[Federal Register Volume 65, Number 47 (Thursday, March 9, 2000)]
[Notices]
[Pages 12599-12600]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-5761]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42489; File No. SR-AMEX-00-13]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the American Stock Exchange
LLC Relating to the Trading of Options on Biotech HOLDRs
March 2, 2000.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on February 28, 2000, the American Stock Exchange Inc. (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The proposed rule change has been filed by the Amex as a
``non-controversial'' rule change under Rule 19b-4(f)(6) \3\ under the
Act. The Commission is publishing this notice to solicit comments on
the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to trade standardized and FLEX equity options
on Biotechnology Holding Company Depositary Receipts (``Biotech
HOLDRs'' or ``HOLDRs''). 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 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to provide for the
trading of standardized equity options and FLEX \4\ equity options on
Biotech HOLDRs.\5\ Biotech HOLDRs are exchange-listed securities
representing beneficial ownership of the specific deposited securities
represented by the HOLDRs. They are negotiable receipts issued by a
trust representing securities of issues that have been deposited and
are held on behalf of investors in HOLDRs. Biotech HOLDRs, which trade
in round lots of 100, and multiples thereof, may be issued after their
initial offering through a deposit of the required number of shares of
common stock of the underlying issuers with the trustee. The trust will
only issue HOLDRs upon the deposit of the shares of underlying
securities that are represented by a round-lot of 100 HOLDRs. Likewise,
the trust will cancel, and an investor may obtain, hold, trade or
surrender HOLDRs in a round-lot and round lot multiples of 100 HOLDRs.
Biotech HOLDRs are currently traded on the Exchange like other equity
securities, subject to the Exchange's equity trading rules.
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\4\ Flex equity options provide investors with the ability to
customize basic option features including size, expiration date,
exercise style, and certain exercise prices.
\5\ The Exchange's proposal to list and trade Trust Issued
Receipts (also referred to as HOLDRs) was approved by the Commission
on September 21, 1999. See Securities Exchange Act Release No. 41892
(September 21, 1999), 64 FR 52559 (September 29, 1999).
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The Exchange believes trading options on Biotech HOLDRs is
appropriate because Biotech HOLDRs currently exceed the minimum
eligibility criteria for equities set forth in Amex Rule 915, as do
each of the underlying securities.\6\ Specifically, there are a minimum
of 7,000,000 shares of each of the underlying securities owned by
persons other than those required to report their security holdings
under Section 16(a) of the Act; there are a minimum of 2000
shareholders of each of the underlying securities; trading volume (in
all markets in which the underlying securities are traded) has been at
least 2,400,000 shares in the preceding twelve months; the market price
per share of each of the underlying securities has been at least $7\1/
2\ for the majority of business days during the three calendar months
preceding the date of selection as measured by the lowest closing price
reported in any market in which the underlying securities traded on
each of the subject days and the issuers are in compliance with any
applicable requirements of the Act. The Biotech HOLDRs also satisfy
these eligibility criteria.
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\6\ The Exchange represents that both the Biotech HOLDRs and the
underlying securities meet the options eligibility criteria outlined
in Amex Rule 915. Telephone conversation between Scott Van Hatten,
Legal Counsel, Derivative Securities, Amex, and Heather Traeger,
Attorney, Division of Market Regulation (``Division''), SEC, on
February 28, 2000.
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Options on Biotech HOLDRs will be traded on the Exchange pursuant
to the same rules and procedures that apply to trading in options on
equity securities. However, the Exchange is also proposing to list FLEX
Equity options on Biotech HOLDRs. The Exchange will list option
contracts covering 100 HOLDRs, the minimum required round lot trading
size for HOLDRs. Strike prices for the contracts will be set to bracket
the trust issued receipts at the same intervals that apply to
standardized equity options (i.e., 2\1/2\ point intervals for
underlying equity values up to $25, 5 point intervals for underlying
equity values greater than $25 up to $200, and 10 point intervals for
underlying equity values greater than $200). The proposed position and
exercise limits for options on Biotech HOLDRs will be the same as those
established for stock options as set forth in Amex Rule 904 and 905.
The Amex anticipates that options on Biotech HOLDRs will initially
qualify for a position limit of 13,500 contracts. However, as with
standardized equity options, applicable position limits will be
increased for options on Biotech HOLDRs if the volume of trading in
HOLDRs increases to meet the requirements of a higher limit. As is
currently the case for all FLEX Equity options, no position and
exercise limits will be applicable to FLEX Equity options overlying the
HOLDRs. Options on Biotech HOLDRs will be subject to the listing and
maintenance standards set forth in Amex Rule 915 and 916.\7\ FLEX
options will be subject to the
[[Page 12600]]
standards set forth in the Amex 900G rule series.\8\
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\7\ Amex has filed proposed listing and maintenance standards
specifically for the trading of options on Trust Issued Receipts,
proposed Commentary .07 under Amex Rule 915 and proposed Commentary
.09 under Amex Rule 916. The proposed standards have not yet been
noticed in the Federal Register, as the Commission and the Exchange
are still discussing the proposed rule change. See SR-Amex-99-37. If
the proposed standards are approved, Biotech HOLDRs will be subject
to these specific listing and maintenance standards. Telephone
conversation between Scott Van Hatten, Legal Counsel, Derivative
Securities, Amex, and Heather Traeger, Attorney, Division, SEC, on
February 25, 2000.
\8\ Telephone conversation between Scott Van Hatten, Legal
Counsel, Derivative Securities, Amex, and Heather Traeger, Attorney,
Division, SEC, on February 28, 2000.
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Should Biotech HOLDRs cease to trade on an exchange or as national
market securities in the over-the-counter market, there will be no
opening transactions in the options on the HOLDRs, and all such options
will trade on a liquidation-only basis (i.e., only closing transactions
to permit the closing of outstanding open options positions will be
permitted). In addition, the Amex will consider the suspension of
opening transactions in any series of options of the class covering
Biotech HOLDRs if: (1) The options fail to meet the uniform equity
option maintenance standards in Commentary .01 to Amex Rule 916; \9\
(2) the trust has more than 60 days remaining until termination and
there are fewer than 50 record and/or beneficial holders of Biotech
HOLDRs for 30 or more consecutive trading days; (3) there are fewer
than 50,000 HOLDRs issued and outstanding; (4) the market value of all
Biotech HOLDRs issued and outstanding is less than $1,000,000; or (5)
such other event shall occur or condition exist that in the opinion of
the Exchange makes further dealing in such options on the Exchange
inadvisable.
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\9\ Specifically, Commentary .01 to Amex Rule 916 provides that
an underlying security will not meet the Exchange's requirements for
continued listing when, among other things; (i) There are fewer than
6,300,000 publicly-held shares; (ii) there are fewer than 1,600
holders; (iii) trading volume was less than 1,800,000 shares in the
preceding twelve months; and (iv) the share price of the underlying
security closed below $5 on a majority of the business days during
the preceding 6 months.
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Options on Biotech HOLDRs will be physically-settled and will have
the American-style exercise feature used on all standardized equity
options, and not the European-style feature. The Exchange, however,
also proposes to trade FLEX Equity options which will be available with
both the American-style and European-style exercise feature, as well as
other FLEX Equity features.\10\ Lastly, the proposed margin
requirements for options on Biotech HOLDRs will be at the same levels
that apply to options generally under Amex Rule 462.
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\10\ An American-style option may be exercised at any time prior
to its expiration. A European-style option, however, may be
exercised only on its expiration date.
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \11\ of
the Act in general and furthers the objectives of Section 6(b)(5) \12\
in particular in that 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.
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\11\ 15 U.S.C. 78f.
\12\ 15 U.S.C. 78f(b)(5)
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange represents 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
The foregoing proposed rule change has become effective pursuant to
Section 19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6) thereunder
\14\ because the proposed rule change: (1) Does not significantly
affect the protection of investors or the public interest; (2) does not
impose any significant burden on competition; and (3) does not become
operative for 30 days from the date of filing, or such shorter time
that the Commission may designate if consistent with the protection of
investors and the public interest.\15\ Any any time within 60 days of
the filing of the proposed rule change, the Commission may summarily
abrogate such rule change if it appears to the Commission that such
action is necessary or appropriate in the public interest, for the
protection for investors, or otherwise in the furtherance of the
purposes of the Act.\16\
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6). In reviewing this proposal, the
Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
\15\ Because the Commission and Amex have had ongoing
discussions regarding the proposed rule change, the Commission has
determined to waive the requirement that Amex provide the Commission
with written notice of its intent to file the proposed rule change
at least five business days prior to the filing date.
\16\ 15 U.S.C. 78s(b)(3)(C).
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The Exchange has requested that the rule change be accelerated to
become operative immediately upon filing of the proposal, because such
proposal contemplates trading options on a product in which both the
product and each of the underlying component securities exceeds the
minimum eligibility requirements for trading options on equities as set
forth in Amex Rule 915. Because both the securities underlying Biotech
HOLDRs and Biotech HOLDRs themselves meet the eligibility requirements
for trading options on equity securities, and because the Exchange is
currently working to establish specific listing and maintenance
standards for options on HOLDRs, the Commission finds that accelerating
the operative date of the rule change is consistent with the protection
of investors and the public interest, and thus designates March 2, 2000
as the operative date of this filing.
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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549-
0609. 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 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-00-13 and
should be submitted by March 30, 2000.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
\17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-5761 Filed 3-8-00; 8:45 am]
BILLING CODE 8010-01-M