[Federal Register Volume 62, Number 8 (Monday, January 13, 1997)] [Notices] [Pages 1786-1788] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 97-688] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-38123; File No. SR-Amex-96-45] Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto by the American Stock Exchange, Inc. Relating to the Closing Time for Equity Options and Narrow-Based Index Options January 6, 1997. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given that on November 22, 1996, 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 [[Page 1787]] have been prepared by the self-regulatory organization. On December 16, 1996, the Exchange filed Amendment No. 1 to its proposal.\3\ The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ The proposed rule change submitted by the Exchange would change the trading close for equity options to 4:02 p.m. Amendment No. 1 would also change to 4:02 p.m. the trading close for narrow- based index options. See Letter from Claire P. McGrath, Amex, to Janice Mitnick, Division of Market Regulation, SEC, dated December 16, 1996 (``Amendment No. 1''). --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rules 1, 903C, 918 and 980C to provide for the closing of equity option and narrow-based index option trading at 4:02 p.m. The text of the proposed rule change is available at the Office of the Secretary, Amex and at the Commission. 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 self-regulatory organization 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 self-regulatory organization 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 Since 1978, equity options have traded until 4:10 p.m., ten minutes beyond the close of trading of the underlying securities, to allow investors to trade options based upon the final closing prices of those underlying securities. In 1978, frequent delays between the time of the execution of the closing transaction and the appearance of the trade on the Consolidated Tape Association's Tape A gave rise to time lags that, in some instances, were as long as seven minutes after the close of trading at 4:00 p.m. Today, due to improvements in trading and reporting systems, the dissemination of closing prices is delayed at most one or two minutes, and only in unusual market conditions are any significant time lags encountered. Another reason for extending equity option trading until 4:10 p.m., cited in 1978, was to give options participants additional time to digest the impact of news announcements by companies and government agencies who oftentimes released such news at 4:00 p.m. or shortly thereafter. While the Exchange expressed reservations regarding the move to 4:10 p.m., it ultimately acceded to the industry's consensus that such a close was appropriate. Although the Exchange has made efforts to encourage companies and others to withhold significant news announcements until after the close of option trading, occasionally such announcements are released between 4:00 and 4:10 p.m., and dramatically impact the trading of equity and narrow-based index options \4\ during that time period. The Exchange has not requested a change in the trading close for broad-based index options as it does not believe that a significant news announcement by the issuer of one component stock in a broad-based index would have a corresponding effect on the price of that broad-based index.\5\ --------------------------------------------------------------------------- \4\ A significant new announcement on one component of a narrow- based index could have a decisive effect on that index. See Amendment No. 1. \5\ Id. --------------------------------------------------------------------------- When instances of significant news releases occur prior to the close of option trading, the Exchange has observed that public customers are unable to react as quickly as professional traders, and accordingly lack the ability to give their brokers instructions or take action with regard to orders that may have been previously placed on the limit order book. Further, because the principal market for the underlying stock is closed, option specialists and market makers have oftentimes experienced extreme difficulty making orderly options markets given their inability to hedge or otherwise offset market risk with transactions in the underlying stock. Therefore, the Exchange now proposes that at 4:02 p.m., all trading in equity options and narrow-based index options will cease. No orders may be entered, modified or canceled in any equity or narrow-based index option series after 4:02 p.m. The Exchange believes a 4:02 p.m. closing time for equity options and narrow-based index options is necessary and appropriate given the improvements in dissemination of closing prices, and the limited ability of public customers to react to news announcements and changing markets in the last ten minutes of trading under the current rule. However, the Exchange also believes that the additional two minutes of options trading after the close of trading in the underlying stock will allow market participants to react, if necessary, to any delayed dissemination of closing prices. 2. Statutory Basis The proposed rule change furthers the objectives of 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, and is designed to prevent unfair discrimination between customers, issuers, brokers or dealers. B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange believes that the proposed rule change will impose no 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 reasons 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 [[Page 1788]] 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 at the Commission's Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All submissions should refer to File No. SR-Amex-96-45 and should be submitted by February 3, 1997. For the Commission, by the Division of Market Regulation, pursuant to delegate authority.\6\ --------------------------------------------------------------------------- \6\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- [FR Doc. 97-688 Filed 1-10-97; 8:45 am] BILLING CODE 8010-01-M