[Federal Register Volume 59, Number 74 (Monday, April 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9204]
[[Page Unknown]]
[Federal Register: April 18, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33894; International Series Release No. 649; File No.
SR-AMEX-93-32]
Self-Regulatory Organizations; Order Approving and Notice of
Filing and Order Granting Accelerated Approval to Amendment Nos. 1, 2,
and 3 to Proposed Rule Change by the American Stock Exchange, Inc.
Relating to a Proposal To List for Trading Options and Long-Term
Options on the Amex Hong Kong Option Index
April 11, 1994.
I. Introduction and Background
On October 27, 1993, the American Stock Exchange, Inc. (``Amex'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to list for trading options based
on the Hong Kong Option Index (``Hong Kong Option Index'' or
``Index'')--an index comprised of Hong Kong stocks traded on the Stock
Exchange of Hong Kong (``HKSE''). The Amex amended the proposal on
February 10, 1994, March 10, 1994, and April 8, 1994.\3\ Notice of the
proposal to approve Index options for listing and trading appeared in
the Federal Register on December 15, 1993 (``Notice'').\4\ No comments
were received on the proposed rule change set forth in the Notice. This
order approves the Exchange's proposal.
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\1\15 U.S.C. 78s(b)(1) (1982).
\2\17 CFR 240.19b-4 (1993).
\3\On February 10, 1994, the Amex amended its proposal to: (1)
change the name of the Index for standardized options from the
``Amex Hong Kong 30 Index'' to the Hong Kong Option Index''; (2)
establish an Index level in the range of 150 to 250; and (3) list
2\1/2\ point strike price intervals in the event the Index level is
below 200. (See letter from Howard A. Baker, Senior Vice President,
Derivative Securities, Amex to Howard L. Kramer, Associate Director,
Division of Market Regulation, SEC, dated February 10, 1994
(``Amendment No. 1''). On March 10, 1994, the Amex amended its
proposal to establish a Hong Kong Option Index level equal to 0.40
times the Amex Hong Kong 30 Index. See letter from Nathan Most,
Senior Vice President, New Products Development, Amex to Howard L.
Kramer, Associate Director, Division of Market Regulation, SEC,
dated March 10, 1994 (``Amendment No. 2''). On April 8, 1994, the
Amex amended its proposal to limit the use of its Auto-Ex system to
fifty contracts for market and marketable limit orders in options on
the Hong Kong Option Index. See letter from Claire P. McGrath,
Managing Director and Special Counsel, Derivative Securities, Amex
to Michael Walinskas, Branch Chief, Division of Market Regulation,
SEC, dated April 8, 1994 (``Amendment No. 3'').
\4\Securities Exchange Act Release No. 33308, (December 9,
1993), 58 FR 65607.
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II. Description of the Proposal
The Amex proposes to trade standardized index option contracts
based on the Hong Kong Option Index. The Amex also intends to list
long-term options on the full-value Index, or long-term options on a
reduced-value Index that will be computed at one-tenth of the value of
the Index. Recently, the Commission approved an Amex rule proposal to
list and trade warrants based on the Amex Hong Kong 30 Index,\5\ which
is based entirely on the market capitalization of thirty companies
traded on the HKSE. The Amex also proposes to amend Rule 904C(b) to
provide for a position limit of 25,000 contracts on the same side of
the market, provided no more than 15,000 of such contracts are in
series in the nearest expiration month.
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\5\Securities Exchange Act Release No. 33036 (October 8, 1993),
58 FR 53588. The Hong Kong Option Index will be identical to the
Amex Hong Kong 30 Index, except for its index level. See supra note
3.
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A. Description of the Hong Kong Option Index
The Hong Kong Option Index is identical to the Amex Hong Kong 30
Index,\6\ except that the Hong Kong Option Index has a different index
level, which was recently set at 0.40 times that of the Amex Hong Kong
30 Index.\7\ The Hong Kong Option Index is a capitalization-weighted
stock index designed and maintained by the Amex, and based on the
capitalizations of 30 stocks that are traded on the HKSE and whose
issuers have major business interests located in Hong Kong.\8\ The HKSE
is the primary trading market for 25 of the 30 Index component stocks,
while the primary trading market for all of the Index component stocks
is either Hong Kong or London.\9\
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\6\See Amendment No. 2, supra note 3. The Amex originally
established the Amex Hong Kong 30 Index in order to list and trade
warrants based on an index designed to represent a substantial
segment of the Hong Kong stock market. See Securities Exchange Act
Release No. 33036, supra note 5.
\7\See Amendment No. 2, supra note 3.
\8\The Amex has represented that it will not include in the
Index any component stock whose issuer is an entity formed and
governed under the laws of the People's Republic of China. See
letter from Nathan Most, Senior Vice President, New Products
Development, Amex to Richard Zack, Division of Market Regulation,
SEC, dated September 7, 1993.
\9\See Amendment No. 2, supra note 3.
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Since the Exchange created the Hong Kong 30 Index on June 25, 1993,
its level has risen from an initial 350 to a current range of 570-600.
In late December 1993 and early January 1994, the Amex Hong Kong 30
Index approached the 640 level, before falling to its present level
after a recent downturn in the Hong Kong market.\10\ The Amex has
stated its concern that introducing options at an index level and
volatility as high as that of the Amex Hong Kong 30 Index would create
very high premiums on near-term series, and that this concern justifies
a lower index level for options. Because the Amex Hong Kong 30 Index
serves as the basis for warrant issues, the Amex will continue to
calculate and disseminate the Amex Hong Kong 30 Index at its current
level, retaining the ticker symbol ``HKX'', since it serves as the
basis for the Index warrant issues.\11\ The Hong Kong Option Index,
which will serve as the basis for standardized options trading, will
use the ticker symbol ``HKO'' (or similar symbol) for both standardized
options trading and the underlying Index level.\12\ The Amex has set
the Index level at 0.40 times that of the Amex Hong Kong 30 Index.\13\
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\10\See Amendment No. 1, supra note 3.
\11\See Securities Exchange Act Release No. 33036, supra note 5;
Amendment No. 1, supra note 3.
\12\Amendment No. 1, supra note 3.
\13\See Amendment No. 2, supra note 3.
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As of February 28, 1994, the total capitalization of the Index was
US$222.214 billion.\14\ Market capitalizations of the individual stocks
in the Index ranged from high of US$25.101 billion to a low of US$519
million, with the median being US$5.140 billion. The total number of
shares outstanding for the stocks in the Index ranged from a high of
approximately 11.152 billion shares to a low of 561.392 million shares.
The price per share of the stocks in the Index, as of February 28,
1994, ranged from a high of US$14.76 to a low of US$0.76. In addition,
the average daily trading volume of the stocks in the Index, for the
six-month period ending February 28, 1994, ranged from a high of 16.826
million shares to a low of 1.449 million shares, with the median being
3.579 million shares. The highest weighted component stock in the Index
accounts for 11.30% of the Index. The five largest Index components
account for approximately 43.18% of the Index's value. The lowest
weighted component stock comprises 0.23% of the Index.\15\
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\14\Based on the February 28, 1994 exchange rate of HK$7.726 to
US$1.00.
\15\Amendment No. 2, supra note 3.
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B. Eligibility Standards for the Inclusion and Maintenance of Component
Stocks in the Index
The Amex states that it selects securities comprising the Index
based on their market weight, trading liquidity, and representativeness
of the business industries reflected on the HKSE. The Amex will require
that each Index component security be one issued by an entity with
major business interests in Hong Kong, listed for trading on the HKSE,
and have its primary trading market located in a country with which the
Amex has an effective surveillance sharing agreement. The Amex will
remove any Index component security that fails to meet any of the
foregoing listing and maintenance criteria within 30 days after such a
failure occurs.
To ensure that the Index does not consist of a number of thinly-
capitalized, low-priced securities with small public floats and low
trading volumes, the Amex has established additional listing and
maintenance criteria:
(1) All component securities selected for inclusion in the Index
must have, and thereafter maintain, an average daily capitalization, as
calculated by the total number of shares outstanding times the latest
price per share (in Hong Kong dollars), measured over the prior six
month period, of at least HK$3 billion (approximately US$380 million);
(2) All component securities selected for inclusion in the Index
must have, and thereafter maintain, a minimum free float value (total
freely tradeable outstanding shares less insider holdings), based on a
monthly average measured over the prior three month period, of US$238
million, although up to, but no more than, three Index component
securities may have a free float value of less than US$238 million but
in no event less than US$150 million, measured over the same period;
(3) All component securities selected for inclusion in the Index
must have, and thereafter maintain, an average daily closing price,
measured over the prior six month period, not lower than HK$2.50
(approximately US$0.32); and
(4) All component securities selected for inclusion in the Index
must have, and thereafter maintain, an average daily trading volume,
measured over the prior six month period, of more than one million
shares per day, although up to, but no more than, three component
securities may have an average daily trading volume, measured over the
prior six month period, of less than one million shares per day, but in
no event less than 500,000 shares per day.
Beginning in 1994, the Amex will review the Index's component
securities on a quarterly basis, conducted on the last business day in
January, April, July, and October. Any component security failing to
meet the above listing and maintenance criteria will be reviewed on the
second Friday of the second month following the quarterly review again
to determine compliance with the above criteria. Any Index component
stock failing this second review will be replaced by a ``qualified''
Index component stock effective upon the close of business on the
following Friday, provided, however, that if such Friday is not a
business day, the replacement will be effective at the close of
business on the first preceding business day. The Amex will notify its
membership immediately after it determines to replace an Index
component stock.\16\
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\16\Listing and maintenance standards for the Index are
identical to those originally established for the Amex Hong Kong 30
Index. See Securities Exchange Act Release No. 33036, supra note 5.
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The Index will be maintained by the Amex and will contain at least
thirty component stocks at all times. Pursuant to Exchange Rule
901C(b), the Amex may change the composition of the Index at any time
in order to reflect more accurately the composition and track the
movement of the Hong Kong stock market. Any replacement component stock
must also meet the component stock listing and maintenance standards as
discussed above. If the number of Index component securities in the
Index falls below thirty, no new option series based on the Index will
be listed for trading unless and until the Commission approves a rule
filing pursuant to section 19(b) of the Act reflecting such change.
At the close of the market on February 28, 1994, the average
closing price of the component stocks of the Index was HK$30.70
(US$3.97), with the highest price stock closing at HK$114.00 (US$14.76)
and the lowest price stock closing at HK$5.85 (US$0.76). On that same
date, of the thirty component stocks included in the Index, four closed
at prices lower than HK$7.50, or approximately US$1.00. As of February
28, 1994, the total market capitalization of the Index component stocks
was US$222.214 billion.\17\
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\17\Based on the February 28, 1994 exchange rate of HK$7.726 to
US$1.00.
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C. Calculation and Settlement of Index
The Hong Kong Option Index is a capitalization-weighted index the
value of which is calculated my multiplying the price of each component
security (in Hong Kong dollars) by the number of shares outstanding of
each such security, adding the sums and dividing by the current Index
divisor. The Amex has set the Index level at 202.628 at the close of
the market on March 10, 1994. The Amex calculated the Index level by
taking the Amex Hong Kong 30 Index, which was at a level of 506.57 on
March 10, 1994, and multiplying it by 0.40.\18\
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\18\See amendment No. 2, supra note 3. When the Amex first
proposed listing and trading options based on the Amex Hong Kong 30
Index, the Amex intended to use the same index level as that used
for warrants on that index. Securities Exchange Act Release No.
33308, supra note 4. Currently, the Amex Hong Kong 30 Index is at a
level of about 500. See Amendment No. 2, supra note 3.
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Because the HKSE does not operate during the Amex's trading hours,
the Amex calculates the Index once each day based on the most recent
official closing price of each Index component security as reported by
the HKSE. The Amex will administer the Index, making such adjustments
to the divisor as may be necessary in light of stock splits, stock
replacements, or other corporate actions which would cause a
discontinuity in the Index value. The Index value is being published
through the Exchange's market data system and will be made available to
vendors.\19\
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\19\For a more detailed description of Index pricing, see
Securities Exchange Act Release No. 33036, supra note 5.
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D. Expiration and Settlement
The Exchange's proposed options on the Index are to be European-
style (i.e., exercises are permitted at expiration only) and cash-
settled. Standard option trading hours for broad-based index options
(9:30 a.m. to 4:15 p.m. New York time) will apply. Options on the Index
will expire on the Saturday following the third Friday of the
expiration month (``Expiration Friday''). The last trading day in an
option series will normally be the second to last business day
preceding the Saturday following the third Friday of the expiration
month (normally at Thursday). Trading in expiring options will cease at
the close of trading on the last trading day. The exercise settlement
value for all of the Index's expiring options will be calculated based
upon the most recent official closing price of each of the component
securities as reported by the HKSE on the last trading day prior to
expiration.
The Exchange plans to list options series with expirations in the
three near-term calendar months and in the two additional calendar
months in the March cycle. In addition, longer term option series
having up to thirty-six months to expiration may be traded.\20\ In lieu
of such long-term options on a full-value Index level, the Exchange
states that it may instead list long-term, reduced-value put and call
options which will be computed by dividing the value of the full-value
Index by 10 and rounding the resulting figure to the nearest one-
hundredth. The interval between expiration month for either full-value
or reduced-value long-term options will not be less than six months.
The strike price interval for reduced-value Index options will be no
less than $2.50 instead of $5.00.
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\20\See Amex Rule 903C(a).
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E. Applicable Options Rules
Options on the Index, including long-term options based on the full
or a reduced-value Index, will be governed by Exchange Rules 900 C
through 980C. These rules govern matters such as disclosure, account
approval and suitability, position and exercise limits, margin, trading
halts and suspensions, and floor procedures. Surveillance procedures
currently used by the Exchange to monitor trading in each of the
Exchange's other index options will also be used to monitor trading in
regular and long-term options on the Index. The Index is deemed by the
Exchange to be a Stock Index Option under Amex Rule 901C(a), and a
Broad Stock Index Group under Amex Rule 900C(b)(1).
The Exchange seeks to list near-the-money (i.e., within ten points
above or below the current index value) option series on the Index at
2\1/2\ point strike (exercise) price intervals when the value of the
Index is below 200 points. The Exchange has also proposed to amend Rule
904C(b) to establish a position limit of 25,000 contracts on the same
side of the market, provided no more than 15,000 of such contracts are
in series in the nearest expiration month.
The Exchange states that it expects the Hong Kong Option Index to
attract a substantial number of customers, including institutional
activity, and is therefore seeking Commission approval permitting it to
use its Auto-Ex system for orders in the Index options of up to 50
contracts.\21\ Auto-Ex is the Exchange's automated execution system
which provides for the automatic execution of market and marketable
limit orders at the best bid or offer at the time the order is entered.
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\21\Amendment No. 3, supra note 3. The Amex originally proposed
permitting the use of its Auto-Ex system for orders in the Index
options of up to 99 contracts.
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III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange and, in
particular, the requirements of section 6(b)(5) of the Act.\22\
Specifically, the Commission finds that the trading of options based on
the Hong Kong Option Index, including long-term options based on either
the full or a reduced-value of the Index, will serve to protect
investors, promote the public interest, and help to remove impediments
to a free and open securities market by providing investors with a
means to hedge exposure to market risk associated with the Hong Kong
equity market and provide a surrogate instrument for trading in the
Hong Kong securities market.\23\ In particular, Hong Kong Option Index
options will benefit U.S. investors by allowing them to obtain
differential rates of return on a capital outlay if the Hong Kong
Option Index moves in a favorable direction within a specified time
period. Of course, if the Hong Kong Option Index moves in the wrong
direction or fails to move in the right direction, the options expire
worthless and the investors will have lost their entire investment.
Thus, the trading of options based on the Hong Kong Option Index will
provide investors with a valuable hedging vehicle that should reflect
accurately the overall movement of the Hong Kong equity market.
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\22\15 U.S.C. 78f(b)(5) (1988).
\23\Pursuant to Section 6(b)(5) of the Act, the Commission must
predicate approval of any new securities product upon a finding that
the introduction of such product is in the public interest. Such a
finding would be difficult with respect to an option that served no
hedging or other economic function, because any benefits that might
be derived by market participants likely would be outweighed by the
potential for manipulation, diminished public confidence in the
integrity of the markets, and other valid regulatory concerns.
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Nevetheless, the trading of options based on the Index, including
long-term options based on either the full or a reduced-value of the
Index, raises several concerns, namely issue related to customer
protection, index design, surveillance, and market impact. The
Commission believes, for the reasons discussed below, that the Amex has
adequately addressed these concerns.
A. Customer Protection
The Commission believes that a regulatory system designed to
protect public customers must be in place before the trading of
sophisticated financial instruments, such as Hong Kong Option Index
options, can commence on a national securities exchange. The Commission
notes that the trading of standardized exchange-traded options occurs
in an environment that is designed to ensure, among other things, that;
(1) The special risks of options are disclosed to public customers; (2)
only investors capable of evaluating and bearing the risks of options
trading are engaged in such trading; and (3) special compliance
procedure are applicable to options accounts. Accordingly, because the
Index options will be subject to the same regulatory regime as the
other standardized options currently traded on the Amex, the Commission
believes that adequate safeguards are in place to ensure the protection
of investors in Index options.
B. Index Design and Structure
The Commission finds that it is appropriate and consistent with the
Act to classify the Index as a broad-based index. In addition, the
basic character of the reduced-value Hong Kong Option Index, which is
comprised of the same component securities as the Hong Kong Option
Index, and calculated by dividing the Hong Kong Option Index by ten, is
essentially identical to the Hong Kong Option Index. Specifically, the
Commission believes the Index is broad-based because it reflects a
substantial segment of the Hong Kong equities market. First, the Index
consists of 30 actively traded stocks traded on the HKSE. Second, the
total capitalization of the Index, as of February 28, 1994, was
US$222.214 billion, with the market capitalization of the individual
stocks in the Index ranging from a high of US$23.48 billion to a low of
US$549 million, with a median value of US$3.89 billion. Third, the
Index includes stocks of companies from a broad range of industries and
no industry segment comprises more than 25.78% of the Index's total
value. Fourth, no single stock comprises more than 14.92% of the
Index's total value and the percentage weighting of the five largest
issues in the Index accounts for 45.86% of the Index's value. Fifth,
the Index component stock listing and maintenance criteria will serve
to ensure that the Index maintains its broad representative sample of
stocks in the Hong Kong stock market.\24\ Accordingly, the Commission
believes it is appropriate to classify the Index as broad-based.
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\24\See Securities Exchange Act Release No. 33036, supra note 5.
The Amex has represented that the companies included in the Index
represent at least thirty different broad categories of business
covering almost the entire range of business activity conducted in
Hong Kong. Id., citing letter from Nathan Most, Senior Vice
President, New Products Development, Amex to Richard Zack, Branch
Chief, Division of Market Regulation, SEC, dated August 17, 1993.
SR-Amex-93-14.
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C. Surveillance
In evaluating derivative instruments, the Commission, consistent
with the protection of investors, considers the degree to which the
derivative instrument is susceptible to manipulation. The ability to
obtain information necessary to detect and deter market manipulation
and other trading abuses is a critical factor in the Commission's
evaluation. It is for this reason that the Commission requires that
there be a surveillance sharing agreement in place between an exchange
listing or trading derivative product and the exchange(s) trading the
stocks underlying the derivative contract, and that the agreement
specifically enables officials to surveil trading in the derivative
product and its underlying stocks.\25\ Such agreements provide a
necessary deterrent to manipulation because they facilitate the
availability of information needed to investigate fully a potential
manipulation if it were to occur. For foreign stock index derivative
products, these agreements are especially important to facilitate the
collection of necessary regulatory, surveillance and other information
from foreign jurisdictions.
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\25\The Commission believes that a surveillance sharing
agreement should provide the parties thereto with the ability to
obtain information necessary to detect and deter market manipulation
and other trading abuses. Consequently, the Commission generally
requires that a surveillance sharing agreement require that the
parties to the agreement provide each other, upon request,
information about market trading activity, clearing activity, and
the identity of the ultimate purchasers and sellers of securities.
See Securities Exchange Act Release No. 31529 (November 27, 1992),
57 FR 57248.
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To address the foregoing concerns, the Amex has entered into a
surveillance sharing agreement with the HKSE that provides for the
exchange of information relating to the trading of Index options on the
Exchange and trading in the component securities of the Index on the
HKSE.\26\ The agreement, among other things, provides for the sharing
of time and sales information, clearing data, and the identity of
persons who have bought or sold securities. This agreement obligates
the Amex and the HKSE to compile and transmit all relevant market
surveillance information and to resolve in ``good faith'' any
disagreements regarding requests for information in response thereto.
In addition, the Amex has represented that if information pursuant to
the surveillance sharing agreement is not promptly forthcoming from the
HKSE, options based on the Index will be removed from trading on the
Amex.\27\
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\26\See letter from William Floyd-Jones, Jr., Assistant General
Counsel, Legal & Regulatory Policy Division, Amex to Richard Zack,
Branch Chief, Division of Market Regulation, SEC, dated August 27,
1993. See also letter from Claire P. McGrath, Managing Director and
Special Counsel, Derivative Securities, Amex to Michael Walinskas,
Branch Chief, Division of Market Regulation, SEC, dated March 31,
1994.
\27\Should the HKSE deny a request for assistance pursuant to
the surveillance sharing agreement and the failure to provide
assistance is material to the Amex's self-regulatory effort, the
Amex will immediately attempt to implement alternative arrangements
for sharing surveillance information with other appropriate self-
regulatory and/or governmental authorities. If, despite these
efforts, the Amex still is unable to implement such alternative
arrangements and determines that it is unable to obtain specific
surveillance information pursuant to its agreement with the HKSE
which is necessary to carry out its regulatory functions, it will
consult with the SEC regarding appropriate regulatory responses.
Appropriate regulatory responses in this situation could include the
``winding-down'' of trading in any options where an information
sharing agreement with the HKSE is necessary to ensure the integrity
of the market and the SEC advises the Exchange in writing that the
public interest and the protection of investors requires the
``winding-down'' of trading. Such ``winding-down'' process would
involve the cessation of listing any new series, and the delisting
of any series where there is no open interest. See letter from
William Floyd-Jones, Jr., dated August 27, 1993, supra note 26; and
letter from Claire P. McGrath, dated March 31, 1994, supra note 26.
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The Commission believes that the surveillance sharing agreement
entered into between the Amex and HKSE adequately addresses its
concerns relating to the ability of the Amex to detect and deter
manipulation of the Index through the use of the Index component
stocks.\28\
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\28\As an additional surveillance related safeguard to the
Index, the Amex requires that the primary trading market for all
Index component stocks be located in a country with which the Amex
has an effective and comprehensive surveillance sharing agreement.
See letter from William Floyd-Jones, Jr., dated August 27, 1993,
supra note 26.
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D. Market Impact
The Commission believes that the listing and trading of Hong Kong
Index options, including long-term options based on either the full or
a reduced value of the Index, on the Amex will not adversely affect the
securities markets in the U.S. or Hong Kong.29 First, the existing
index option surveillance procedures of the Amex will apply to options
based on the Index. Second, the Commission notes that the Index is
broad-based and diversified and includes highly capitalized securities
that are actively traded on the HKSE. Third, the Commission notes that
at the present time, index options and futures contracts based on
another Hong Kong market index, the Hang Seng Index, are traded on Hong
Kong securities and futures exchanges, and that numerous warrants and
off-exchange options based on the Hang Seng Index and other Hong Kong
related indexes are traded worldwide. Fourth, the position limit of
25,000 contracts on the same side of the market, provided no more than
15,000 of such contracts are in series in the nearest expiration month,
will serve to minimize potential manipulation and market impact
concerns.30 Fifth, the risk to investors of contra-party non-
performance will be minimized because Index regular and long-term
options will be issued and guaranteed by the Options Clearing
Corporation just like any other standardized option traded in the
United States.
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\2\9In addition, the Amex and the Options Price Reporting
Authority (``OPRA'') have both represented that they have the
necessary systems capacity to support those new series of index
options that would result from the introduction of Index options and
long-term Index options. See letter from Edward Cook, Jr., Director,
Information Technology, Amex to Sharon Lawson, Assistant Director,
Division of Market Regulation, SEC, dated March 28, 1994; letter
from Charles H. Faurot, Managing Director, Market Data Services,
Amex to Sharon Lawson, Assistant Director, Division of Market
Regulation, SEC, dated March 28, 1994; letter from Joe Corrigan,
Executive Director, OPRA to Sharon Lawson, Division of Market
Regulation, SEC, dated March 28, 1994.
\3\0The Commission notes that the current proposal does not
establish a hedge exemption pursuant to Amex Rule 904C, Commentary
.01 for Index option participants.
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The Commission finds good cause for approving Amendment Nos. 1, 2,
and 3 to the proposed rule change prior to the thirtieth day after the
date of publication of notice of filing thereof in the Federal
Register. The purpose and effect of Amendment No. 1 is limited to
renaming the Index, clarifying that options based on the Index will
begin trading at a certain Index level, and reaffirming that regular
Index options will be subject to 2\1/2\ point strike intervals if the
Index falls below 200. These are non-substantive changes. Amendment No.
2 establishes an Index level of 0.40 times that of the Amex Hong Kong
30 Index. The Commission shares the Amex's concern that the
introduction of options at the current higher Amex Hong Kong 30 Index
level with a standardized 100 multiplier could result in very high
premiums on near-term series, even those slightly out-of-the-
money.31 By introducing a lower Index level for standardized
options, Amendment No. 2 addresses this concern, thereby strengthening
the Exchange's proposal. Amendment No. 3 reduces from 99 contracts to
50 contracts the maximum number of contracts for market and marketable
limit orders in options on the Hong Kong Option Index for which the
Amex Auto-Ex system may be used. The Commission believes that reducing
the number of contracts subject to Auto-Ex will ensure that only
relatively small orders are entitled to automatic execution at the
current quote and that larger orders are exposed to the floor for
potential price improvement. Further, no comments were received on the
original Auto-Ex proposal. Amendment Nos. 1, 2, and 3 help to remove
impediments to a free and open securities market and facilitate
transactions in securities. Additionally, no comments were received on
the proposed rule change set forth in the original notice. Therefore,
the Commission believes it is consistent with Sections 6(b)(5) and
19(b)(2) of the Act to approve Amendment Nos. 1, 2, and 3 to the
proposal on an accelerated basis.
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\3\1See Amendment No. 1, supra note 3.
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning Amendment Nos. 1, 2, and 3. 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 20549. 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-93-32 and should be
submitted by (insert date 21 days from date of publication).
V. Conclusion
For the reasons set forth above, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
the rules and regulations thereunder applicable to a national
securities exchange, and, in particular, the requirements of section
6(b)(5).32
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\3\215 U.S.C. 78f(b)(5) (1982).
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-Amex-93-32), as amended, is approved.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.33
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\3\317 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-9204 Filed 4-15-94; 8:45 am]
BILLING CODE 8010-01-M