exercise decisions before the exercise
cut-off time.
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\2\See, e.g., Philadelphia Stock Exchange, Inc. Rule 1042.
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According to the Exchange, however, there have been some situations
where members and member firms have either delayed making exercise
decisions until after the exercise cut-off time in anticipation of the
release of significant news concerning a particular underlying company,
or having made decisions prior to the exercise cut-off time, changed
these decisions based upon such news. In one notable situation, certain
firms that anticipated the release of material news regarding a
particular company allegedly delayed making their exercise decisions
until after the exercise cut-off time, causing firms who claimed to
have been disadvantaged by such conduct to commence a series of highly
publicized arbitration proceedings and lawsuits.
To enable the Exchange to determine whether options holders have
made their final decisions no later than the prescribed exercise cut-
off time and not on the basis of market developments occurring after
the exercise cut-off time, the Exchange proposes that Rule 980 be
amended to provide for an exercise advice procedure. Specifically, the
procedure would require that any determination to exercise or not
exercise an expiring equity option that does not meet the parameters
for OCC's Exercise by Exception system must be indicated to the
Exchange either by submitting a ``Contrary Exercise Advice Form'' to a
designated place on the Exchange Floor or by transmitting the contrary
exercise advice electronically to OCC prior to the 5:30 p.m. EST
exercise cut-off time. The proposed amendment does not affect
procedures for expiring options that meet the parameters of OCC's
Exercise by Exception system and which are to be exercised or not
exercised in reliance on that system.
The Exchange represents that the proposed rule change reflects a
coordinated effort among all the options exchanges and the OCC. The
Exchange states that the proposed exercise advice procedure has been
reviewed and endorsed by the Intermarket Surveillance Group
(``ISG'')\3\ which, upon the Commission's approval of the applicable
rule changes, will issue a joint exchange circular to explain the
operation of the new provisions to members and member organizations. It
is anticipated that each of the options exchanges will be submitting
(or have submitted) rule proposals requiring the submission of advices
for expiring equity options in the same manner.\4\
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\3\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.
See Intermarket Surveillance Group Agreement, July 14, 1983. The
members of the ISG are: the Amex; the Chicago Board Options
Exchange, Inc.; the Chicago Stock Exchange, Inc.; the Cincinnati
Stock Exchange, Inc.; the National Association of Securities
Dealers, Inc.; the New York Stock Exchange, Inc.; the Pacific Stock
Exchange, Inc.; and the Philadelphia Stock Exchange, Inc.
(``Phlx'').
\4\See, e.g., File No. SR-Phlx-93-37.
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The Exchange believes that the proposed rule change is consistent
with section 6(b) of the Act, in general, and furthers the objectives
of section 6(b)(5) 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.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Amex does not believe that the proposed rule change will impose
any inappropriate burden on competition.
(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 reason for so finding or (ii) as to
which the self-regulatory organization 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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.
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, 450 Fifth Street, NW.,
Washington, DC. Copies of such filing will also be available for
inspection and copying at the principal office of the Amex. All
submissions should refer to file No. SR-Amex-94-01 and should be
submitted by March 11, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\17 CFR 200.30-(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-3700 Filed 2-17-94; 8:45 am]
BILLING CODE 8010-01-M