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Notice

Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto by the American Stock Exchange LLC Relating to Trading of Trust Issued Receipts and “Other Securities”

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Start Preamble July 24, 2002.

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 May 31, 2002, the American Stock Exchange LLC (“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 Exchange. On July 8, 2002, the Exchange filed Amendment No. 1 to the proposed rule change.[3] The Start Printed Page 49725Commission 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 Amex proposes to amend Amex Rule 958, Commentary .10 relating to trading by regular members in securities listed pursuant to Section 107 of the Amex Company Guide (Other Securities) and Rule 1200 (Rules of General Applicability; Trust Issued Receipts). The text of the proposed rule change follows. Proposed new language is in italics; proposed deletions are in brackets.

Rule 958

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Commentary

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.10 Transactions on the Floor in index warrants [and], currency warrants , securities listed pursuant to Section 107 of the Company Guide (“Other Securities”), and Trust Issued Receipts listed pursuant to Rules 1200 et seq. which are otherwise traded under the Exchange's equity trading rules, shall be effected in accordance with the provisions of this rule, and shall only be effected by Registered Traders who are regular members . [, and] [t]T ransactions by Registered Traders on the Floor in derivative products (as defined in Article I, Section 3(d) of the Exchange Constitution) which are otherwise traded under the Exchange's equity trading rules, shall be effected in accordance with the provisions of this rule. In addition, Rule 111, Commentary .01 shall not apply to such transactions. (See Rule 111, Commentary .12 and Rule 114, Commentary .14.)

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

1. Purpose

In 1992, the Commission approved Rule 958, Commentary .10 relating to trading on the Floor in “derivative products,” index warrants and currency warrants.[4] Commentary .10 requires that these securities be traded by Registered Traders under Rule 958, which relates to trading by Registered Options Traders (“ROTs”). Commentary .10 also states that index warrants and currency warrants may be traded by ROTs who are regular members. Options Principal Members (“OPMs”) and Limited Trading Permit Holders (”LTPs”) are permitted to trade derivative products under Rule 958, but are not permitted to trade index or currency warrants. All of these securities must be traded under Rule 958 only and cannot be traded by Registered Equity Traders (“RETs”) or Registered Equity Market Makers (“REMMs”) under Rules 111 or 114.[5] “Derivative Products” traded by Registered Traders under Rule 958 include all exchange-traded funds listed under Amex Rules 1000 and 1000A, including, for example, Nasdaq 100 Index Tracking StockTM, SPDRs®, DIAMONDS®, iSharesTM, and Select Sector SPDRs®.

Pursuant to Rule 958, Commentary .10, regular members trading derivative products, index warrants and currency warrants as ROTs are subject to continuous market making obligations. As such, ROTs receive market maker margin. OPMs and LTPs are permitted to trade derivative products pursuant to Article I, Section 3 and Article IV, Section 1(h), respectively, of the Exchange Constitution, and, because their trading under Rule 958 also requires ongoing market making obligations, OPMs and LTPs also receive market maker margin.[6]

When the Exchange first authorized trading in derivative products by OPMs and LTPs in 1990, the Exchange specifically intended to encourage trading crowds and competitive market making to develop in such products as SuperTrust securities (which represented interests in actual portfolios of securities such as the S&P 500 Index) and SPDRS®, which were then under development by the Exchange. In the Exchange's Rule 19b-4 filing with the Commission to authorize such OPM and LTP trading, the Exchange stated that the definition of derivative products was not intended to include products that OPMs and LTPs are not entitled to trade currently, including currency warrants, index warrants, or closed end mutual funds.[7]

The Exchange proposes to amend Rule 958, Commentary .10 to clarify that “structured products” and Trust Issued Receipts (HOLDRS[SM] ) traded under Amex equity trading rules must be traded under Rule 958 and only by registered traders who are regular members. Structured products include all securities listed under Section 107 of the Amex Company Guide (e.g., Index-Linked Notes (MITTS®, BOXES[SM] , TIERS[SM] ); Equity-Linked Term Notes (e.g., GOALS, ELKS[SM] , SPARQS[SM] , STRIDES[SM] ) and Trust Preferred Securities (e.g., TOPrS)). Trust Issued Receipts include HOLDRS[SM] and are listed under Rules 1200 et seq. Therefore, these securities would not be eligible to be traded by OPMs or LTPs, or by RETs or REMMs under Rules 111 and 114. The Exchange believes that permitting regular member ROTs to trade structured products and HOLDRS[SM] under Rule 958 will promote additional market depth and liquidity. These securities do not fall within the definition of “derivative products” as contemplated by the Exchange in authorizing OPMs and LTPs to trade derivative products, and, therefore, OPMs and LTPs are not permitted to trade these securities listed under Section 107 of the Company Guide or Rule 1200. The Exchange is therefore amending Rule 958, Commentary .10 to clarify this position.[8]

2. Statutory Basis

The proposed rule change is consistent with Section 6(b) of the Act [9] in general and furthers the objectives of Section 6(b)(5) [10] 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, to remove impediments to and perfect the mechanism of a free and open market and a national market system, to protect Start Printed Page 49726investors and the public interest and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.

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 Exchange 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, including whether the proposed rule change, as amended, is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. Copies of the submission, all subsequent amendments, all written statements with respect to the amended 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 Room, 450 Fifth Street, NW, Washington, DC 20549. Copies of the proposed rule change and Amendment No. 1 will also be available for inspection and copying at the principal office of the Amex. All submissions should refer to File No. SR-Amex-2002-50 and should be submitted by August 21, 2002.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[11]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  See Letter from Claire P. McGrath, Senior Vice President and Deputy General Counsel, Amex, to Nancy J. Sanow, Assistant Director, Division of Market Regulation, Commission, dated July 3, 2002 (“Amendment No. 1”). Amendment No. 1 deleted a proposed technical change to Amex Rule 958.

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4.  Securities Exchange Act Release No. 30768 (June 2, 1992), 57 FR 24277 (June 8, 1992) (File No. SR-Amex-92-06).

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5.  The term “derivative products” is defined in Article I, Section 3(d) of the Exchange Constitution to include “standardized options and other securities issued by the Options Clearing Corporation or another limited purpose entity or trust, and which are based solely on the performance of an index or portfolio of other publicly traded securities.” The definition explicitly excludes warrants of any type and closed end funds.

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6.  OPMs also can trade stock options and index options. LTPs can trade index options but not stock options. As previously mentioned, OPMs and LTPs also may trade derivative products, but are not permitted to trade index or currency warrants. Derivative products cannot be traded by persons registered as RETs or REMMs under Rules 111 or 114. REMMs are not subject to Rule 958 type continuous market making obligations and do not receive “good faith” market maker margin, but instead are subject to full customer margin requirements.

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7.  See Securities Exchange Act Release No. 28612 (November 14, 1990), 55 FR 48308 (November 20, 1990) (File No. SR-Amex-90-17).

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8.  Amendment No. 1. The exchange also originally proposed a technical change to Amex Rule 958. The change is unnecessary because it was previously proposed by the Amex and approved by the Commission. (See Securities Exchange Act Release No. 45320 (January 18, 2002), 67 FR 3921 (January 28, 2002) (File No. SR-Amex-2001-79).

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[FR Doc. 02-19315 Filed 7-30-02; 8:45 am]

BILLING CODE 8010-01-P