Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to the Elimination of Commentary .01(5) to Amex Rule 916, 59380-59382 [E5-5574]
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59380
Federal Register / Vol. 70, No. 196 / Wednesday, October 12, 2005 / Notices
accordance with rule 53(c), affirmatively
demonstrate that the issue and sale of a
security to finance the acquisition of an
EWG or the guarantee of a security of an
EWG will not have a substantial adverse
impact upon the financial integrity of
the registered holding company system
and will not have an adverse impact on
any utility subsidiary, its customers or
on the ability of State commissions to
protect the subsidiary or customers.
III. Rules 53(b)(1) and 53(c)
A. Rule 53(b)(1)
Rule 53(b)(1) states that the safe
harbor provided by the rule generally is
not available if: (1) The registered
holding company or any subsidiary
company having assets with book value
exceeding 10% or more of consolidated
retained earnings has been the subject of
a bankruptcy proceeding; (2) the average
consolidated retained earnings for the
four most recent quarterly periods have
decreased by 10% from the average for
the previous four quarterly periods and
the aggregate investment in EWGs and
FUCOs exceeds two percent of total
capital invested in utility operations; or
(3) in the previous fiscal year, the
registered holding company reported
operating losses attributable to its direct
or indirect investments in EWGs and
FUCOs, and the losses exceed an
amount equal to 5% of consolidated
retained earnings.
On September 23, 2005, Entergy New
Orleans, Inc. (‘‘ENO’’), a public utility
subsidiary of Entergy, filed a voluntary
petition for relief under Chapter 11 of
the U.S. Bankruptcy Code (‘‘Bankruptcy
Code’’) in the United States Bankruptcy
Court for the Eastern District of
Louisiana. The book value of ENO’s
assets exceeded 10% of Entergy’s
‘‘consolidated retained earnings’’ as of
June 30, 2005. Consequently, the
circumstances described in rule 53(b)(1)
have occurred.
The bankruptcy petition was
precipitated by the unanticipated and
devastating impact of Hurricane Katrina,
which destroyed substantial portions of
ENO’s facilities, disrupted its revenues,
and, with the evacuation of the City of
New Orleans (‘‘City’’), eliminated at
least in the short term, the quality of
ENO’s customer base, which is directly
linked to the fortunes of the City. ENO
is continuing in possession of its
properties and has continued to operate
its business as a debtor-in-possession
pursuant to sections 1107(a) and 1108 of
the Bankruptcy Code.3
3 On September 26, 2005, the Commission issued
an emergency order (Holding Company Act Release
No. 28036) authorizing Entergy and ENO to enter
into a secured $200 million credit facility and
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19:48 Oct 11, 2005
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ENO’s most pressing concern, and the
immediate cause of its bankruptcy
filing, is the liquidity crisis resulting
from the hurricane’s severe disruption
to operations. ENO estimates that over
one hundred thousand of its customers
are presently unable to accept electric
and gas service, and will remain unable
to accept such service for a period of
time that cannot yet be determined.
Other customers in the New Orleans
area who have had their utility services
restored have been displaced by
Hurricane Katrina. The ordinary cycle of
customer payment of utility bills has
been shattered. As a result, ENO’s cash
receipts have been significantly below
normal levels since the hurricane.
B. Rule 53(c)
In accordance with rule 53(c), Entergy
believes that the transactions authorized
in the Original Order, 2000 Order and
2004 Order (to the extent they involve
the issuance of securities by Entergy to
finance the acquisition of EWGs), (i)
will not have a substantial adverse
impact upon Entergy’s financial
integrity and (ii) will not have an
adverse impact on Entergy’s utility
subsidiaries (including ENO), their
customers or on the ability of Entergy’s
state and local regulators to protect the
subsidiaries or customers. In support of
its position, Entergy states that:
1. As of June 30, 2005, Entergy’s
aggregate investment in Exempt Projects
was equal to 17% of Entergy’s total
consolidated capitalization, 15% of
consolidated net utility plant and 18%
of the market value of Entergy’s
common stock. As of March 31, 2000
(the most recent calendar quarter
preceding the 2000 Order), Entergy’s
aggregate investment in Exempt Projects
was equal to 7% of Entergy’s total
capitalization, 7% of Entergy’s
consolidated net utility plant and 24%
of the market value of Entergy’s
outstanding common stock.
2. Entergy’s consolidated retained
earnings have grown by an average of
12% annually during the period since
the Commission issued the 2000 Order
(i.e., from June 30, 2000 through June
30, 2005).
3. Income from Entergy’s investments
in Exempt Projects has contributed
positively to its overall earnings during
the period since the Commission issued
the 2000 Order.
4. As of March 31, 2000 (the most
recent calendar quarter preceding the
allowing ENO to borrow up to $150 million under
the credit facility. In addition the order modified
two outstanding orders so as to eliminate the
requirements that ENO maintain common equity of
at least 30% of its consolidated capitalization and
investment grade credit ratings.
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2000 Order), Entergy’s consolidated
capitalization ratio was approximately
50.0% debt and approximately 50.0%
equity, consisting of approximately
5.0% preferred stock and approximately
45.0% common stock. As of June 30,
2005, Entergy’s consolidated
capitalization ratio was approximately
50.6% debt and approximately 49.4%
equity, consisting of approximately
2.3% preferred stock and approximately
47.1% common stock. These ratios are
within industry ranges set by the
independent debt rating agencies for
BBB-rated electric utility companies.
5. As of the date of the Amended
Declarations, each of the considerations
set forth in the 2000 Order, in support
of Entergy’s assertion that its existing
and proposed level of investment in
Exempt Projects would not have an
adverse impact on any Entergy
operating utility subsidiaries or their
ratepayers, or on the ability of interested
state commissions to protect the utilities
and their customers, continues to apply.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5–5580 Filed 10–11–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52563; File No. SR–Amex–
2004–74]
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing of Proposed Rule Change and
Amendment No. 1 Thereto Relating to
the Elimination of Commentary .01(5)
to Amex Rule 916
October 4, 2005.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’),1 and Rule 19b–4
thereunder,2 notice is hereby given that
on August 27, 2004, 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 Amex. On
September 26, 2005, Amex filed
Amendment No. 1 to the proposed rule
change.3 The Commission is publishing
1 15
U.S.C 78s(b)(1).
CFR 240.19b–4.
3 In Amendment No. 1, Amex proposed to amend
the rule text of Amex Rule 915, in order to
substitute the term ‘‘NMS stock’’ for the term
‘‘national market system security,’’ for consistency
2 17
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Federal Register / Vol. 70, No. 196 / Wednesday, October 12, 2005 / Notices
this notice to solicit comments on the
proposed rule change, as amended, from
interested persons.
will not be deemed to meet the
Exchange’s requirements for continued
approval whenever:
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to eliminate
Commentary .01(5) to Exchange Rule
916, which governs the withdrawal of
approval for securities underlying
options traded on the Exchange and
amend Exchange Rule 915(a), which
governs the criteria of underlying
securities with respect to which option
contracts are approved for listing and
trading on the Exchange. The text of the
proposed rule change is available on
Amex’s Web site (https://
www.amex.com), at the Office of the
Secretary of Amex, and at the
Commission’s Public Reference Room.
5. The issuer has failed to make timely
reports as required by applicable
requirements of the Securities Exchange Act
of 1934, and such failure has not been
corrected within 30 days after the date the
report was due to be filed.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Amex 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. Amex 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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to eliminate Commentary
.01(5) to Amex Rule 916. Commentary
.01 sets forth the guidelines to be
considered by the Exchange in
determining whether an underlying
security previously approved for
options trading continues to be
appropriate. Specifically, Rule 916 and
related Commentary .01 provide that if
an underlying security previously
approved by the Exchange does not
meet the then current requirements for
continuance, the Exchange will not
open for trading additional series of
such options class and may also limit
any new opening transactions in those
options series that have previously been
opened for trading.
Commentary .01(5), in particular,
provides that an underlying security
with Regulation NMS. See Securities Exchange Act
Release No. 51808 (June 9, 2005), 70 FR 37496 (June
29, 2005).
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19:48 Oct 11, 2005
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The Exchange proposes to eliminate this
provision based on its experience in
recent years applying this requirement.
The Exchange believes that this
provision limits the ability of investors
to use options to hedge existing equity
positions and is not necessary given the
entire application of Commentary .01. In
addition, the Exchange notes that the
underlying security will continue to
trade on national securities exchanges,
regardless of the late filings or reports
required by the Exchange Act.
The Exchange submits that
Commentary .01(5) potentially harms
investors and the marketplace by
preventing the use of new options series
to hedge positions in the underlying
security of companies that fail to make
timely reports required by the Exchange
Act. The Exchange states that this
restriction is inconsistent with the
underlying equity markets, whereby
failure to properly file Exchange Act
reports does not result in a similar
trading restriction. Accordingly, the
Exchange maintains that Commentary
.01(5) limits the ability of investors who
may wish to hedge their underlying
stock positions with new options series,
at a time when the ability to hedge may
be particularly important.
The Exchange believes that
Commentary .01(5) has substantially
outlived any usefulness and now serves
to unnecessarily burden and confuse the
investing public. Commentary .01(5) to
Rule 916 has been a part of the
Exchange’s continued listing criteria
since late 1976, shortly after the listing
and trading of standardized options
commenced on the Exchange. In
contrast to 1976, the Exchange states
that the standardized options market
today is a mature market largely
consisting of sophisticated investors
with significant access to information,
such as information on the failure of a
company to make timely Exchange Act
reports. Therefore, the Exchange
contends that there is no reason to limit
the opportunity for investors to execute
transactions in options classes
(including new series within those
classes) simply because a company is
not timely in filing its Exchange Act
reports, when investors are not similarly
restricted from purchasing or selling
shares in the underlying company.
PO 00000
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59381
Moreover, the limitation on new
options series imposed pursuant to
Commentary .01(5) causes considerable
confusion and frustration in the options
marketplace because it only restricts the
trading of new series in a given option
class. The Exchange has found that
Commentary .01(5) tends to confuse
both public customers and market
professionals, who find themselves
restricted from trading any new options
series in a given class at the same time
that trading occurs in pre-existing
options series or the underlying stock
itself. Still further confusion can arise in
this process because the Exchange
maintains that Amex, as well as the
other options exchanges, have no
independent means to verify whether
any of the listed securities underlying
options traded at the Exchange have
failed to meet their Exchange Act
reporting requirements. Accordingly,
the options exchanges, including Amex,
must rely on other SROs or third parties
for such notification, which is always
difficult to monitor, particularly since
such third-party reports are sometimes
delayed or inaccurate.4
The Exchange further submits that
Commentary .01(5) is unnecessary for
the protection of investors and the
marketplace. For example, underlying
securities that are delisted or fail to be
NMS securities are no longer approved
for options trading under existing rules.
Specifically, existing Commentary .01(6)
to Rule 916 provides that an underlying
security will no longer be approved for
options transactions when:
‘‘(6) The issue, in the case of an underlying
security that is principally traded on a
national securities exchange, is delisted from
trading on that exchange and neither meets
NMS criteria nor traded through the facilities
4 The Exchange notes that it has a procedure in
place to monitor when an underlying security
previously approved for option transaction ceases
to trade on or is delisted from its primary listed
market. The Exchange’s Listing Qualification
Department (‘‘Department’’) monitors: (1) The daily
list services issued by the primary listing markets
(such as the New York Stock Exchange, Inc., Amex,
and The Nasdaq Stock Market); (2) press releases
issued by the primary listing markets and the news
wires; and (3) information circulars issued by the
primary listing markets. If the Department is aware
that an underlying security may be halted for
trading on or delisted from its primary listed
market, the Department would monitor such
security closely on a daily basis. In the event of a
delisting of the underlying security from its primary
listed market, Amex will cease opening new series
of options in such security and allow the existing
series of options to expire. Additionally, if the
underlying security has been halted or suspended
in the primary market, the Exchange may halt
trading in the option class pursuant to Amex Rule
918(b) and shall halt trading pursuant to Amex Rule
117. Telephone conversation between Jeffrey Burns,
Associate General Counsel, Amex, and Steve L.
Kuan, Special Counsel, Division of Market
Regulation, Commission, September 29, 2005.
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Federal Register / Vol. 70, No. 196 / Wednesday, October 12, 2005 / Notices
of a national securities association, or the
issue, in the case of an underlying security
that is principally traded through the
facilities or a national securities association,
is no longer designated as an NMS
security.’’ 5
Amex believes a better approach is to
limit or suspend options trading when
the underlying security itself has been
delisted and not subject the process to
the inherent uncertainty of a failure of
the underlying company to timely file
its Exchange Act reports. The Exchange
accordingly submits that Commentary
.01(5) should be eliminated.
Moreover, the Exchange is amending
Amex Rule 915(a) to substitute ‘‘NMS
stock’’ as defined in Regulation NMS for
the previous description of a national
market system security. In addition, the
Exchange is updating Commentary
.01(6) of Rule 916 in light of Regulation
NMS.
Both of these provisions include a
requirement that the underlying security
must be a national market system
security (‘‘NMS security’’). As part of
the recently adopted Regulation NMS,
among other things, the Commission
revised the definition of an ‘‘NMS
security.’’ 6 Specifically, Rule 600(b)(46)
under Regulation NMS defines an NMS
security as ‘‘any security or class of
securities for which transaction reports
are collected, processed, and made
available pursuant to an effective
transaction reporting plan, or an
effective national market system plan
for reporting transactions in listed
options.’’ Rule 600(b)(47) also defines
an ‘‘NMS stock’’ as any NMS security
other than an option. As such, Exchange
Rule 915(a) and Commentary .01(6) of
Exchange Rule 916 will be amended to
reflect these new terms.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,7 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,8 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
change, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities,
and to remove impediments to and
5 In Amendment No. 1, the Exchange proposed to
amend Amex Rule 916, Commentary .01(6) to
update the rule text with respect to the definition
of ‘‘NMS stock’’ in Regulation NMS under the Act.
Telephone conversation between Jeffrey Burns,
Associate General Counsel, Amex, and Steve L.
Kuan, Special Counsel, Division of Market
Regulation Commission, September 29, 2005.
6 See supra note 3.
7 15 U.S.C. 78f.
8 15 U.S.C. 78f(b)(5).
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19:48 Oct 11, 2005
Jkt 208001
perfect the mechanism of a free and
open market and a national market
system.
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.
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.
Internet Web site (https://www.sec.gov/
rules/sro.shtml). 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
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of the Exchange. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–Amex–2004–74 and should
be submitted on or before November 2,
2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.9
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5–5574 Filed 10–11–05; 8:45 am]
BILLING CODE 8010–01–P
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.
Comments may be submitted by any of
the following methods:
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52562; File No. SR–CBOE–
2004–37]
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–Amex–2004–74 on the
subject line.
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of
Proposed Rule Change and
Amendment No. 1 Thereto Relating to
the Deletion of Interpretation and
Policy .01(e) to CBOE Rule 5.4
October 4, 2005.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’),1 and Rule 19b–4
thereunder,2 notice is hereby given that
Paper Comments
on July 1, 2004, the Chicago Board
• Send paper comments in triplicate
Options Exchange, Incorporated
to Jonathan G. Katz, Secretary,
(‘‘CBOE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission,
Securities and Exchange Commission
100 F Street, NE., Washington, DC
(‘‘Commission’’) the proposed rule
20549–9303.
change as described in Items I, II, and
All submissions should refer to File
III below, which Items have been
Number SR–Amex–2004–74. This file
prepared by the CBOE. On September
number should be included on the
21, 2005, the Exchange filed
subject line if e-mail is used. To help the Amendment No. 1 to the proposed rule
Commission process and review your
comments more efficiently, please use
9 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
only one method. The Commission will
2 17 CFR 240.19b–4.
post all comments on the Commission’s
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]]>Agencies
[Federal Register Volume 70, Number 196 (Wednesday, October 12, 2005)]
[Notices]
[Pages 59380-59382]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-5574]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52563; File No. SR-Amex-2004-74]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto
Relating to the Elimination of Commentary .01(5) to Amex Rule 916
October 4, 2005.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on August 27, 2004, 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 Amex. On
September 26, 2005, Amex filed Amendment No. 1 to the proposed rule
change.\3\ The Commission is publishing
[[Page 59381]]
this notice to solicit comments on the proposed rule change, as
amended, from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, Amex proposed to amend the rule text of
Amex Rule 915, in order to substitute the term ``NMS stock'' for the
term ``national market system security,'' for consistency with
Regulation NMS. See Securities Exchange Act Release No. 51808 (June
9, 2005), 70 FR 37496 (June 29, 2005).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to eliminate Commentary .01(5) to Exchange
Rule 916, which governs the withdrawal of approval for securities
underlying options traded on the Exchange and amend Exchange Rule
915(a), which governs the criteria of underlying securities with
respect to which option contracts are approved for listing and trading
on the Exchange. The text of the proposed rule change is available on
Amex's Web site (https://www.amex.com), at the Office of the Secretary
of Amex, 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
In its filing with the Commission, Amex 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. Amex 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to eliminate Commentary
.01(5) to Amex Rule 916. Commentary .01 sets forth the guidelines to be
considered by the Exchange in determining whether an underlying
security previously approved for options trading continues to be
appropriate. Specifically, Rule 916 and related Commentary .01 provide
that if an underlying security previously approved by the Exchange does
not meet the then current requirements for continuance, the Exchange
will not open for trading additional series of such options class and
may also limit any new opening transactions in those options series
that have previously been opened for trading.
Commentary .01(5), in particular, provides that an underlying
security will not be deemed to meet the Exchange's requirements for
continued approval whenever:
5. The issuer has failed to make timely reports as required by
applicable requirements of the Securities Exchange Act of 1934, and
such failure has not been corrected within 30 days after the date
the report was due to be filed.
The Exchange proposes to eliminate this provision based on its
experience in recent years applying this requirement. The Exchange
believes that this provision limits the ability of investors to use
options to hedge existing equity positions and is not necessary given
the entire application of Commentary .01. In addition, the Exchange
notes that the underlying security will continue to trade on national
securities exchanges, regardless of the late filings or reports
required by the Exchange Act.
The Exchange submits that Commentary .01(5) potentially harms
investors and the marketplace by preventing the use of new options
series to hedge positions in the underlying security of companies that
fail to make timely reports required by the Exchange Act. The Exchange
states that this restriction is inconsistent with the underlying equity
markets, whereby failure to properly file Exchange Act reports does not
result in a similar trading restriction. Accordingly, the Exchange
maintains that Commentary .01(5) limits the ability of investors who
may wish to hedge their underlying stock positions with new options
series, at a time when the ability to hedge may be particularly
important.
The Exchange believes that Commentary .01(5) has substantially
outlived any usefulness and now serves to unnecessarily burden and
confuse the investing public. Commentary .01(5) to Rule 916 has been a
part of the Exchange's continued listing criteria since late 1976,
shortly after the listing and trading of standardized options commenced
on the Exchange. In contrast to 1976, the Exchange states that the
standardized options market today is a mature market largely consisting
of sophisticated investors with significant access to information, such
as information on the failure of a company to make timely Exchange Act
reports. Therefore, the Exchange contends that there is no reason to
limit the opportunity for investors to execute transactions in options
classes (including new series within those classes) simply because a
company is not timely in filing its Exchange Act reports, when
investors are not similarly restricted from purchasing or selling
shares in the underlying company.
Moreover, the limitation on new options series imposed pursuant to
Commentary .01(5) causes considerable confusion and frustration in the
options marketplace because it only restricts the trading of new series
in a given option class. The Exchange has found that Commentary .01(5)
tends to confuse both public customers and market professionals, who
find themselves restricted from trading any new options series in a
given class at the same time that trading occurs in pre-existing
options series or the underlying stock itself. Still further confusion
can arise in this process because the Exchange maintains that Amex, as
well as the other options exchanges, have no independent means to
verify whether any of the listed securities underlying options traded
at the Exchange have failed to meet their Exchange Act reporting
requirements. Accordingly, the options exchanges, including Amex, must
rely on other SROs or third parties for such notification, which is
always difficult to monitor, particularly since such third-party
reports are sometimes delayed or inaccurate.\4\
---------------------------------------------------------------------------
\4\ The Exchange notes that it has a procedure in place to
monitor when an underlying security previously approved for option
transaction ceases to trade on or is delisted from its primary
listed market. The Exchange's Listing Qualification Department
(``Department'') monitors: (1) The daily list services issued by the
primary listing markets (such as the New York Stock Exchange, Inc.,
Amex, and The Nasdaq Stock Market); (2) press releases issued by the
primary listing markets and the news wires; and (3) information
circulars issued by the primary listing markets. If the Department
is aware that an underlying security may be halted for trading on or
delisted from its primary listed market, the Department would
monitor such security closely on a daily basis. In the event of a
delisting of the underlying security from its primary listed market,
Amex will cease opening new series of options in such security and
allow the existing series of options to expire. Additionally, if the
underlying security has been halted or suspended in the primary
market, the Exchange may halt trading in the option class pursuant
to Amex Rule 918(b) and shall halt trading pursuant to Amex Rule
117. Telephone conversation between Jeffrey Burns, Associate General
Counsel, Amex, and Steve L. Kuan, Special Counsel, Division of
Market Regulation, Commission, September 29, 2005.
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The Exchange further submits that Commentary .01(5) is unnecessary
for the protection of investors and the marketplace. For example,
underlying securities that are delisted or fail to be NMS securities
are no longer approved for options trading under existing rules.
Specifically, existing Commentary .01(6) to Rule 916 provides that an
underlying security will no longer be approved for options transactions
when:
``(6) The issue, in the case of an underlying security that is
principally traded on a national securities exchange, is delisted
from trading on that exchange and neither meets NMS criteria nor
traded through the facilities
[[Page 59382]]
of a national securities association, or the issue, in the case of
an underlying security that is principally traded through the
facilities or a national securities association, is no longer
designated as an NMS security.'' \5\
\5\ In Amendment No. 1, the Exchange proposed to amend Amex Rule
916, Commentary .01(6) to update the rule text with respect to the
definition of ``NMS stock'' in Regulation NMS under the Act.
Telephone conversation between Jeffrey Burns, Associate General
Counsel, Amex, and Steve L. Kuan, Special Counsel, Division of
Market Regulation Commission, September 29, 2005.
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Amex believes a better approach is to limit or suspend options
trading when the underlying security itself has been delisted and not
subject the process to the inherent uncertainty of a failure of the
underlying company to timely file its Exchange Act reports. The
Exchange accordingly submits that Commentary .01(5) should be
eliminated.
Moreover, the Exchange is amending Amex Rule 915(a) to substitute
``NMS stock'' as defined in Regulation NMS for the previous description
of a national market system security. In addition, the Exchange is
updating Commentary .01(6) of Rule 916 in light of Regulation NMS.
Both of these provisions include a requirement that the underlying
security must be a national market system security (``NMS security'').
As part of the recently adopted Regulation NMS, among other things, the
Commission revised the definition of an ``NMS security.'' \6\
Specifically, Rule 600(b)(46) under Regulation NMS defines an NMS
security as ``any security or class of securities for which transaction
reports are collected, processed, and made available pursuant to an
effective transaction reporting plan, or an effective national market
system plan for reporting transactions in listed options.'' Rule
600(b)(47) also defines an ``NMS stock'' as any NMS security other than
an option. As such, Exchange Rule 915(a) and Commentary .01(6) of
Exchange Rule 916 will be amended to reflect these new terms.
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\6\ See supra note 3.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\7\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\8\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of change, 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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\7\ 15 U.S.C. 78f.
\8\ 15 U.S.C. 78f(b)(5).
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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.
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, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-Amex-2004-74 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.
All submissions should refer to File Number SR-Amex-2004-74. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/
sro.shtml). 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 Room. Copies of such
filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-Amex-2004-74 and should be submitted on or before
November 2, 2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-5574 Filed 10-11-05; 8:45 am]
BILLING CODE 8010-01-P
