Self-Regulatory Organizations; Order Approving Proposed Rule Change by the American Stock Exchange LLC To Require Members To Complete Systems Training and To Include Violations of This Requirement in Its Minor Rule Violation Plan, 19535-19536 [E5-1742]
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Federal Register / Vol. 70, No. 70 / Wednesday, April 13, 2005 / Notices
(3) clarify that an Exchange Official who
is appointed as a Senior Floor Official
may not participate in meetings of the
Board unless the Board invites such
person to attend its meetings.8
The Commission finds that the
proposed rule change, as amended, is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange 9 and, in particular,
the requirements of Section 6(b) of the
Act 10 and the rules and regulations
thereunder. The Commission finds
specifically that the proposed rule
change, as amended, is consistent with
Section 6(b)(5) of the Act,11 in that the
proposed rule change, as amended, is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest; and is
not designed to permit unfair
discrimination between customers,
issuers, brokers or dealers.
The Commission notes that the
proposed rule change, as amended, is
designed to facilitate the supervision of
trading activity on the Exchange’s
trading floor. The proposal would
expand the pool of Exchange Officials
who could be appointed to serve as
Senior Floor Officials by eliminating the
requirement that such Exchange
with future Amex rule changes. Under the
amendment to Amex Rule 21, Exchange Officials
appointed as Senior Floor Officials would be able
to act in place of Floor Governors with respect to
these responsibilities. The following is a list of
Amex rules that call for action or review by Floor
Governors or Senior Floor Officials: Rule 1 (Hours
of Business), Rule 22 (Authority of Floor Officials),
Rule 25 (Cabinet Trading of Equity and Derivative
Securities), Rule 26 (Performance Committee), Rule
27 (Allocations Committee), Rule 118 (Trading in
Nasdaq National Market Securities), Rule 119
(Indications, Openings and Reopenings), Rule 128A
(Automatic Execution), Rule 170 (Registration and
Functions of Specialists), Rule 590 (Minor Rule
Violation Fine System), Rule 904 (Position Limits),
Rule 918 (Trading Rotations, Halts and
Suspensions), Rule 933 (Automatic Execution of
Option Orders), Rule 959 (Accommodation
Transactions), Rule 918C (Trading Rotations, Halts
and Suspensions), Rule 933–ANTE (Automatic
Matching and Execution of Options Orders).
8 Article II, Section 3 of the Amex Constitution
(The Board of Governors—Powers, Duties and
Procedures) currently allows the Board to invite
persons who are not members of the Board to
participate in meetings of the Board. In relevant
part, Article II, Section 3 provides: ‘‘The Board may
invite a person, not a member thereof, to attend its
meetings and to participate in its deliberations, but
such person shall not have the right to vote.’’
9 In approving this proposed rule change, the
Commission notes that it has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
10 15 U.S.C. 78f(b).
11 15 U.S.C. 78f(b)(5).
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18:37 Apr 12, 2005
Jkt 205001
Officials previously must have served as
an Exchange Governor. Further, the
proposal specifies that Exchange
Officials who are appointed as Senior
Floor Officials would have the same
authority and responsibilities as a Floor
Governor with respect to matters that
arise on the floor and require review or
action by a Floor Governor or Senior
Floor Official. The Commission also
notes that the proposed rule change
would clarify the status of Exchange
Officials who are appointed as Senior
Floor Officials by specifying that these
officials may not participate in Board
meetings except to the extent that they
are invited to attend such meetings. The
Commission finds that the proposed
rule change, as amended, is consistent
with Section 6(b) of the Act.12
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,13 that the
proposed rule change (SR–Amex–2004–
65), as amended, be, and hereby is,
approved.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
Authority.14
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 05–7435 Filed 4–12–05; 8:45 am]
BILLING CODE 8010–01–M
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51502; File No. SR–Amex–
2005–009]
Self-Regulatory Organizations; Order
Approving Proposed Rule Change by
the American Stock Exchange LLC To
Require Members To Complete
Systems Training and To Include
Violations of This Requirement in Its
Minor Rule Violation Plan
April 7, 2005.
On February 1, 2005, the American
Stock Exchange LLC (‘‘Amex’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘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
adopt new Amex Rule 51 to require its
members to complete training in such
systems as the Exchange may require
and to amend its Minor Rule Violation
Plan (‘‘Plan’’) to allow the Exchange to
issue minor fines for non-compliance
with this rule. The proposed rule
PO 00000
12 15
U.S.C. 78f(b).
U.S.C. 78s(b)(2).
14 17 CFR 200.30,–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
13 15
Frm 00124
Fmt 4703
Sfmt 4703
19535
change was published for comment in
the Federal Register on March 8, 2005.3
The Commission received no comments
regarding the proposal.
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.4 In particular, the
Commission believes that the proposal
is consistent with Section 6(b)(5) of the
Act,5 because a rule that is reasonably
designed to require Exchange members
to complete necessary systems training
should protect investors and the public
interest. The Commission also believes
that handling violations of Amex Rule
51 pursuant to the Exchange’s Plan is
consistent with Sections 6(b)(1) and
6(b)(6) of the Act 6 which require that
the rules of an exchange enforce
compliance with, and provide
appropriate discipline for, violations of
Commission and Exchange rules. In
addition, because existing Amex Rule
590 provides procedural rights to a
person fined under the Plan to contest
the fine and permits a hearing on the
matter, the Commission believes the
Plan, as amended by this proposal,
provides a fair procedure for the
disciplining of members and persons
associated with members, consistent
with Sections 6(b)(7) and 6(d)(1) of the
Act.7
Finally, the Commission finds that the
proposal is consistent with the public
interest, the protection of investors, or
otherwise in furtherance of the purposes
of the Act, as required by Rule 19d–
1(c)(2) under the Act 8 which governs
minor rule violation plans. The
Commission believes that the change to
Amex’s Plan will strengthen its ability
to carry out its oversight and
enforcement responsibilities as a selfregulatory organization in cases where
full disciplinary proceedings are
unsuitable in view of the minor nature
of the particular violation.
In approving this proposed rule
change, the Commission in no way
minimizes the importance of
compliance with Amex rules and all
other rules subject to the imposition of
fines under the Exchange’s Plan. The
Commission believes that the violation
of any self-regulatory organization’s
3 See Securities Exchange Act Release No. 51294
(March 2, 2005), 70 FR 11282.
4 In approving this proposed rule change, the
Commission notes that it has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
5 15 U.S.C. 78f(b)(5).
6 15 U.S.C. 78f(b)(1) and 78f(b)(6).
7 15 U.S.C. 78f(b)(7) and 78f(d)(1).
8 17 CFR 240.19d–1(c)(2).
E:\FR\FM\13APN1.SGM
13APN1
19536
Federal Register / Vol. 70, No. 70 / Wednesday, April 13, 2005 / Notices
rules, as well as Commission rules, is a
serious matter. However, the Exchange’s
Plan provides a reasonable means of
addressing rule violations that do not
rise to the level of requiring formal
disciplinary proceedings, while
providing greater flexibility in handling
certain violations. The Commission
expects that Amex will continue to
conduct surveillance with due diligence
and make a determination based on its
findings, on a case-by-case basis,
whether a fine of more or less than the
recommended amount is appropriate for
a violation under the Plan or whether a
violation requires formal disciplinary
action.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act 9 and Rule
19d–1(c)(2) under the Act,10 that the
proposed rule change (SR–Amex–2005–
009) be, and hereby is, approved and
declared effective.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.11
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–1742 Filed 4–12–05; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations; Notice
of Filing of Proposed Rule Change and
Partial Amendment No. 1 Thereto By
the Chicago Board Options Exchange,
Incorporated To Amend Rules Relating
Margin Treatment on Stock
Transactions Effected By an Options
Market Maker To Hedge Options
Positions
April 6, 2005.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘the
Act’’) 1 and Rule 19b–4 2 thereunder,
notice is hereby given that on July 30,
2004, the Chicago Board Options
Exchange, Incorporated (‘‘CBOE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’ or ‘‘SEC’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by the Exchange. On February
22, 2005, the CBOE filed a partial
amendment to its proposed rule
U.S.C. 78s(b)(2).
CFR 240.19d–1(c)(2).
11 17 CFR 200.30–3(a)(12); 17 CFR 200.30–
3(a)(44).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
VerDate jul<14>2003
19:24 Apr 12, 2005
Jkt 205001
The Chicago Board Options Exchange,
Incorporated (the ‘‘CBOE’’ or
‘‘Exchange’’) is proposing to eliminate a
rule that essentially disallows favorable
margin treatment on stock transactions
initiated by options market makers to
hedge an option position if the exercise
price of the option is more than two
standard exercise price intervals above
the price of the stock in the case of a call
option, or below in the case of a put
option. The text of the proposed rule
change is available on CBOE’s Web site
(https://www.cboe.com), at the CBOE’s
Office of the Secretary, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
[Release No. 51497; File No. SR–CBOE–
2004–54]
10 17
Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8010–01–P
9 15
change.3 The Commission is publishing
this notice to solicit comments on the
proposed rule change, as amended, from
interested persons.
When options market makers hedge
their option positions by taking a long
or short position in the underlying
security, the underlying security is
allowed ‘‘good faith’’ margin treatment,4
provided the underlying security meets
the definition of a ‘‘permitted offset.’’ 5
To qualify as a permitted offset, CBOE
Rule 12.3(f)(3) requires, among other
things, that the transaction price of the
underlying security be not more than
two standard exercise price intervals
below the exercise price of the option
being hedged in the case of a call
option, or above in the case of a put
option. The term ‘‘in-or-at-the-money’’
is used in CBOE Rule 12.3(f)(3) to refer
to the two standard strike price interval
requirement. Stated another way, ‘‘in-orat-the-money’’ means the option being
hedged cannot be ‘‘out-of-the-money’’
3 SR–CBOE–2004–54: Amendment No. 1. Under
the partial amendment, the options market maker
must be able to demonstrate that it effected its
permitted offset transactions for market-making
purposes.
4 Good faith margin is defined in Regulation T of
the Board of Governors of the Federal Reserve
System (‘‘Regulation T’’), the margin setting
authority for the securities industry, as the amount
of margin a creditor would require in exercising
sound credit judgment.
5 A ‘‘permitted offset’’ is defined in CBOE Rule
12.3(f)(3).
PO 00000
Frm 00125
Fmt 4703
Sfmt 4703
by more than two standard exercise
price intervals.6
The intent of this requirement was to
confine good faith margining of
transactions in the underlying security
to those that constituted meaningful
hedges of an option position. The need
to hedge with 100 shares or units of the
underlying security diminishes the
more the exercise price of a call option
is above the price of the underlying
security, and the more the exercise price
of a put option is below. If these
inexpensive, ‘‘out-of-the-money’’
options are offset with a position in the
underlying security equivalent in size
(that is, units or shares) to that
represented by the option, the risk of the
combined positions is nearly the same
as the underlying security position
without the option. The option has very
little effect. To prevent inexpensive,
‘‘out-of-the-money’’ options from being
used as a means to gain good faith
margin for trading in the underlying
security, the two standard strike price
interval limitation was imposed.
The Exchange is proposing to remove
the ‘‘in-or-at-the-money’’ requirement.7
The Exchange believes that a hedging
transaction in the underlying security
by an options market-maker can
constitute a reasonable hedge, and is
deserving of good faith margin, even if
the exercise price of the option is outof-the-money by more than two
standard exercise price intervals. The
listing of option series is not limited to
options that meet the ‘‘in-or-at-themoney’’ requirement and options
market-makers are obligated to provide
liquidity in such ‘‘out-of-the money’’
options. In today’s listed options
market, there can be numerous options
series that are out-of-the-money, more
so than when the idea of an ‘‘in-or-atthe-money’’ requirement was first
conceived. Moreover, in today’s listed
options market, smaller standard
exercise price intervals have been
introduced in some options (for
example, 1 point and 21⁄2 points), in
contrast to the earlier days of the listed
6 An option is ‘‘out-of-the-money’’ when, based
on comparison of the exercise price to the current
market price of the underlying security, it makes no
economic sense to exercise the option. For example,
a call option with the right to purchase the
underlying security at $50 per share would not be
exercised if the underlying security were trading in
the market for $46 per share.
7 The New York Stock Exchange (‘‘NYSE’’) also
has filed a proposed rule change to remove the ‘‘inor-at-the-money’’ language from its rules on
permitted offsets. Although the language of the
NYSE’s proposed rule change differs from the
language of the CBOE’s proposed rule change, the
proposed changes from the two exchanges are
substantively identical. The Commission is
publishing a notice to solicit comments on the
NYSE’s proposed rule change.
E:\FR\FM\13APN1.SGM
13APN1
]]>Agencies
[Federal Register Volume 70, Number 70 (Wednesday, April 13, 2005)]
[Notices]
[Pages 19535-19536]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-1742]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51502; File No. SR-Amex-2005-009]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change by the American Stock Exchange LLC To Require Members To
Complete Systems Training and To Include Violations of This Requirement
in Its Minor Rule Violation Plan
April 7, 2005.
On February 1, 2005, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``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 adopt new Amex Rule 51 to require its members
to complete training in such systems as the Exchange may require and to
amend its Minor Rule Violation Plan (``Plan'') to allow the Exchange to
issue minor fines for non-compliance with this rule. The proposed rule
change was published for comment in the Federal Register on March 8,
2005.\3\ The Commission received no comments regarding the proposal.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 51294 (March 2,
2005), 70 FR 11282.
---------------------------------------------------------------------------
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.\4\ In
particular, the Commission believes that the proposal is consistent
with Section 6(b)(5) of the Act,\5\ because a rule that is reasonably
designed to require Exchange members to complete necessary systems
training should protect investors and the public interest. The
Commission also believes that handling violations of Amex Rule 51
pursuant to the Exchange's Plan is consistent with Sections 6(b)(1) and
6(b)(6) of the Act \6\ which require that the rules of an exchange
enforce compliance with, and provide appropriate discipline for,
violations of Commission and Exchange rules. In addition, because
existing Amex Rule 590 provides procedural rights to a person fined
under the Plan to contest the fine and permits a hearing on the matter,
the Commission believes the Plan, as amended by this proposal, provides
a fair procedure for the disciplining of members and persons associated
with members, consistent with Sections 6(b)(7) and 6(d)(1) of the
Act.\7\
---------------------------------------------------------------------------
\4\ In approving this proposed rule change, the Commission notes
that it has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
\5\ 15 U.S.C. 78f(b)(5).
\6\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
\7\ 15 U.S.C. 78f(b)(7) and 78f(d)(1).
---------------------------------------------------------------------------
Finally, the Commission finds that the proposal is consistent with
the public interest, the protection of investors, or otherwise in
furtherance of the purposes of the Act, as required by Rule 19d-1(c)(2)
under the Act \8\ which governs minor rule violation plans. The
Commission believes that the change to Amex's Plan will strengthen its
ability to carry out its oversight and enforcement responsibilities as
a self-regulatory organization in cases where full disciplinary
proceedings are unsuitable in view of the minor nature of the
particular violation.
---------------------------------------------------------------------------
\8\ 17 CFR 240.19d-1(c)(2).
---------------------------------------------------------------------------
In approving this proposed rule change, the Commission in no way
minimizes the importance of compliance with Amex rules and all other
rules subject to the imposition of fines under the Exchange's Plan. The
Commission believes that the violation of any self-regulatory
organization's
[[Page 19536]]
rules, as well as Commission rules, is a serious matter. However, the
Exchange's Plan provides a reasonable means of addressing rule
violations that do not rise to the level of requiring formal
disciplinary proceedings, while providing greater flexibility in
handling certain violations. The Commission expects that Amex will
continue to conduct surveillance with due diligence and make a
determination based on its findings, on a case-by-case basis, whether a
fine of more or less than the recommended amount is appropriate for a
violation under the Plan or whether a violation requires formal
disciplinary action.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\9\ and Rule 19d-1(c)(2) under the Act,\10\ that the proposed rule
change (SR-Amex-2005-009) be, and hereby is, approved and declared
effective.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78s(b)(2).
\10\ 17 CFR 240.19d-1(c)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
---------------------------------------------------------------------------
\11\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(44).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1742 Filed 4-12-05; 8:45 am]
BILLING CODE 8010-01-P
