[Federal Register Volume 60, Number 112 (Monday, June 12, 1995)]
[Notices]
[Pages 30907-30909]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14255]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35805; International Series Release No. 816; File No.
SR-Amex-95-04]
Self-Regulatory Organizations; Order Approving a Proposed Rule
Change and Notice of Filing and Order Granting Accelerated Approval of
Amendment Nos. 2 and 3 to the Proposed Rule Change by the American
Stock Exchange, Inc. Relating to the Listing of Currency Warrants Based
on the Mexican Peso
June 5, 1995.
On February 8, 1995, the American Stock Exchange, Inc. (``Amex'' or
``Exchange''), pursuant to Section 19(b)(1) of the Securities Exchange
Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ filed with the
Securities and Exchange Commission (``Commission'') a proposed rule
change to permit the listing of foreign currency warrants based on the
value of the U.S. dollar in relation to the Mexican peso (``Peso
Warrants''). Notice of the proposal appeared in the Federal Register on
February 17, 1995.\3\ The Exchange subsequently filed Amendment No. 1
to the proposal on March 16, 1995. Notice of Amendment No. 1 to the
proposal appeared in the Federal Register on March 30, 1995.\4\ No
comment letters were received on the original proposed rule change or
on Amendment No. 1. The Exchange then filed Amendment No. 2 to the
proposal on May 11, 1995,\5\ and Amendment No. [[Page 30908]] 3 on May
26, 1995.\6\ This order approves the Amex proposal, as amended by
Amendment Nos. 2 and 3.
\1\ 15 U.S.C. 78s(b)(1) (1988).
\2\ 17 CFR 240.19b-4 (1994).
\3\ See Securities Exchange Act Release No. 35363 (February 13,
1995, 60 FR 9416.
\4\ In Amendment No. 1, the Exchange amended the proposal to
specify customer margin levels for the proposed currency warrants.
See Securities Exchange Act Release No. 35524 (March 22, 1995), 60
FR 16517.
\5\ Amendment No. 2, as discussed herein, effectively supersedes
Amendment No. 1 by specifying higher minimum customer margin levels
than those proposed in Amendment No. 1. See Letter from Howard
Baker, Senior Vice President, Derivative Securities, Amex, to Sharon
Lawson, Assistant Director, Office of Market Supervision (``OMS''),
Division of Market Regulation (``Division''), Commission, dated May
11, 1995 (``Amendment No. 2'').
\6\ In Amendment No. 3, discussed herein, the Exchange specified
the standards the Amex will use to ensure continued adequate
customer margin levels for short positions in Peso Warrants. See
Letter from Clair McGarth Managing Director and Special Counsel,
Derivative Securities, Amex, to Mike Walinskas, Branch Chief, OMS,
Division, Commission, dated May 26, 1995 (``Amendment No. 3'').
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Pursuant to Section 106 of the Amex Company Guide (``Guide''), the
Exchange is now proposing to list and trade currency warrants based
upon the value of the U.S. dollar in relation to the Mexican peso. Peso
Warrants will be unsecured obligations of their issuers and will be
cash-settled in U.S. dollars. Peso Warrants will be exercisable either
throughout their life (i.e., American-style) or only immediately prior
to their expiration date (i.e., European-style). Upon exercise, the
holder of a Peso Warrant structured as a ``put'' will receive payment
in U.S. dollars to the extent that the value of the Mexican peso in
relation to the U.S. dollar has declined below a pre-stated base level.
Conversely, upon exercise, holders of a Peso Warrant structured as a
``call'' will receive payment in U.S. dollars to the extent that the
value of the Mexican peso in relation to the U.S. dollar has increased
above a pre-stated level. Peso Warrants that are ``out-of-the-money''
at the time of expiration will expire worthless.
Any issue of Peso Warrants will conform to the listing guidelines
under Section 106 of the Guide which provide that: (1) the issuer will
have assets in excess of $100,000,000 and otherwise substantially
exceed the size and earnings requirements in Section 101(A) of the
Guide; (2) the term of the warrants will be from one to five years from
the date of issuance; and (3) the minimum public distribution of such
issues will be one million warrants, with a minimum of 400 public
holders, and an aggregate market value of at least $4 million.\7\
\7\ The Exchange has submitted for Commission approval, proposed
rules governing listing requirements, and customer protection and
margin requirements for stock index warrants, currency index
warrants, and currency warrants. See Securities Exchange Act Release
No. 35086 (December 12, 1994), 59 FR 65561 (December 20, 1994)
(notice of File No. SR-Amex-94-38) (``Generic Warrant Listing
Proposal''). If ultimately approved by the Commission, Peso Warrants
issued subsequent to that approval will be subject to these rules.
These rules, however, will not change the customer margin
requirements specified herein. See Amendment no. 2, supra note 5.
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The Amex will also require that Peso Warrants be sold only to
customers whose accounts have been approved for options trading
pursuant to Exchange Rule 921. The suitability standards of Exchange
Rule 923 will apply to recommendations for opening transactions in Peso
Warrants. Additionally, all discretionary orders in Peso Warrants must
be approved and initialed on the day entered by a Senior Registered
Options Principal or Registered Options Principal.\8\
\8\ See Amex Rule 421, Commentary .02.
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For customer margin purposes, the Exchange will set the customer
margin ``add-on'' \9\ percentage for Peso Warrants at 18% for both
initial and maintenance margin, with a minimum add-on for out-of-the-
money Peso Warrants of 15%.\10\ If, as a result of the Exchange's
routine monitoring of margin adequacy (i.e., at least quarterly
reviews), the Amex determines that a higher customer margin level would
be appropriate, the Amex will take immediate steps to implement the
change.\11\ If, on the other hand, the Exchange determines that a lower
margin percentage would be appropriate as a result of the Exchange's
periodic reviews, the Exchange will file a proposal with the Commission
pursuant to Section 19(b) of the Act to modify the margin add-on
percentages applicable to Peso Warrants.\12\ Anytime that the customer
margin levels for Peso Warrants are changes, the Exchange will promptly
notify the Exchange's membership and the public.
\9\ For these purposes, ``add-on'' is the percentage of the
current market value of the Mexican pesos underlying each Peso
Warrant that the holder of a ``short'' position must pay in addition
to the current market value of each Peso Warrant.
\10\ See Amendment No. 2, supra note 5.
\11\ Prior to increasing the customer margin levels, the
Exchange should immediately contact the Commission for a
determination as to whether a rule filing pursuant to Section 19(b)
of the Act will be required.
\12\ Specifically, the Exchange will review, on at least a
quarterly basis, the frequency distributions reflecting the
percentage price returns for the Mexican peso in relation to the
U.S. dollar for all seven day periods during the preceding two year
period. If the current margin add-on is not sufficient to cover the
least 97.5% of all such seven day price returns, the Exchange will
take steps to increase the margin level to one that will cover at
least 97.5% of all such instances. See Amendment No. 3, supra note
6. In no event, however, will the Exchange reduce the margin levels
provided in Amendment No. 2 without the prior approval of the
Commission. See Amendment No. 2, supra note 5.
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Prior to the commencement of trading of Peso Warrants, the Exchange
will distribute a circular to its membership calling attention to
certain compliance responsibilities when handling transactions in Peso
Warrants.\13\
\13\ The circular should highlight: (1) the Peso Warrants may be
sold only to customers with options approved accounts; (2) the
applicable suitability requirements; (3) the standards regarding
discretionary orders; and (4) the applicable customer margin
requirements.
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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) \14\ in that it is
designed to protect investors and the public interest. First, the
Commission believes that the trading of listed warrants on the Mexican
peso should provide investors with a hedging and risk transfer vehicle
that will reflect the overall movement of the Mexican peso in relation
to the U.S. dollar. In this regard, Peso Warrants should provide
investors with an efficient and effective means of managing risk
associated with the Mexican peso.
\14\ 15 U.S.C. 78f(b)(5) (1988).
Second, the Exchange has proposed listing standards to provide for
fair and orderly markets in Peso Warrants. Peso Warrants will conform
to the listing standards in Section 106 of the Guide, which are similar
to the standards pursuant to which currency warrants have previously
been listed by the Amex.\15\ In addition, the Exchange will limit
transactions in Peso Warrants to customers with options approved
accounts and impose the Amex's suitability standards and discretionary
account standards to transactions in Peso Warrants.
\15\ For example, the Amex currently lists currency warrants on
the Japanese yen and the German mark. If the Commission approves the
Exchange's Generic Warrant Listing Proposal, Peso Warrants listed
subsequent to that approval will be subject to the revised listing
standards. See Generic Warrant Listing Proposal, supra note 7. The
Commission notes that to the extent the customer margin requirements
contained in the Generic Warrant Listing Proposal differ from those
discussed herein for Peso Warrants, the customer margin level
specified above will be applied.
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Third, the Exchange has proposed adequate customer margin
requirements. The proposed add-on margin (i.e., 18%) provides
sufficient coverage to account for historical and potential volatility
in the Mexican Peso in relation to the U.S. dollar. In addition, the
Exchange must conduct periodic reviews of the volatility in the Mexican
peso and must take immediate steps to increase the existing customer
margin levels if the Exchange determines that the existing levels are
no longer adequate.\16\ As a result, the Commission believes that the
proposed customer margin levels and the review and maintenance criteria
for those margin levels will result in adequate coverage of contract
obligations and are designed to reduce risks arising from inadequate
margin levels.
\16\ See supra note 12.
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Finally, the Exchange will prepare and distribute to its membership
a circular describing each issue of Peso [[Page 30909]] Warrants listed
by the Amex, calling attention to certain compliance responsibilities
when handling transactions in Peso Warrants.\17\
\17\ See supra note 13.
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Based on the foregoing, the Commission believes that the listing
and trading of Peso Warrants, within the framework described above, is
appropriate and consistent with the Act.
The Commission finds good cause for approving Amendment Nos. 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.
Specifically, Amendment No. 2 realigns the customer margin requirements
to reflect more accurately the recent volatility of the Mexican peso in
relation to the U.S. dollar. Moreover, the Commission notes that the
original proposal and Amendment No. 1 to the proposal were published in
the Federal Register for the full 21-day comment period and that no
comments were received by the Commission regarding either the original
proposal or the lower customer margin levels proposed in Amendment No.
1.
Amendment No. 3 provides that the Amex will review the volatility
of the Mexican peso in relation to the U.S. dollar on at least a
quarterly basis and increase the applicable customer margin levels if
appropriate. Moreover, the Amex cannot lower the customer margin levels
from the 18% and 15% levels provided above without Commission approval
pursuant to Section 19(b) of the Act. As discussed above, the
Commission believes these procedures will ensure that the customer
margin requirements for Peso Warrants are maintained at levels adequate
to cover present and future volatility of the Mexican Peso in relation
to the U.S. dollar.
Based on the above and in order to allow the Amex to begin listing
Peso Warrants without delay, the Commission believes it is consistent
with Section 6(b)(5) of the Act to approve Amendment Nos. 2 and 3 to
the Amex's proposal on an accelerated basis.
Interested persons are invited to submit written data, views and
arguments concerning Amendments Nos. 2 and 3. Persons making written
submissions should file six copies thereof with the Secretary,
Securities and Exchange Commission, 50 Fifth Street, N.W., Washington,
D.C. 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,
N.W., Washington, D.C. Copies of such filing will also be available for
inspection and copying at the principal office of the Amex. All
submissions should refer to the File No. SR-Amex-95-04 and should be
submitted by July 3, 1995.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
\18\ that the proposed rule change (File No. SR-Amex-95-04), as amended
by Amendment Nos. 2 and 3, is approved.
\18\ 15 U.S.C. 78S(b)(2) (1988).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\19\
\19\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-14255 Filed 6-9-95; 8:45 am]
BILLING CODE 8010-01-M