Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of Proposed Rule Change and Amendments Nos. 1, 2, and 3 Thereto Relating to Amendments to the Obvious Error Rules, 67765-67772 [05-22164]
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Federal Register / Vol. 70, No. 215 / Tuesday, November 8, 2005 / Notices
2. Section 17(b) of the Act authorizes
the Commission to exempt a transaction
from the provisions of section 17(a) if
the terms of the transaction, including
the consideration to be paid or received,
are reasonable and fair and do not
involve overreaching on the part of any
person concerned and the proposed
transaction is consistent with the
policies of each registered investment
company concerned and with the
general purposes of the Act. Applicants
submit that the Transaction has been
approved by the Board, including a
majority of the Independent General
Partners, is reasonable and fair to SSF
III and its Unit holders and meets the
requirements of section 17(b) of the Act.
Applicants state that the Transaction
will not result in dilution to Unit
holders of SSF III because (a) it will be
effected at the NAV of SSF III’s Units,
which NAV will be calculated in
accordance with SSF III’s policies and
procedures, as set forth in its
registration statement, and computed
using the same methodologies that SSF
III has used to calculate its NAV in
connection with each routine
repurchase offer since its inception,11
and (b) it will involve a pro rata transfer
of SSF III’s portfolio securities to SSF
QP. Applicants further state that, prior
to the Transaction, any Limited Partner
not wishing to remain invested in SSF
III or become invested in SSF QP will
be able to have his or her Units
repurchased for cash at the NAV of the
Units, and all expenses of the
Transaction will be paid by the Adviser
or SSF QP, including the cost of
separating SSF III’s portfolio between
SSF III and SSF QP in the Transaction.
Applicants’ Conditions
Applicants agree that any order
granting the requested relief will be
subject to the following conditions:
1. The Exchange Tender Offer will be
effected at the NAV of SSF III’s Units
determined in accordance with its
registration statement under the Act.
2. The sale of portfolio securities by
SSF III to SSF QP in the Transaction
will comply with the terms of rule 17a–
7(c), (d) and (f) under the Act.
3. At its next regular meeting
following the Transaction, the Board of
SSF III, including a majority of the
Independent General Partners, will
determine whether the Units were
valued in accordance with condition 1
above.
4. SSF III will maintain and preserve
for a period of not less than six years
11 SSF QP has the same policies and procedures,
and will employ the same methodologies to
compute its NAV, as SSF III.
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from the end of the fiscal year in which
the Transaction occurs, the first two
years in an easily accessible place, a
written record of the Transaction setting
forth a description of each security
transferred, the terms of the
Transaction, and the information or
materials upon which the determination
required by condition 3 was made.
5. In the Transaction, the portfolio
securities will be distributed by SSF III
to SSF QP on a pro rata basis, except
that cash may be distributed in lieu of
fractional shares.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 05–22163 Filed 11–7–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Pub. L. 94–409, that the
Securities and Exchange Commission
will hold the following meeting during
the week of November 7, 2005:
A Closed Meeting will be held on
Thursday, November 10, 2005 at 10 a.m.
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meeting. Certain
staff members who have an interest in
the matters may also be present.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(5), (6), (7), (9)(B), and
(10) and 17 CFR 200.402(a)(5), (6), (7),
9(ii) and (10) permit consideration of
the scheduled matters at the Closed
Meeting.
Commissioner Glassman, as duty
officer, voted to consider the items
listed for the closed meeting in closed
session.
The subject matter of the Closed
Meeting scheduled for Thursday,
November 10, 2005 will be:
Formal orders of investigations;
Institution and settlement of
injunctive actions;
Institution and settlement of
administrative proceedings of an
enforcement nature;
Opinion; and a
Regulatory matter bearing
enforcement implications.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
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67765
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
contact: The Office of the Secretary at
(202) 551–5400.
Dated: November 3, 2005.
Jonathan G. Katz,
Secretary.
[FR Doc. 05–22292 Filed 11–3–05; 4:11 pm]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52718; File No. SR–Amex–
2005–060]
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing of Proposed Rule Change and
Amendments Nos. 1, 2, and 3 Thereto
Relating to Amendments to the
Obvious Error Rules
November 2, 2005.
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,
2005, 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
September 21, 2005, the Amex
submitted Amendment No. 1 to the
proposed rule change.3 On October 4,
2005, the Amex submitted Amendment
No. 2 to the proposed rule change.4 On
October 27, 2005, the Amex submitted
Amendment No. 3 to the proposed rule
change.5 The Commission 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: (i) Amend the
equity and index options obvious error
rules to revise the manner in which an
obvious price error is determined for
both equity and index options; (ii)
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Form 19b–4 dated September 21, 2005,
which replaced the original filing in its entirety
(‘‘Amendment No. 1’’).
4 Amendment No. 2 corrected technical errors in
the proposed rule text.
5 Amendment No. 3 incorporated certain
proposed revisions to Amex Rules 936 and 936—
ANTE contained in Amendment No. 1 to Amex
Rules 936C and 936C—ANTE and corrected an
error in the proposed rule text of Amex Rules 936C
and 936C—ANTE.
2 17
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Federal Register / Vol. 70, No. 215 / Tuesday, November 8, 2005 / Notices
the most liquidity in that option class in
the previous two calendar months. The
Theoretical Price will not include the
last bid price (erroneous sell
transaction) or last offer price
(erroneous buy transaction) of the
competing options exchange that has
the most liquidity in that options class
in the previous two calendar quarters if
such competing options exchange
widens its quote to incorporate the prior
erroneous quote of the Exchange. In
such a case, the Theoretical Price shall
be the last bid price (erroneous sell
transaction) and the last offer price
(erroneous buy transaction) just prior to
the trade, disseminated by the
competing options exchange with the
next best liquidity. If there are no
competing options exchanges left
without an erroneous quote, the
Theoretical Price shall be the first quote
of the competing options exchange, that
has the most liquidity in that options
Rule 936. Cancellation and Adjustment
class in the previous two calendar
of Equity Options Transactions
quarters, after the transaction(s) in
This Rule governs the cancellation
question that does not reflect the
and adjustment of transactions
erroneous quote. If there are no quotes
involving equity options. Rules 936C
for comparison, designated Trading
and 936C—ANTE govern the
Officials will determine the Theoretical
cancellation and adjustment of
Price. For transactions occurring as part
transactions involving options on
of an opening, the Theoretical Price
indexes, exchange-traded funds
shall be the first quote after the
(‘‘ETFs’’) and trust issued receipts
transaction(s) in question that does not
(‘‘TIRs’’). Paragraphs (a)(1) and (2) of
reflect the erroneous transaction(s).
(i) Cancellation or Price Adjustment.
this Rule have no applicability to trades
Obvious Pricing Errors will be cancelled
executed in open outcry.
(a) Trades Subject to Review. A
or adjusted as follows.
• Transactions Between Amex
member or person associated with a
specialists/registered options traders
member may have a trade cancelled or
(ROTs): Where both parties to the
adjusted if, in addition to satisfying the
transaction are Amex specialists/ROTs,
procedural requirements of paragraph
the execution price of the transaction
(b) below, one of the following
will be adjusted by Trading Officials to
conditions is satisfied:
(1) Obvious Price Error. An obvious
the prices provided in Paragraphs (A)
pricing error occurs when the execution and (B) below, minus (plus) an
price of an electronic transaction is
adjustment penalty (‘‘adjustment
above or below the Theoretical Price for penalty’’), unless both parties agree to
the series by an amount equal to at least adjust the transaction to a different price
the amount shown below:
or agree to cancel the trade within
fifteen (15) minutes of being notified by
Minimum Trading Officials of the Obvious Error.
Theoretical price
amount
(A) Erroneous buy transactions will be
adjusted to their Theoretical Price plus
Below $2 .......................................
$0.25
$2 to $5 ........................................
0.40 an adjustment penalty of either $.15 if
Above $5 to $10 ...........................
0.50 the Theoretical Price is under $3 or $.30
Above $10 to $20 .........................
0.80 if the Theoretical Price is at or above $3.
(B) Erroneous sell transactions will be
Above $20 ....................................
1.00
adjusted to their Theoretical Price
Definition of Theoretical Price. For
minus an adjustment penalty of either
purposes of this Rule only, the
$.15 if the Theoretical Price is under $3
Theoretical Price of an option series is,
or $.30 if the Theoretical Price is at or
for series traded on at least one other
above $3.
options exchange, the last bid price with
• Transactions Involving at least one
respect to an erroneous sell transaction
non-Amex specialist/ROT: Where one of
and the last offer price with respect to
the parties to the transaction is not an
an erroneous buy transaction, just prior
Amex specialist/ROT, the transactions
to the trade, disseminated by the
will be cancelled by Trading Officials
competing options exchange that has
unless both parties agree to an
clarify the determination of ‘‘Fair
Market Value’’ in connection with the
index option obvious error rule; (iii)
amend the equity and index options
obvious error rules relating to an
erroneous quote in the underlying
security; (iv) amend the equity and
index options obvious error rules to
permit transactions executed outside of
trading hours to be cancelled; (v) amend
how obvious errors based on ‘‘verifiable
disruptions or malfunctions of Exchange
systems’’ as set forth in both the equity
and index obvious error rules are
adjusted or cancelled; and (vi) revise the
equity and index options obvious error
rules to amend the terms that relate to
the cancellation of ‘‘no bid series.’’
Below is the text of the proposed rule
change. Proposed new language is in
italics; proposed deletions are in
[brackets].
*
*
*
*
*
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adjustment price for the transaction
within thirty (30) minutes of being
notified by Trading Officials of the
Obvious Error.
(2) No Bid Series. Electronic
transactions in series quoted no bid [at
a nickel (i.e., $0.05 offer)] will be
cancelled provided at least one strike
price below (for calls) or above (for puts)
in the same options class was quoted no
bid [at a nickel] at the time of execution.
(3) Verifiable Disruptions or
Malfunctions of Exchange Systems:
Electronic or open outcry transactions
arising out of a ‘‘verifiable disruption or
malfunction’’ in the use or operation of
any Exchange (a) automated quotation,
dissemination, execution, or
communication system that caused a
quote/order to trade in excess of its
disseminated size (e.g., a quote/order
that is frozen because of an Exchange
system error and is repeatedly traded) in
which case trades in excess of the
disseminated size may be nullified; or
(b) automated quotation, dissemination
or communication system that
prevented a member from updating or
canceling a quote/order for which the
member is responsible, provided there
is Exchange documentation reflecting
that the member sought to update or
cancel the quote/order. With respect to
verifiable disruptions or malfunctions of
the Exchange’s automated quotation
system, documentation of the existence
of the disruption or malfunction will be
sufficient provided the automated
quotation system was programmed to
update or cancel a quote based upon
specific changes in the underlying,
those changes occurred and due to the
disruption or malfunction the quote was
not updated or cancelled. Unless the
parties agree to a price adjustment, the
transaction will be cancelled.
[Transactions that qualify for price
adjustment will be adjusted to the
Theoretical Price, as defined in
paragraph (a)(1) above.]
(4) No Change
(5) Erroneous Quote in Underlying. (i)
Electronic trades (this provision does
not apply to trades executed in open
outcry) resulting from an erroneous
quote in the underlying security may be
adjusted or canceled as set forth in
paragraph (a)(1) above. An erroneous
quote occurs when the underlying
security has a width of at least $1.00
and has a width at least five times
greater than the average quote width for
such underlying security on the primary
market (as defined in Rule 900 (b)(26))
during the time period encompassing
two minutes before and after the
dissemination of such quote. For
purposes of this Rule, the average quote
width shall be determined by adding the
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quote widths of each separate quote
during the four minute time period
referenced above (excluding the quote
in question) and dividing the number of
quotes during such time period
(excluding the quote in question).
(ii) Electronic trades resulting from an
erroneous quote in the underlying
security may also be adjusted or
cancelled as set forth in paragraph
(a)(1)(i) above when (i) a national
securities exchange or the Nasdaq Stock
Market, Inc.’s quotes are not firm based
upon direct communication from that
market or dissemination of a message
indicating the quotes are not firm or (ii)
a national securities exchange or the
Nasdaq Stock Market, Inc. has directly
communicated or otherwise confirmed
that it is experiencing systems or other
problems affecting the reliability of its
disseminated quotes.
(6) Transactions Executed Outside of
Trading Hours. All equity options
transactions that occur outside of the
trading hours of the Exchange will be
cancelled if it is determined by the
Trading Officials that the transaction
occurred outside of the Exchange’s
trading hours, except as set forth in
Commentary .02 to Amex Rule 1.
(b) through (e). No Change
Commentary
.01 through .03 No Change
*
*
*
*
*
Rule 936C. Cancellation and
Adjustment of Index Option
Transactions
This Rule only governs the
cancellation and adjustment of
transactions involving options on
indexes, exchange-traded funds (ETFs)
and trust issued receipts (TIRs). Rule
936 governs the cancellation and
adjustment of transactions involving
equity options. Paragraphs (a)(1), (2), (6)
and (7) of this Rule have no
applicability to trades executed in open
outcry.
(a) Trades Subject to Review
A member or person associated with
a member may have a trade cancelled or
adjusted if, in addition to satisfying the
procedural requirements of paragraph
(b) below, one of the following
conditions is satisfied:
(1) Obvious Price Error. An obvious
pricing error will be deemed to have
occurred when the execution price of a
transaction is above or below the fair
market value of the option by at least a
prescribed amount. For series trading
with normal bid-ask differentials as
established in Rule 958(c), the
prescribed amount shall be: (a) the
greater of $0.10 or 10% for options
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trading under $2.50; (b) 10% for options
trading at or above $2.50 and under $5;
or (c) $0.50 for options trading at $5 or
higher. For series trading with bid-ask
differentials that are greater than the
widths established in Rule 958(c), the
prescribed error amount shall be: (a) the
greater of $0.20 or 20% for options
trading under $2.50; (b) 20% for options
trading at or above $2.50 and under $5;
or (c) $1.00 for options trading at $5 or
higher.
(i) Definition of Fair Market Value:
For purposes of this Rule only, the
[f]Fair [m]Market [v]Value of an option
is the midpoint of the national best bid
and national best offer for the series
(across all exchanges trading the
option). Fair Market Value will not
include the national best bid price
(erroneous sell transaction) or national
best offer price (erroneous buy
transaction) of competing options
exchanges if such competing options
exchange(s) widen their quote(s) to
incorporate the prior erroneous quote of
the Exchange. In such a case, the Fair
Market Value shall be the midpoint of
the first quote after the transaction(s) in
question that does not reflect the
erroneous quote. In multiply listed
issues, if there are no quotes for
comparison purposes, [f]Fair [m]Market
[v]Value shall be determined by Trading
Officials. For singly listed issues, [f]Fair
[m]Market [v]Value shall be the
midpoint of the first quote after the
transaction(s) in question that does not
reflect the erroneous quote [erroneous
transaction(s)]. For transactions
occurring as part of an opening, the Fair
Market Value shall also be the midpoint
of the first quote after the transaction(s)
in question that does not reflect the
erroneous quote [erroneous
transaction(s)].
(2) No Change.
(3) Verifiable Disruptions or
Malfunctions of Exchange Systems.
Trades arising out of a ‘‘verifiable
disruption or malfunction’’ in the use or
operation of any Exchange (a)
automated quotation, dissemination,
execution, or communication system
that caused a quote/order to trade in
excess of its disseminated size (e.g., a
quote/order that is frozen because of an
Exchange system error and is repeatedly
traded) in which case trades in excess
of the disseminated size may be
nullified; or (b) automated quotation,
dissemination or communication system
that prevented a member from updating
or canceling a quote/order for which the
member is responsible, provided there
is Exchange documentation reflecting
that the member sought to update or
cancel the quote/order. With respect to
verifiable disruptions or malfunctions of
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67767
the Exchange’s automated quotation
system, documentation of the existence
of the disruption or malfunction will be
sufficient provided the automated
quotation system was programmed to
update or cancel a quote based upon
specific changes in the underlying,
those changes occurred and due to the
disruption or malfunction the quote was
not updated or cancelled. Unless the
parties agree to a price adjustment, the
transaction will be cancelled.
[Transactions that qualify for price
adjustment will be adjusted to the Fair
Market Value, as defined in paragraph
(a)(1)(i) above.]
(4) No Change.
(5) Erroneous Quote in Underlying. (i)
A trade resulting from an erroneous
quote in the underlying security may be
cancelled or adjusted. An erroneous
quote occurs when the underlying
security has a width of at least $1.00
and has a width at least five times
greater than the average quote width for
such underlying security on the primary
market (as defined in Rule 900(b)(26))
during the time period encompassing
two minutes before and after the
dissemination of such quote.
(ii) Electronic trades resulting from an
erroneous quote in the underlying
security may also be adjusted or
cancelled as set forth in paragraph
(a)(1)(i) above when (i) a national
securities exchange or the Nasdaq Stock
Market, Inc.’s quotes are not firm based
upon direct communication from that
market or dissemination of a message
indicating the quotes are not firm or (ii)
a national securities exchange or the
Nasdaq Stock Market, Inc. has directly
communicated or otherwise confirmed
that it is experiencing systems or other
problems affecting the reliability of its
disseminated quotes.
(6) No Change.
(7) No Bid Series. Electronic
transactions in series quoted no bid [at
a nickel (i.e., $0.05 offer)] will be
cancelled provided at least one strike
price below (for calls) or above (for puts)
in the same options class was quoted no
bid [at a nickel] at the time of execution.
(8) Transactions Executed Outside of
Trading Hours. All index options
transactions that occur outside of the
trading hours of the Exchange will be
cancelled if it is determined by the
Trading Officials that the transaction
occurred outside of the Exchange’s
trading hours, except as set forth in
Commentary .02 to Amex Rule 1.
(b) through (e). No Change.
Commentary
*
.01 through .02. No Change.
*
*
*
*
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Federal Register / Vol. 70, No. 215 / Tuesday, November 8, 2005 / Notices
has the most liquidity in that options
class in the previous two calendar
quarters, after the transaction(s) in
question that does not reflect the
erroneous quote. If there are no quotes
for comparison, designated Trading
Officials will determine the Theoretical
Price. For transactions occurring as part
of an opening, the Theoretical Price
shall be the first quote after the
transaction(s) in question that does not
reflect the erroneous transaction(s).
(i) Cancellation or Price Adjustment.
Obvious Pricing Errors will be cancelled
or adjusted as follows.
• Transactions Between Amex
specialists/registered options traders
(ROTs): Where both parties to the
transaction are Amex specialists/ROTs,
the execution price of the transaction
will be adjusted by Trading Officials to
the prices provided in Paragraphs (A)
and (B) below, minus (plus) an
adjustment penalty (‘‘adjustment
penalty’’), unless both parties agree to
adjust the transaction to a different price
or agree to cancel the trade within
fifteen (15) minutes of being notified by
Minimum
Theoretical price
Trading Officials of the Obvious Error.
amount
(A) Erroneous buy transactions will be
Below $2 .......................................
$0.25 adjusted to their Theoretical Price plus
$2 to $5 ........................................
0.40 an adjustment penalty of either $.15 if
Above $5 to $10 ...........................
0.50 the Theoretical Price is under $3 or $.30
Above $10 to $20 .........................
0.80 if the Theoretical Price is at or above $3.
Above $20 ....................................
1.00
(B) Erroneous sell transactions will be
adjusted to their Theoretical Price
Definition of Theoretical Price. For
minus an adjustment penalty of either
purposes of this Rule only, the
$.15 if the Theoretical Price is under $3
Theoretical Price of an option series is,
or $.30 if the Theoretical Price is at or
for series traded on at least one other
above $3.
options exchange, the last bid price with
• Transactions Involving at least one
respect to an erroneous sell transaction
non-Amex specialist/ROT: Where one of
and the last offer price with respect to
the parties to the transaction is not an
an erroneous buy transaction, just prior
Amex specialist/ROT, the transactions
to the trade, disseminated by the
will be cancelled by Trading Officials
competing options exchange that has
unless both parties agree to an
the most liquidity in that option class in adjustment price for the transaction
the previous two calendar months. The
within thirty (30) minutes of being
Theoretical Price will not include the
notified by Trading Officials of the
last bid price (erroneous sell
Obvious Error.
transaction) or last offer price
(2) No Bid Series. Electronic
(erroneous buy transaction) of the
transactions in series quoted no bid [at
competing options exchange that has
a nickel (i.e., $0.05 offer)] will be
the most liquidity in that options class
cancelled provided at least one strike
in the previous two calendar quarters if
price below (for calls) or above (for puts)
such competing options exchange
in the same options class was quoted no
widens its quote to incorporate the prior bid [at a nickel] at the time of execution.
erroneous quote of the Exchange. In
(3) Verifiable Disruptions or
such a case, the Theoretical Price shall
Malfunctions of Exchange Systems:
be the last bid price (erroneous sell
Electronic or open outcry transactions
transaction) and the last offer price
arising out of a ‘‘verifiable disruption or
(erroneous buy transaction) just prior to malfunction’’ in the use or operation of
the trade, disseminated by the
any Exchange (a) automated quotation,
competing options exchange with the
dissemination, execution, or
next best liquidity. If there are no
communication system that caused a
competing options exchanges left
quote/order to trade in excess of its
without an erroneous quote, the
disseminated size (e.g., a quote/order
Theoretical Price shall be the first quote that is frozen because of an Exchange
of the competing options exchange, that system error and is repeatedly traded) in
Rule 936—ANTE. Cancellation and
Adjustment of Equity Options
Transactions
This Rule governs the nullification
and adjustment of transactions
involving equity options. Rule 936C and
936C—ANTE governs the nullification
and adjustment of transactions
involving options on indexes, exchangetraded funds (‘‘ETFs’’) and trust issued
receipts (‘‘TIRs’’). Paragraphs (a)(1) and
(2) of this Rule have no applicability to
trades executed in open outcry. (a)
Trades Subject to Review. A member or
person associated with a member may
have a trade cancelled or adjusted if, in
addition to satisfying the procedural
requirements of paragraph (b) below,
one of the following conditions is
satisfied:
(1) Obvious Price Error. An obvious
pricing error occurs when the execution
price of an electronic transaction is
above or below the Theoretical Price for
the series by an amount equal to at least
the amount shown below:
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which case trades in excess of the
disseminated size may be nullified; or
(b) automated quotation, dissemination
or communication system that
prevented a member from updating or
canceling a quote/order for which the
member is responsible, provided there
is Exchange documentation reflecting
that the member sought to update or
cancel the quote/order. With respect to
verifiable disruptions or malfunctions of
the Exchange’s automated quotation
system, documentation of the existence
of the disruption or malfunction will be
sufficient provided the automated
quotation system was programmed to
update or cancel a quote based upon
specific changes in the underlying,
those changes occurred and due to the
disruption or malfunction the quote was
not updated or cancelled. Unless the
parties agree to a price adjustment, the
transaction will be cancelled.
[Transactions that qualify for price
adjustment will be adjusted to the
Theoretical Price, as defined in
paragraph (a)(1) above.]
(4) No Change.
(5) Erroneous Quote in Underlying. (i)
Electronic trades (this provision does
not apply to trades executed in open
outcry) resulting from an erroneous
quote in the underlying security may be
adjusted or canceled as set forth in
paragraph (a)(1) above. An erroneous
quote occurs when the underlying
security has a width of at least $1.00
and has a width at least five times
greater than the average quote width for
such underlying security on the primary
market (as defined in Rule 900 (b)(26))
during the time period encompassing
two minutes before and after the
dissemination of such quote. For
purposes of this Rule, the average quote
width shall be determined by adding the
quote widths of each separate quote
during the four minute time period
referenced above (excluding the quote
in question) and dividing the number of
quotes during such time period
(excluding the quote in question).
(ii) Electronic trades resulting from an
erroneous quote in the underlying
security may also be adjusted or
canceled as set forth in paragraph
(a)(1)(i) above when (i) a national
securities exchange or the Nasdaq Stock
Market, Inc.’s quotes are not firm based
upon direct communication from that
market or dissemination of a message
indicating the quotes are not firm or (ii)
a national securities exchange or the
Nasdaq Stock Market, Inc. has directly
communicated or otherwise confirmed
that it is experiencing systems or other
problems affecting the reliability of its
disseminated quotes.
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(6) Transactions Executed Outside of
Trading Hours. All equity options
transactions that occur outside of the
trading hours of the Exchange will be
canceled if it is determined by the
Trading Officials that the transaction
occurred outside of the Exchange’s
trading hours, except as set forth in
Commentary .02 to Amex Rule 1.
(b) through (e). No Change.
Commentary
.01 through .03. No Change.
*
*
*
*
*
Rule 936C—ANTE. Cancellation and
Adjustment of Index Option
Transactions
This Rule only governs the
cancellation and adjustment of
transactions involving options on
indexes, exchange-traded funds (ETFs)
and trust issued receipts (TIRs). Rule
936 and 936—ANTE governs the
cancellation and adjustment of
transactions involving equity options.
Paragraphs (a)(1), (2), (6) and (7) of this
Rule have no applicability to trades
executed in open outcry.
(a) Trades Subject to Review
A member or person associated with
a member may have a trade cancelled or
adjusted if, in addition to satisfying the
procedural requirements of paragraph
(b) below, one of the following
conditions is satisfied:
(1) Obvious Price Error. An obvious
pricing error will be deemed to have
occurred when the execution price of a
transaction is above or below the fair
market value of the option by at least a
prescribed amount. For series trading
with normal bid-ask differentials as
established in Rule 958(c), the
prescribed amount shall be: (a) the
greater of $0.10 or 10% for options
trading under $2.50; (b) 10% for options
trading at or above $2.50 and under $5;
or (c) $0.50 for options trading at $5 or
higher. For series trading with bid-ask
differentials that are greater than the
widths established in Rule 958(c), the
prescribed error amount shall be: (a) the
greater of $0.20 or 20% for options
trading under $2.50; (b) 20% for options
trading at or above $2.50 and under $5;
or (c) $1.00 for options trading at $5 or
higher.
(i) Definition of Fair Market Value:
For purposes of this Rule only, the
[f]Fair [m]Market [v]Value of an option
is the midpoint of the national best bid
and national best offer for the series
(across all exchanges trading the
option). Fair Market Value will not
include the national best bid price
(erroneous sell transaction) or national
best offer price (erroneous buy
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transaction) of competing options
exchange(s) if such competing options
exchanges widen their quote(s) to
incorporate the prior erroneous quote of
the Exchange. In such a case, the Fair
Market Value shall be the midpoint of
the first quote after the transaction(s) in
question that does not reflect the
erroneous quote. In multiple listed
issues, if there are no quotes for
comparison purposes, [f]Fair [m]Market
[v]Value shall be determined by Trading
Officials. For singly-listed issues, [f]Fair
[m]Market [v]Value shall be the
midpoint of the first quote after the
transaction(s) in question that does not
reflect the erroneous quote [erroneous
transaction(s)]. For transactions
occurring as part of an opening, the Fair
Market Value shall also be the midpoint
of the first quote after the transaction(s)
in question that does not reflect the
erroneous quote [erroneous
transaction(s)].
(2) No Change.
(3) Verifiable Disruptions or
Malfunctions of Exchange Systems.
Trades arising out of a ‘‘verifiable
disruption or malfunction’’ in the use or
operation of any Exchange (a)
automated quotation, dissemination,
execution, or communication system
that caused a quote/order to trade in
excess of its disseminated size (e.g., a
quote/order that is frozen because of an
Exchange system error and is repeatedly
traded) in which case trades in excess
of the disseminated size may be
nullified; or (b) automated quotation,
dissemination or communication system
that prevented a member from updating
or canceling a quote/order for which the
member is responsible, provided there
is Exchange documentation reflecting
that the member sought to update or
cancel the quote/order. With respect to
verifiable disruptions or malfunctions of
the Exchange’s automated quotation
system, documentation of the existence
of the disruption or malfunction will be
sufficient provided the automated
quotation system was programmed to
update or cancel a quote based upon
specific changes in the underlying,
those changes occurred and due to the
disruption or malfunction the quote was
not updated or canceled. Unless the
parties agree to a price adjustment, the
transaction will be canceled.
[Transactions that qualify for price
adjustment will be adjusted to the Fair
Market Value, as defined in paragraph
(a)(1)(i) above.]
(4) No Change.
(5) Erroneous Quote in Underlying. (i)
A trade resulting from an erroneous
quote in the underlying security may be
canceled or adjusted. An erroneous
quote occurs when the underlying
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67769
security has a width of at least $1.00
and has a width at least five times
greater than the average quote width for
such underlying security on the primary
market (as defined in Rule 900(b)(26))
during the time period encompassing
two minutes before and after the
dissemination of such quote.
(ii) Electronic trades resulting from an
erroneous quote in the underlying
security may also be adjusted or
canceled as set forth in paragraph
(a)(1)(i) above when (i) a national
securities exchange or the Nasdaq Stock
Market, Inc.’s quotes are not firm based
upon direct communication from that
market or dissemination of a message
indicating the quotes are not firm or (ii)
a national securities exchange or the
Nasdaq Stock Market, Inc. has directly
communicated or otherwise confirmed
that it is experiencing systems or other
problems affecting the reliability of its
disseminated quotes.
(6) No Change.
(7) No Bid Series. Electronic
transactions in series quoted no bid [at
a nickel (i.e., $0.05 offer)] will be
cancelled provided at least one strike
price below (for calls) or above (for puts)
in the same options class was quoted no
bid [at a nickel] at the time of execution.
(8) Transactions Executed Outside of
Trading Hours. All index options
transactions that occur outside of the
trading hours of the Exchange will be
cancelled if it is determined by the
Trading Officials that the transaction
occurred outside of the Exchange’s
trading hours, except as set forth in
Commentary .02 to Amex Rule 1.
(b) through (e). No Change
Commentary
*
.01 through .02. No Change.
*
*
*
*
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.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange’s equity option obvious
error rules, Amex Rules 936 and 936—
ANTE, and index option obvious error
rules, Amex Rules 936C and 936C—
ANTE (the ‘‘Obvious Error Rules’’)
establish guidelines for the adjustment
and cancellation of transactions in
equity and index options. The purpose
of this proposed rule change is to (i)
amend the definition of ‘‘Theoretical
Price’’ 6 and ‘‘Fair Market Value’’ 7 in
connection with determining whether
an equity or index option obvious price
error has occurred as established in
Amex Rules 936(a)(1) and 936(a)(1)—
ANTE (equity), and Amex Rules
936C(a)(1) and 936C(a)(1)—ANTE
(index), respectively; (ii) amend Amex
Rules 936C(a)(1)(i) and 936C(a)(1)(i)—
ANTE to clarify how Fair Market Value
is determined in connection with singlelisted index options and opening
transactions; (iii) amend the Obvious
Error Rules relating to erroneous
quote(s) in the underlying security to
permit the cancellation/adjustment of
an option transaction when an exchange
declares its quotes non-firm or
otherwise communicates to the Amex
that its quotes are unreliable; (iv) add an
additional type of qualifying transaction
entitled ‘‘Transactions Executed Outside
of Trading Hours’’; (v) amend how
obvious price errors based on ‘‘verifiable
disruptions or malfunctions of Exchange
systems’’ are adjusted or cancelled; and
(vi) revise the Obvious Error Rules to
amend the terms of cancellations for
‘‘no bid series.’’
6 ‘‘Theoretical Price’’ of an option series is, for
series traded on at least one other options exchange,
the last bid price with respect to an erroneous sell
transaction and the last offer price with respect to
an erroneous buy transaction, just prior to the trade,
disseminated by the competing options exchange
that has the most liquidity in that option class in
the previous two calendar months. If there are no
quotes for comparison, designated Trading Officials
will determine the Theoretical Price. For
transactions occurring as part of an opening, the
Theoretical Price shall be the first quote after the
transaction(s) in question that does not reflect the
erroneous transaction(s).
7 ‘‘Fair Market Value’’ of an option is the
midpoint of the national best bid and national best
offer for the series (across all exchanges trading the
option). In multiply listed issues, if there are no
quotes for comparison purposes, Fair Market Value
shall be determined by Trading Officials. For
singly-listed issues, Fair Market Value shall be the
first quote after the transaction(s) in question that
does not reflect the erroneous transaction(s). For
transactions occurring as part of an opening, the
Fair Market Value shall also be the first quote after
the transaction(s) in question that does not reflect
the erroneous transaction(s).
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Obvious Price Error
Under the Obvious Error Rules, an
obvious price error is one of several
enumerated types of transactions that
qualify as an obvious error and are
accordingly subject to adjustment or
cancellation.
Equity Options
Amex Rules 936(a)(1) and 936(a)(1)—
ANTE provide that an obvious pricing
error will be deemed to have occurred
when the execution price of an
electronic transaction (not open outcry)
varies from the Theoretical Price by a
requisite amount.8 For multiply-traded
options, the Theoretical Price is the last
bid (offer) price with respect to an
erroneous sell (buy) transaction just
prior to the trade that is disseminated by
the competing options exchange with
the most liquidity in that class over the
preceding two (2) calendar months. If
there are no quotes for comparison
purposes, then trading officials will
determine the Theoretical Price. For
transactions occurring as part of an
opening, the Theoretical Price is the
first quote after the transaction(s) in
question that does not reflect the
erroneous transaction(s). When an
obvious price error occurs, the Amex
either will adjust or cancel the
transaction pursuant to Amex Rules
936(a)(1)(i) and 936(a)(1)(i)—ANTE.
Index Options
Amex Rules 936C(a)(1) and
936C(a)(1)—ANTE provide that an
obvious pricing error will be deemed to
have occurred when the execution price
of an electronic transaction (not open
outcry) varies from the Fair Market
Value by a prescribed amount.9 For
multiply-traded options, the Fair Market
Value is the midpoint of the national
best bid for erroneous sell transactions
or national best offer for erroneous buy
transactions. If there are no quotes for
comparison purposes, then trading
officials will determine the Fair Market
Value. For both single-listed options
8 The
requisite amount is: $0.25 for options below
$2; $0.40 for options priced from $2 to $5; $0.50
for options priced above $5 to $10; $0.80 for options
priced above $10 to $20; and $1.00 for options
priced above $20.
9 For index options series trading with normal
bid-ask differentials as established in Rule 958(c),
the prescribed amount shall be: (a) The greater of
$0.10 or 10% for index options trading under $2.50;
(b) 10% for index options trading at or above $2.50
and under $5; or (c) $0.50 for index options trading
at $5 or higher. For index options series trading
with bid-ask differentials that are greater than the
widths established in Rule 958(c), the prescribed
error amount shall be: (a) The greater of $0.20 or
20% for index options trading under $2.50; (b) 20%
for index options trading at or above $2.50 and
under $5; or (c) $1.00 for index options trading at
$5 or higher.
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and transactions occurring as part of an
opening, Fair Market Value is the
midpoint of the first quote after the
transaction(s) in question that does not
reflect the erroneous transaction(s). The
Exchange proposes to revise the rule
text accordingly to clarify that the Fair
Market Value is the midpoint of the first
non-erroneous quote. When an obvious
price error occurs, the Amex either will
adjust or cancel the transaction
pursuant to Amex Rules 936C(c) and
936C(c)—ANTE.
Since the implementation of the
Obvious Error Rules, there have
occasionally been options transactions
effected on the Exchange that were
executed at prices that appeared to be
‘‘obvious price errors’’ but could not be
cancelled or adjusted under existing
rules. For example, in connection with
an equity option, following
dissemination of an erroneous quotation
by the Amex, the competing options
exchange with the most liquidity in the
option class in question during the
previous two (2) calendar months
widened its quote to incorporate the
Amex quote. As a result, although the
price of the Amex transaction was
‘‘erroneous’’ (i.e. based on an erroneous
quote), it was not ‘‘erroneous’’ pursuant
to Amex Rules 936 and 936—ANTE in
that the Theoretical Price was based on
the ‘‘widened quotes’’ disseminated by
the competing options exchanges. As a
result, the Exchange believes that an
amendment to the definition of
Theoretical Price (and Fair Market
Value for index options) is appropriate
so that the bids and offers of an options
exchange experiencing obvious price
errors or erroneous quotes are not
indirectly used as the basis for the
Theoretical Price (and Fair Market
Value). The Exchange believes that the
use of quotes that are deemed to be
‘‘erroneous’’ as a basis for the
Theoretical Price (equity) and Fair
Market Value (indexes) is not proper
and is inconsistent with the role and
purpose of the Obvious Error Rules.
Widened Quotes
The proposal is intended to correct
circumstances in the Obvious Error
Rules where the Amex posts an
erroneous quote and subsequently a
competing options exchange, in direct
response to the erroneous quote, widens
its quote to incorporate the prior
erroneous quote of the Amex. For
example, the current market for an
option is established by the Chicago
Board Options Exchange, Inc. (‘‘CBOE’’)
to be 1.65 bid/1.90 offer. The Amex then
quotes 0 bid/.25 offer for the option. The
CBOE immediately posts a market to
incorporate the Amex quote such as .20
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bid/1.90 offer. An order to buy is then
executed on the Amex at the offer price
of $0.25. The Amex then corrects the
quote to 1.65 bid/1.90 offer with the
CBOE following suit at 1.65 bid/1.90
offer. The Exchange believes for
purposes of determining Theoretical
Price in connection with the equity
options (Amex Rules 936(a)(1) and
936(a)(1)—ANTE) and Fair Market
Value in connection with index options
(Amex Rules 936C(a)(1) and
936C(a)(1)—ANTE) that erroneous
quotes of a competing options exchange
that incorporated an erroneous Amex
quote (in this example, .20 bid/1.90
offer) should not be used.
The Exchange proposes a revision to
its equity option obvious price error
rules, Amex Rules 936(a)(1) and
936(a)(1)—ANTE, providing that in
determining the Theoretical Price of an
option the last bid (erroneous sell
transaction) or last offer (erroneous buy
transaction) of the competing options
exchange with the most liquidity in that
option class over the previous two
calendar quarters will be excluded if
such competing options exchange
widens its quote to incorporate the prior
erroneous quote of the Amex. As a
result, the Exchange proposes that the
Theoretical Price, under these
circumstances, would be the last bid
price (erroneous sell transaction) and
the last offer price (erroneous buy
transaction) just prior to the trade,
disseminated by the competing options
exchange with the next best liquidity. If
there are no competing options
exchanges left without an erroneous
quote, the Theoretical Price would be
the first quote of the competing options
exchange that has the most liquidity in
such option class over the previous two
(2) calendar quarters after the
transaction(s) in question that does not
reflect the erroneous quote.
In connection with the index option
obvious price error rules, the Exchange
proposes that Fair Market Value will not
include the national best bid price
(erroneous sell transaction) or national
best offer price (erroneous buy
transaction) of a competing options
exchange if such exchange widens its
quotes to incorporate the prior
erroneous quote of the Exchange.
Accordingly, the Fair Market Value will
be the midpoint of the first quote after
the transaction(s) in question that does
not reflect the erroneous quote.
Erroneous Quote in Underlying
Security
As set forth in the Obvious Error
Rules, a trade resulting from an
erroneous quote in the underlying
security may be adjusted or cancelled.
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However, pursuant to these Rules, a
quote from an exchange in an
underlying security that is declared
‘‘erroneous’’ by that exchange may not
qualify for cancellation or adjustment.10
Therefore, the Exchange proposes to
amend Amex Rules 936(a)(5),
936(a)(5)—ANTE, 936C(a)(5) and
936C(a)(5)—ANTE so that when an
exchange for an underlying security or
Nasdaq if the underlying security trades
on Nasdaq declares its quote(s) ‘‘nonfirm’’ or when an exchange or Nasdaq
communicates to the Amex that it is
experiencing systems or other problems
affecting the reliability of its
disseminated quotes, a trade resulting
from such ‘‘erroneous’’ underlying
quote could be cancelled or adjusted. In
order for a trade to be cancelled or
adjusted, the Exchange would have to
have proper documentation of that
market’s non-firm declaration or
notification of unreliable quotes, as
applicable.
Transactions Executed Outside of
Trading Hours
The Exchange further proposes that
any equity options or index options
transaction that occurs outside normal
trading hours (currently, 9:30 a.m. until
4:02 p.m. Eastern time (‘‘ET’’) for equity
options and 9:30 a.m. until 4:15 p.m. ET
for broad-based index options and
options on select Exchange-Traded
Fund Shares) would be cancelled if the
Trading Officials determine that the
transaction took place outside of Amex
trading hours, except as set forth in
Commentary .02 to Amex Rule 1.
Amex Rule 1 sets forth the hours of
business at the Exchange. Commentary
.02 to Rule 1 provides that no option
series may freely trade after 4:02 p.m.
ET except that broad stock index group
options and options on select ExchangeTraded Fund Shares shall freely trade
until 4:15 p.m. ET each business day.
Three (3) exceptions to the general rule
are provided in Commentary .02 so that
a trading rotation in any class of options
may be effected even though the
transaction will occur after 4:02 p.m. as
follows: (i) Trading in the underlying
security opens or re-opens after 3:30
10 The Obvious Error Rules define an erroneous
quote as a quote that occurs when the underlying
security has a width of at least $1.00 and a width
at least five times greater than the average quote
width for such underlying security on the primary
market (as defined in Amex Rule 900(b)(26) and
Rule 900(b)(26)—ANTE) during the time period
encompassing two minutes before and after the
dissemination of such quote. The average quote
width is determined by adding the quote widths of
each separate quote during the four minute time
period referenced above (excluding the quote in
question) and dividing the number of quotes during
such time period (excluding the quote in question).
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67771
p.m. ET; (ii) such rotation was initiated
due to unusual market conditions
pursuant to Rule 918 and notice of such
rotation is publicly disseminated no
later than the commencement of the
rotation or 4:00 p.m. whichever is
earlier or notice of such rotation is
publicly disseminated after 4:00 p.m.
and the rotation does not commence
until five (5) minutes after news of such
rotation is publicly disseminated; or (iii)
for option classes trading on ANTE, an
automated trading rotation is held at the
close of trading as soon as practicable
after 4:02 p.m. ET. Accordingly, equity
options and index options transactions
would be cancelled if the Trading
Officials determine that the transaction
occurred outside of the Amex trading
hours.
Verifiable Disruptions or Malfunctions
of Exchange Systems
In connection with transactions
arising out of ‘‘verifiable disruptions or
malfunctions of Exchange systems,’’ the
Obvious Error Rules provide that those
transactions that qualify for price
adjustment will be adjusted to the
Theoretical Price for equity options or
Fair Market Value for index options.
The Exchange submits that unintended
results may occur due to the manner in
which price adjustments are handled
during these circumstances.
Accordingly, the Exchange proposes
that unless the parties agree to a price
adjustment, the transaction would be
cancelled. This new standard would
replace the current price adjustment to
the Theoretical Price for equity options
or Fair Market Value for index options
and clarify that the transaction will be
cancelled if a price adjustment is not
agreed to.
An example of such unintended
consequences is set forth below. The
current market for a particular equity
call option is established by the Amex
at 1.15 bid/1.30 offer. The underlying
security subsequently increases in price.
The other options exchanges (excluding
the Amex) change their quote so that the
market is now 1.20 bid/1.35 offer. The
Amex due to a systems problem does
not change its quote and remains at 1.15
bid/1.30 offer. The underlying security
continues to increase in price. The other
options exchanges now post a market of
1.25 bid/1.40 offer. The Amex remains
at 1.15 bid/1.30 offer. An order to buy
is executed on the Amex at 1.30. As
defined by the current Rule, the
Theoretical Price for this option is 1.25
so that in adjusting the price the
specialist would be disadvantaged by
the adjustment to 1.25 compared to the
selling price of 1.30 (when the market
was actually 1.40). Under the proposal,
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unless the parties agreed to an
adjustment, the transaction would be
cancelled.
No Bid Series
Under the current Obvious Error
Rules ‘‘no bid provisions,’’ electronic
transactions in option series quoted no
bid at a nickel (i.e. $0.05 offer) will be
cancelled provided at least one strike
price below (for calls) or above (for puts)
in the same options class was quoted no
bid at a nickel at the time of execution.
A ‘‘no bid’’ option refers to an option
where the bid price is $0.00.11 Series of
options quoted no bid are typically deep
out-of-the-money series that are
perceived as having little if any chance
of expiring in-the-money. For this
reason, relatively few transactions occur
in these series and those that do are
usually the result of a momentary
pricing error. In some cases, the pricing
error is substantial enough such that the
other provisions in the equity and index
options obvious error rules become
applicable. However, in many cases, the
no bid provisions are the only
provisions that would apply to the
pricing error.
The proposal seeks to revise the no
bid provision in the Obvious Error Rules
that provide that the option series must
be quoted no bid at a nickel and instead
only require that the option series be
quoted no bid. The reason for this
change is that options that are priced at
no bid, regardless of the offer, are
typically deep out-of-the-money series
that are perceived as having little if any
chance of expiring in-the-money. This is
especially the case when the series
below (for calls) or above (for puts) in
the same option class similar is quoted
no bid. In this regard, the offer price is
irrelevant. Therefore, transactions in
series that are quoted no bid at a dime,
for example, are just as likely to be the
result of an obvious error as are
transactions in series that are quoted no
bid at a nickel when the series below
(for calls) or above (for puts) in the same
option class similarly is quoted no bid.
2. Statutory Basis
The Amex represents that the filing
provides objective guidelines for the
nullification or adjustment of
transactions executed at clearly
erroneous prices. Moreover, the
proposed rule provides uniformity
regarding obvious pricing errors, which
will serve to benefit customers. For
these reasons, the Exchange believes the
proposal is consistent with Section 6(b)
11 When the bid price is $0.00, the offer price is
typically $0.05. In this instance, the option
typically is referred to as ‘‘no bid at a nickel.’’
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of the Act 12, in general, and furthers the
objectives of Section 6(b)(5) of the Act,13
in particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange believes the proposed
rule change will impose no burden on
competition that is 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 by the Exchange on this
proposal.
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 the 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 rulecomments@sec.gov. Please include File
Number SR–Amex–2005–060 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.
12 15
13 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00115
Fmt 4703
All submissions should refer to File
Number SR–Amex–2005–060. 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 the 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–2005–060 and
should be submitted on or before
November 29, 2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.14
Jonathan G. Katz,
Secretary.
[FR Doc. 05–22164 Filed 11–7–05; 8:45 am]
BILLING CODE 8010–01–P
SMALL BUSINESS ADMINISTRATION
Reporting and Recordkeeping
Requirements Under OMB Review
Small Business Administration.
Notice of Reporting
Requirements Submitted for OMB
Review.
AGENCY:
ACTION:
SUMMARY: Under the provisions of the
Paperwork Reduction Act (44 U.S.C.
Chapter 35), agencies are required to
submit proposed reporting and
recordkeeping requirements to OMB for
review and approval, and to publish a
notice in the Federal Register notifying
the public that the agency has made
such a submission.
DATES: Submit comments on or before
December 8, 2005. If you intend to
comment but cannot prepare comments
14 17
Sfmt 4703
E:\FR\FM\08NON1.SGM
CFR 200.30–3(a)(12).
08NON1
]]>Agencies
[Federal Register Volume 70, Number 215 (Tuesday, November 8, 2005)]
[Notices]
[Pages 67765-67772]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-22164]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52718; File No. SR-Amex-2005-060]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing of Proposed Rule Change and Amendments Nos. 1, 2, and
3 Thereto Relating to Amendments to the Obvious Error Rules
November 2, 2005.
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, 2005, 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
September 21, 2005, the Amex submitted Amendment No. 1 to the proposed
rule change.\3\ On October 4, 2005, the Amex submitted Amendment No. 2
to the proposed rule change.\4\ On October 27, 2005, the Amex submitted
Amendment No. 3 to the proposed rule change.\5\ 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\ See Form 19b-4 dated September 21, 2005, which replaced the
original filing in its entirety (``Amendment No. 1'').
\4\ Amendment No. 2 corrected technical errors in the proposed
rule text.
\5\ Amendment No. 3 incorporated certain proposed revisions to
Amex Rules 936 and 936--ANTE contained in Amendment No. 1 to Amex
Rules 936C and 936C--ANTE and corrected an error in the proposed
rule text of Amex Rules 936C and 936C--ANTE.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Amex proposes to: (i) Amend the equity and index options
obvious error rules to revise the manner in which an obvious price
error is determined for both equity and index options; (ii)
[[Page 67766]]
clarify the determination of ``Fair Market Value'' in connection with
the index option obvious error rule; (iii) amend the equity and index
options obvious error rules relating to an erroneous quote in the
underlying security; (iv) amend the equity and index options obvious
error rules to permit transactions executed outside of trading hours to
be cancelled; (v) amend how obvious errors based on ``verifiable
disruptions or malfunctions of Exchange systems'' as set forth in both
the equity and index obvious error rules are adjusted or cancelled; and
(vi) revise the equity and index options obvious error rules to amend
the terms that relate to the cancellation of ``no bid series.''
Below is the text of the proposed rule change. Proposed new
language is in italics; proposed deletions are in [brackets].
* * * * *
Rule 936. Cancellation and Adjustment of Equity Options Transactions
This Rule governs the cancellation and adjustment of transactions
involving equity options. Rules 936C and 936C--ANTE govern the
cancellation and adjustment of transactions involving options on
indexes, exchange-traded funds (``ETFs'') and trust issued receipts
(``TIRs''). Paragraphs (a)(1) and (2) of this Rule have no
applicability to trades executed in open outcry.
(a) Trades Subject to Review. A member or person associated with a
member may have a trade cancelled or adjusted if, in addition to
satisfying the procedural requirements of paragraph (b) below, one of
the following conditions is satisfied:
(1) Obvious Price Error. An obvious pricing error occurs when the
execution price of an electronic transaction is above or below the
Theoretical Price for the series by an amount equal to at least the
amount shown below:
------------------------------------------------------------------------
Minimum
Theoretical price amount
------------------------------------------------------------------------
Below $2..................................................... $0.25
$2 to $5..................................................... 0.40
Above $5 to $10.............................................. 0.50
Above $10 to $20............................................. 0.80
Above $20.................................................... 1.00
------------------------------------------------------------------------
Definition of Theoretical Price. For purposes of this Rule only,
the Theoretical Price of an option series is, for series traded on at
least one other options exchange, the last bid price with respect to an
erroneous sell transaction and the last offer price with respect to an
erroneous buy transaction, just prior to the trade, disseminated by the
competing options exchange that has the most liquidity in that option
class in the previous two calendar months. The Theoretical Price will
not include the last bid price (erroneous sell transaction) or last
offer price (erroneous buy transaction) of the competing options
exchange that has the most liquidity in that options class in the
previous two calendar quarters if such competing options exchange
widens its quote to incorporate the prior erroneous quote of the
Exchange. In such a case, the Theoretical Price shall be the last bid
price (erroneous sell transaction) and the last offer price (erroneous
buy transaction) just prior to the trade, disseminated by the competing
options exchange with the next best liquidity. If there are no
competing options exchanges left without an erroneous quote, the
Theoretical Price shall be the first quote of the competing options
exchange, that has the most liquidity in that options class in the
previous two calendar quarters, after the transaction(s) in question
that does not reflect the erroneous quote. If there are no quotes for
comparison, designated Trading Officials will determine the Theoretical
Price. For transactions occurring as part of an opening, the
Theoretical Price shall be the first quote after the transaction(s) in
question that does not reflect the erroneous transaction(s).
(i) Cancellation or Price Adjustment. Obvious Pricing Errors will
be cancelled or adjusted as follows.
Transactions Between Amex specialists/registered options
traders (ROTs): Where both parties to the transaction are Amex
specialists/ROTs, the execution price of the transaction will be
adjusted by Trading Officials to the prices provided in Paragraphs (A)
and (B) below, minus (plus) an adjustment penalty (``adjustment
penalty''), unless both parties agree to adjust the transaction to a
different price or agree to cancel the trade within fifteen (15)
minutes of being notified by Trading Officials of the Obvious Error.
(A) Erroneous buy transactions will be adjusted to their
Theoretical Price plus an adjustment penalty of either $.15 if the
Theoretical Price is under $3 or $.30 if the Theoretical Price is at or
above $3.
(B) Erroneous sell transactions will be adjusted to their
Theoretical Price minus an adjustment penalty of either $.15 if the
Theoretical Price is under $3 or $.30 if the Theoretical Price is at or
above $3.
Transactions Involving at least one non-Amex specialist/
ROT: Where one of the parties to the transaction is not an Amex
specialist/ROT, the transactions will be cancelled by Trading Officials
unless both parties agree to an adjustment price for the transaction
within thirty (30) minutes of being notified by Trading Officials of
the Obvious Error.
(2) No Bid Series. Electronic transactions in series quoted no bid
[at a nickel (i.e., $0.05 offer)] will be cancelled provided at least
one strike price below (for calls) or above (for puts) in the same
options class was quoted no bid [at a nickel] at the time of execution.
(3) Verifiable Disruptions or Malfunctions of Exchange Systems:
Electronic or open outcry transactions arising out of a ``verifiable
disruption or malfunction'' in the use or operation of any Exchange (a)
automated quotation, dissemination, execution, or communication system
that caused a quote/order to trade in excess of its disseminated size
(e.g., a quote/order that is frozen because of an Exchange system error
and is repeatedly traded) in which case trades in excess of the
disseminated size may be nullified; or (b) automated quotation,
dissemination or communication system that prevented a member from
updating or canceling a quote/order for which the member is
responsible, provided there is Exchange documentation reflecting that
the member sought to update or cancel the quote/order. With respect to
verifiable disruptions or malfunctions of the Exchange's automated
quotation system, documentation of the existence of the disruption or
malfunction will be sufficient provided the automated quotation system
was programmed to update or cancel a quote based upon specific changes
in the underlying, those changes occurred and due to the disruption or
malfunction the quote was not updated or cancelled. Unless the parties
agree to a price adjustment, the transaction will be cancelled.
[Transactions that qualify for price adjustment will be adjusted to the
Theoretical Price, as defined in paragraph (a)(1) above.]
(4) No Change
(5) Erroneous Quote in Underlying. (i) Electronic trades (this
provision does not apply to trades executed in open outcry) resulting
from an erroneous quote in the underlying security may be adjusted or
canceled as set forth in paragraph (a)(1) above. An erroneous quote
occurs when the underlying security has a width of at least $1.00 and
has a width at least five times greater than the average quote width
for such underlying security on the primary market (as defined in Rule
900 (b)(26)) during the time period encompassing two minutes before and
after the dissemination of such quote. For purposes of this Rule, the
average quote width shall be determined by adding the
[[Page 67767]]
quote widths of each separate quote during the four minute time period
referenced above (excluding the quote in question) and dividing the
number of quotes during such time period (excluding the quote in
question).
(ii) Electronic trades resulting from an erroneous quote in the
underlying security may also be adjusted or cancelled as set forth in
paragraph (a)(1)(i) above when (i) a national securities exchange or
the Nasdaq Stock Market, Inc.'s quotes are not firm based upon direct
communication from that market or dissemination of a message indicating
the quotes are not firm or (ii) a national securities exchange or the
Nasdaq Stock Market, Inc. has directly communicated or otherwise
confirmed that it is experiencing systems or other problems affecting
the reliability of its disseminated quotes.
(6) Transactions Executed Outside of Trading Hours. All equity
options transactions that occur outside of the trading hours of the
Exchange will be cancelled if it is determined by the Trading Officials
that the transaction occurred outside of the Exchange's trading hours,
except as set forth in Commentary .02 to Amex Rule 1.
(b) through (e). No Change
Commentary
.01 through .03 No Change
* * * * *
Rule 936C. Cancellation and Adjustment of Index Option Transactions
This Rule only governs the cancellation and adjustment of
transactions involving options on indexes, exchange-traded funds (ETFs)
and trust issued receipts (TIRs). Rule 936 governs the cancellation and
adjustment of transactions involving equity options. Paragraphs (a)(1),
(2), (6) and (7) of this Rule have no applicability to trades executed
in open outcry.
(a) Trades Subject to Review
A member or person associated with a member may have a trade
cancelled or adjusted if, in addition to satisfying the procedural
requirements of paragraph (b) below, one of the following conditions is
satisfied:
(1) Obvious Price Error. An obvious pricing error will be deemed to
have occurred when the execution price of a transaction is above or
below the fair market value of the option by at least a prescribed
amount. For series trading with normal bid-ask differentials as
established in Rule 958(c), the prescribed amount shall be: (a) the
greater of $0.10 or 10% for options trading under $2.50; (b) 10% for
options trading at or above $2.50 and under $5; or (c) $0.50 for
options trading at $5 or higher. For series trading with bid-ask
differentials that are greater than the widths established in Rule
958(c), the prescribed error amount shall be: (a) the greater of $0.20
or 20% for options trading under $2.50; (b) 20% for options trading at
or above $2.50 and under $5; or (c) $1.00 for options trading at $5 or
higher.
(i) Definition of Fair Market Value: For purposes of this Rule
only, the [f]Fair [m]Market [v]Value of an option is the midpoint of
the national best bid and national best offer for the series (across
all exchanges trading the option). Fair Market Value will not include
the national best bid price (erroneous sell transaction) or national
best offer price (erroneous buy transaction) of competing options
exchanges if such competing options exchange(s) widen their quote(s) to
incorporate the prior erroneous quote of the Exchange. In such a case,
the Fair Market Value shall be the midpoint of the first quote after
the transaction(s) in question that does not reflect the erroneous
quote. In multiply listed issues, if there are no quotes for comparison
purposes, [f]Fair [m]Market [v]Value shall be determined by Trading
Officials. For singly listed issues, [f]Fair [m]Market [v]Value shall
be the midpoint of the first quote after the transaction(s) in question
that does not reflect the erroneous quote [erroneous transaction(s)].
For transactions occurring as part of an opening, the Fair Market Value
shall also be the midpoint of the first quote after the transaction(s)
in question that does not reflect the erroneous quote [erroneous
transaction(s)].
(2) No Change.
(3) Verifiable Disruptions or Malfunctions of Exchange Systems.
Trades arising out of a ``verifiable disruption or malfunction'' in the
use or operation of any Exchange (a) automated quotation,
dissemination, execution, or communication system that caused a quote/
order to trade in excess of its disseminated size (e.g., a quote/order
that is frozen because of an Exchange system error and is repeatedly
traded) in which case trades in excess of the disseminated size may be
nullified; or (b) automated quotation, dissemination or communication
system that prevented a member from updating or canceling a quote/order
for which the member is responsible, provided there is Exchange
documentation reflecting that the member sought to update or cancel the
quote/order. With respect to verifiable disruptions or malfunctions of
the Exchange's automated quotation system, documentation of the
existence of the disruption or malfunction will be sufficient provided
the automated quotation system was programmed to update or cancel a
quote based upon specific changes in the underlying, those changes
occurred and due to the disruption or malfunction the quote was not
updated or cancelled. Unless the parties agree to a price adjustment,
the transaction will be cancelled. [Transactions that qualify for price
adjustment will be adjusted to the Fair Market Value, as defined in
paragraph (a)(1)(i) above.]
(4) No Change.
(5) Erroneous Quote in Underlying. (i) A trade resulting from an
erroneous quote in the underlying security may be cancelled or
adjusted. An erroneous quote occurs when the underlying security has a
width of at least $1.00 and has a width at least five times greater
than the average quote width for such underlying security on the
primary market (as defined in Rule 900(b)(26)) during the time period
encompassing two minutes before and after the dissemination of such
quote.
(ii) Electronic trades resulting from an erroneous quote in the
underlying security may also be adjusted or cancelled as set forth in
paragraph (a)(1)(i) above when (i) a national securities exchange or
the Nasdaq Stock Market, Inc.'s quotes are not firm based upon direct
communication from that market or dissemination of a message indicating
the quotes are not firm or (ii) a national securities exchange or the
Nasdaq Stock Market, Inc. has directly communicated or otherwise
confirmed that it is experiencing systems or other problems affecting
the reliability of its disseminated quotes.
(6) No Change.
(7) No Bid Series. Electronic transactions in series quoted no bid
[at a nickel (i.e., $0.05 offer)] will be cancelled provided at least
one strike price below (for calls) or above (for puts) in the same
options class was quoted no bid [at a nickel] at the time of execution.
(8) Transactions Executed Outside of Trading Hours. All index
options transactions that occur outside of the trading hours of the
Exchange will be cancelled if it is determined by the Trading Officials
that the transaction occurred outside of the Exchange's trading hours,
except as set forth in Commentary .02 to Amex Rule 1.
(b) through (e). No Change.
Commentary
.01 through .02. No Change.
* * * * *
[[Page 67768]]
Rule 936--ANTE. Cancellation and Adjustment of Equity Options
Transactions
This Rule governs the nullification and adjustment of transactions
involving equity options. Rule 936C and 936C--ANTE governs the
nullification and adjustment of transactions involving options on
indexes, exchange-traded funds (``ETFs'') and trust issued receipts
(``TIRs''). Paragraphs (a)(1) and (2) of this Rule have no
applicability to trades executed in open outcry. (a) Trades Subject to
Review. A member or person associated with a member may have a trade
cancelled or adjusted if, in addition to satisfying the procedural
requirements of paragraph (b) below, one of the following conditions is
satisfied:
(1) Obvious Price Error. An obvious pricing error occurs when the
execution price of an electronic transaction is above or below the
Theoretical Price for the series by an amount equal to at least the
amount shown below:
------------------------------------------------------------------------
Minimum
Theoretical price amount
------------------------------------------------------------------------
Below $2..................................................... $0.25
$2 to $5..................................................... 0.40
Above $5 to $10.............................................. 0.50
Above $10 to $20............................................. 0.80
Above $20.................................................... 1.00
------------------------------------------------------------------------
Definition of Theoretical Price. For purposes of this Rule only,
the Theoretical Price of an option series is, for series traded on at
least one other options exchange, the last bid price with respect to an
erroneous sell transaction and the last offer price with respect to an
erroneous buy transaction, just prior to the trade, disseminated by the
competing options exchange that has the most liquidity in that option
class in the previous two calendar months. The Theoretical Price will
not include the last bid price (erroneous sell transaction) or last
offer price (erroneous buy transaction) of the competing options
exchange that has the most liquidity in that options class in the
previous two calendar quarters if such competing options exchange
widens its quote to incorporate the prior erroneous quote of the
Exchange. In such a case, the Theoretical Price shall be the last bid
price (erroneous sell transaction) and the last offer price (erroneous
buy transaction) just prior to the trade, disseminated by the competing
options exchange with the next best liquidity. If there are no
competing options exchanges left without an erroneous quote, the
Theoretical Price shall be the first quote of the competing options
exchange, that has the most liquidity in that options class in the
previous two calendar quarters, after the transaction(s) in question
that does not reflect the erroneous quote. If there are no quotes for
comparison, designated Trading Officials will determine the Theoretical
Price. For transactions occurring as part of an opening, the
Theoretical Price shall be the first quote after the transaction(s) in
question that does not reflect the erroneous transaction(s).
(i) Cancellation or Price Adjustment. Obvious Pricing Errors will
be cancelled or adjusted as follows.
Transactions Between Amex specialists/registered options
traders (ROTs): Where both parties to the transaction are Amex
specialists/ROTs, the execution price of the transaction will be
adjusted by Trading Officials to the prices provided in Paragraphs (A)
and (B) below, minus (plus) an adjustment penalty (``adjustment
penalty''), unless both parties agree to adjust the transaction to a
different price or agree to cancel the trade within fifteen (15)
minutes of being notified by Trading Officials of the Obvious Error.
(A) Erroneous buy transactions will be adjusted to their
Theoretical Price plus an adjustment penalty of either $.15 if the
Theoretical Price is under $3 or $.30 if the Theoretical Price is at or
above $3.
(B) Erroneous sell transactions will be adjusted to their
Theoretical Price minus an adjustment penalty of either $.15 if the
Theoretical Price is under $3 or $.30 if the Theoretical Price is at or
above $3.
Transactions Involving at least one non-Amex specialist/
ROT: Where one of the parties to the transaction is not an Amex
specialist/ROT, the transactions will be cancelled by Trading Officials
unless both parties agree to an adjustment price for the transaction
within thirty (30) minutes of being notified by Trading Officials of
the Obvious Error.
(2) No Bid Series. Electronic transactions in series quoted no bid
[at a nickel (i.e., $0.05 offer)] will be cancelled provided at least
one strike price below (for calls) or above (for puts) in the same
options class was quoted no bid [at a nickel] at the time of execution.
(3) Verifiable Disruptions or Malfunctions of Exchange Systems:
Electronic or open outcry transactions arising out of a ``verifiable
disruption or malfunction'' in the use or operation of any Exchange (a)
automated quotation, dissemination, execution, or communication system
that caused a quote/order to trade in excess of its disseminated size
(e.g., a quote/order that is frozen because of an Exchange system error
and is repeatedly traded) in which case trades in excess of the
disseminated size may be nullified; or (b) automated quotation,
dissemination or communication system that prevented a member from
updating or canceling a quote/order for which the member is
responsible, provided there is Exchange documentation reflecting that
the member sought to update or cancel the quote/order. With respect to
verifiable disruptions or malfunctions of the Exchange's automated
quotation system, documentation of the existence of the disruption or
malfunction will be sufficient provided the automated quotation system
was programmed to update or cancel a quote based upon specific changes
in the underlying, those changes occurred and due to the disruption or
malfunction the quote was not updated or cancelled. Unless the parties
agree to a price adjustment, the transaction will be cancelled.
[Transactions that qualify for price adjustment will be adjusted to the
Theoretical Price, as defined in paragraph (a)(1) above.]
(4) No Change.
(5) Erroneous Quote in Underlying. (i) Electronic trades (this
provision does not apply to trades executed in open outcry) resulting
from an erroneous quote in the underlying security may be adjusted or
canceled as set forth in paragraph (a)(1) above. An erroneous quote
occurs when the underlying security has a width of at least $1.00 and
has a width at least five times greater than the average quote width
for such underlying security on the primary market (as defined in Rule
900 (b)(26)) during the time period encompassing two minutes before and
after the dissemination of such quote. For purposes of this Rule, the
average quote width shall be determined by adding the quote widths of
each separate quote during the four minute time period referenced above
(excluding the quote in question) and dividing the number of quotes
during such time period (excluding the quote in question).
(ii) Electronic trades resulting from an erroneous quote in the
underlying security may also be adjusted or canceled as set forth in
paragraph (a)(1)(i) above when (i) a national securities exchange or
the Nasdaq Stock Market, Inc.'s quotes are not firm based upon direct
communication from that market or dissemination of a message indicating
the quotes are not firm or (ii) a national securities exchange or the
Nasdaq Stock Market, Inc. has directly communicated or otherwise
confirmed that it is experiencing systems or other problems affecting
the reliability of its disseminated quotes.
[[Page 67769]]
(6) Transactions Executed Outside of Trading Hours. All equity
options transactions that occur outside of the trading hours of the
Exchange will be canceled if it is determined by the Trading Officials
that the transaction occurred outside of the Exchange's trading hours,
except as set forth in Commentary .02 to Amex Rule 1.
(b) through (e). No Change.
Commentary
.01 through .03. No Change.
* * * * *
Rule 936C--ANTE. Cancellation and Adjustment of Index Option
Transactions
This Rule only governs the cancellation and adjustment of
transactions involving options on indexes, exchange-traded funds (ETFs)
and trust issued receipts (TIRs). Rule 936 and 936--ANTE governs the
cancellation and adjustment of transactions involving equity options.
Paragraphs (a)(1), (2), (6) and (7) of this Rule have no applicability
to trades executed in open outcry.
(a) Trades Subject to Review
A member or person associated with a member may have a trade
cancelled or adjusted if, in addition to satisfying the procedural
requirements of paragraph (b) below, one of the following conditions is
satisfied:
(1) Obvious Price Error. An obvious pricing error will be deemed to
have occurred when the execution price of a transaction is above or
below the fair market value of the option by at least a prescribed
amount. For series trading with normal bid-ask differentials as
established in Rule 958(c), the prescribed amount shall be: (a) the
greater of $0.10 or 10% for options trading under $2.50; (b) 10% for
options trading at or above $2.50 and under $5; or (c) $0.50 for
options trading at $5 or higher. For series trading with bid-ask
differentials that are greater than the widths established in Rule
958(c), the prescribed error amount shall be: (a) the greater of $0.20
or 20% for options trading under $2.50; (b) 20% for options trading at
or above $2.50 and under $5; or (c) $1.00 for options trading at $5 or
higher.
(i) Definition of Fair Market Value: For purposes of this Rule
only, the [f]Fair [m]Market [v]Value of an option is the midpoint of
the national best bid and national best offer for the series (across
all exchanges trading the option). Fair Market Value will not include
the national best bid price (erroneous sell transaction) or national
best offer price (erroneous buy transaction) of competing options
exchange(s) if such competing options exchanges widen their quote(s) to
incorporate the prior erroneous quote of the Exchange. In such a case,
the Fair Market Value shall be the midpoint of the first quote after
the transaction(s) in question that does not reflect the erroneous
quote. In multiple listed issues, if there are no quotes for comparison
purposes, [f]Fair [m]Market [v]Value shall be determined by Trading
Officials. For singly-listed issues, [f]Fair [m]Market [v]Value shall
be the midpoint of the first quote after the transaction(s) in question
that does not reflect the erroneous quote [erroneous transaction(s)].
For transactions occurring as part of an opening, the Fair Market Value
shall also be the midpoint of the first quote after the transaction(s)
in question that does not reflect the erroneous quote [erroneous
transaction(s)].
(2) No Change.
(3) Verifiable Disruptions or Malfunctions of Exchange Systems.
Trades arising out of a ``verifiable disruption or malfunction'' in the
use or operation of any Exchange (a) automated quotation,
dissemination, execution, or communication system that caused a quote/
order to trade in excess of its disseminated size (e.g., a quote/order
that is frozen because of an Exchange system error and is repeatedly
traded) in which case trades in excess of the disseminated size may be
nullified; or (b) automated quotation, dissemination or communication
system that prevented a member from updating or canceling a quote/order
for which the member is responsible, provided there is Exchange
documentation reflecting that the member sought to update or cancel the
quote/order. With respect to verifiable disruptions or malfunctions of
the Exchange's automated quotation system, documentation of the
existence of the disruption or malfunction will be sufficient provided
the automated quotation system was programmed to update or cancel a
quote based upon specific changes in the underlying, those changes
occurred and due to the disruption or malfunction the quote was not
updated or canceled. Unless the parties agree to a price adjustment,
the transaction will be canceled. [Transactions that qualify for price
adjustment will be adjusted to the Fair Market Value, as defined in
paragraph (a)(1)(i) above.]
(4) No Change.
(5) Erroneous Quote in Underlying. (i) A trade resulting from an
erroneous quote in the underlying security may be canceled or adjusted.
An erroneous quote occurs when the underlying security has a width of
at least $1.00 and has a width at least five times greater than the
average quote width for such underlying security on the primary market
(as defined in Rule 900(b)(26)) during the time period encompassing two
minutes before and after the dissemination of such quote.
(ii) Electronic trades resulting from an erroneous quote in the
underlying security may also be adjusted or canceled as set forth in
paragraph (a)(1)(i) above when (i) a national securities exchange or
the Nasdaq Stock Market, Inc.'s quotes are not firm based upon direct
communication from that market or dissemination of a message indicating
the quotes are not firm or (ii) a national securities exchange or the
Nasdaq Stock Market, Inc. has directly communicated or otherwise
confirmed that it is experiencing systems or other problems affecting
the reliability of its disseminated quotes.
(6) No Change.
(7) No Bid Series. Electronic transactions in series quoted no bid
[at a nickel (i.e., $0.05 offer)] will be cancelled provided at least
one strike price below (for calls) or above (for puts) in the same
options class was quoted no bid [at a nickel] at the time of execution.
(8) Transactions Executed Outside of Trading Hours. All index
options transactions that occur outside of the trading hours of the
Exchange will be cancelled if it is determined by the Trading Officials
that the transaction occurred outside of the Exchange's trading hours,
except as set forth in Commentary .02 to Amex Rule 1.
(b) through (e). No Change
Commentary
.01 through .02. No Change.
* * * * *
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.
[[Page 67770]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange's equity option obvious error rules, Amex Rules 936
and 936--ANTE, and index option obvious error rules, Amex Rules 936C
and 936C--ANTE (the ``Obvious Error Rules'') establish guidelines for
the adjustment and cancellation of transactions in equity and index
options. The purpose of this proposed rule change is to (i) amend the
definition of ``Theoretical Price'' \6\ and ``Fair Market Value'' \7\
in connection with determining whether an equity or index option
obvious price error has occurred as established in Amex Rules 936(a)(1)
and 936(a)(1)--ANTE (equity), and Amex Rules 936C(a)(1) and
936C(a)(1)--ANTE (index), respectively; (ii) amend Amex Rules
936C(a)(1)(i) and 936C(a)(1)(i)--ANTE to clarify how Fair Market Value
is determined in connection with single-listed index options and
opening transactions; (iii) amend the Obvious Error Rules relating to
erroneous quote(s) in the underlying security to permit the
cancellation/adjustment of an option transaction when an exchange
declares its quotes non-firm or otherwise communicates to the Amex that
its quotes are unreliable; (iv) add an additional type of qualifying
transaction entitled ``Transactions Executed Outside of Trading
Hours''; (v) amend how obvious price errors based on ``verifiable
disruptions or malfunctions of Exchange systems'' are adjusted or
cancelled; and (vi) revise the Obvious Error Rules to amend the terms
of cancellations for ``no bid series.''
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\6\ ``Theoretical Price'' of an option series is, for series
traded on at least one other options exchange, the last bid price
with respect to an erroneous sell transaction and the last offer
price with respect to an erroneous buy transaction, just prior to
the trade, disseminated by the competing options exchange that has
the most liquidity in that option class in the previous two calendar
months. If there are no quotes for comparison, designated Trading
Officials will determine the Theoretical Price. For transactions
occurring as part of an opening, the Theoretical Price shall be the
first quote after the transaction(s) in question that does not
reflect the erroneous transaction(s).
\7\ ``Fair Market Value'' of an option is the midpoint of the
national best bid and national best offer for the series (across all
exchanges trading the option). In multiply listed issues, if there
are no quotes for comparison purposes, Fair Market Value shall be
determined by Trading Officials. For singly-listed issues, Fair
Market Value shall be the first quote after the transaction(s) in
question that does not reflect the erroneous transaction(s). For
transactions occurring as part of an opening, the Fair Market Value
shall also be the first quote after the transaction(s) in question
that does not reflect the erroneous transaction(s).
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Obvious Price Error
Under the Obvious Error Rules, an obvious price error is one of
several enumerated types of transactions that qualify as an obvious
error and are accordingly subject to adjustment or cancellation.
Equity Options
Amex Rules 936(a)(1) and 936(a)(1)--ANTE provide that an obvious
pricing error will be deemed to have occurred when the execution price
of an electronic transaction (not open outcry) varies from the
Theoretical Price by a requisite amount.\8\ For multiply-traded
options, the Theoretical Price is the last bid (offer) price with
respect to an erroneous sell (buy) transaction just prior to the trade
that is disseminated by the competing options exchange with the most
liquidity in that class over the preceding two (2) calendar months. If
there are no quotes for comparison purposes, then trading officials
will determine the Theoretical Price. For transactions occurring as
part of an opening, the Theoretical Price is the first quote after the
transaction(s) in question that does not reflect the erroneous
transaction(s). When an obvious price error occurs, the Amex either
will adjust or cancel the transaction pursuant to Amex Rules
936(a)(1)(i) and 936(a)(1)(i)--ANTE.
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\8\ The requisite amount is: $0.25 for options below $2; $0.40
for options priced from $2 to $5; $0.50 for options priced above $5
to $10; $0.80 for options priced above $10 to $20; and $1.00 for
options priced above $20.
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Index Options
Amex Rules 936C(a)(1) and 936C(a)(1)--ANTE provide that an obvious
pricing error will be deemed to have occurred when the execution price
of an electronic transaction (not open outcry) varies from the Fair
Market Value by a prescribed amount.\9\ For multiply-traded options,
the Fair Market Value is the midpoint of the national best bid for
erroneous sell transactions or national best offer for erroneous buy
transactions. If there are no quotes for comparison purposes, then
trading officials will determine the Fair Market Value. For both
single-listed options and transactions occurring as part of an opening,
Fair Market Value is the midpoint of the first quote after the
transaction(s) in question that does not reflect the erroneous
transaction(s). The Exchange proposes to revise the rule text
accordingly to clarify that the Fair Market Value is the midpoint of
the first non-erroneous quote. When an obvious price error occurs, the
Amex either will adjust or cancel the transaction pursuant to Amex
Rules 936C(c) and 936C(c)--ANTE.
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\9\ For index options series trading with normal bid-ask
differentials as established in Rule 958(c), the prescribed amount
shall be: (a) The greater of $0.10 or 10% for index options trading
under $2.50; (b) 10% for index options trading at or above $2.50 and
under $5; or (c) $0.50 for index options trading at $5 or higher.
For index options series trading with bid-ask differentials that are
greater than the widths established in Rule 958(c), the prescribed
error amount shall be: (a) The greater of $0.20 or 20% for index
options trading under $2.50; (b) 20% for index options trading at or
above $2.50 and under $5; or (c) $1.00 for index options trading at
$5 or higher.
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Since the implementation of the Obvious Error Rules, there have
occasionally been options transactions effected on the Exchange that
were executed at prices that appeared to be ``obvious price errors''
but could not be cancelled or adjusted under existing rules. For
example, in connection with an equity option, following dissemination
of an erroneous quotation by the Amex, the competing options exchange
with the most liquidity in the option class in question during the
previous two (2) calendar months widened its quote to incorporate the
Amex quote. As a result, although the price of the Amex transaction was
``erroneous'' (i.e. based on an erroneous quote), it was not
``erroneous'' pursuant to Amex Rules 936 and 936--ANTE in that the
Theoretical Price was based on the ``widened quotes'' disseminated by
the competing options exchanges. As a result, the Exchange believes
that an amendment to the definition of Theoretical Price (and Fair
Market Value for index options) is appropriate so that the bids and
offers of an options exchange experiencing obvious price errors or
erroneous quotes are not indirectly used as the basis for the
Theoretical Price (and Fair Market Value). The Exchange believes that
the use of quotes that are deemed to be ``erroneous'' as a basis for
the Theoretical Price (equity) and Fair Market Value (indexes) is not
proper and is inconsistent with the role and purpose of the Obvious
Error Rules.
Widened Quotes
The proposal is intended to correct circumstances in the Obvious
Error Rules where the Amex posts an erroneous quote and subsequently a
competing options exchange, in direct response to the erroneous quote,
widens its quote to incorporate the prior erroneous quote of the Amex.
For example, the current market for an option is established by the
Chicago Board Options Exchange, Inc. (``CBOE'') to be 1.65 bid/1.90
offer. The Amex then quotes 0 bid/.25 offer for the option. The CBOE
immediately posts a market to incorporate the Amex quote such as .20
[[Page 67771]]
bid/1.90 offer. An order to buy is then executed on the Amex at the
offer price of $0.25. The Amex then corrects the quote to 1.65 bid/1.90
offer with the CBOE following suit at 1.65 bid/1.90 offer. The Exchange
believes for purposes of determining Theoretical Price in connection
with the equity options (Amex Rules 936(a)(1) and 936(a)(1)--ANTE) and
Fair Market Value in connection with index options (Amex Rules
936C(a)(1) and 936C(a)(1)--ANTE) that erroneous quotes of a competing
options exchange that incorporated an erroneous Amex quote (in this
example, .20 bid/1.90 offer) should not be used.
The Exchange proposes a revision to its equity option obvious price
error rules, Amex Rules 936(a)(1) and 936(a)(1)--ANTE, providing that
in determining the Theoretical Price of an option the last bid
(erroneous sell transaction) or last offer (erroneous buy transaction)
of the competing options exchange with the most liquidity in that
option class over the previous two calendar quarters will be excluded
if such competing options exchange widens its quote to incorporate the
prior erroneous quote of the Amex. As a result, the Exchange proposes
that the Theoretical Price, under these circumstances, would be the
last bid price (erroneous sell transaction) and the last offer price
(erroneous buy transaction) just prior to the trade, disseminated by
the competing options exchange with the next best liquidity. If there
are no competing options exchanges left without an erroneous quote, the
Theoretical Price would be the first quote of the competing options
exchange that has the most liquidity in such option class over the
previous two (2) calendar quarters after the transaction(s) in question
that does not reflect the erroneous quote.
In connection with the index option obvious price error rules, the
Exchange proposes that Fair Market Value will not include the national
best bid price (erroneous sell transaction) or national best offer
price (erroneous buy transaction) of a competing options exchange if
such exchange widens its quotes to incorporate the prior erroneous
quote of the Exchange. Accordingly, the Fair Market Value will be the
midpoint of the first quote after the transaction(s) in question that
does not reflect the erroneous quote.
Erroneous Quote in Underlying Security
As set forth in the Obvious Error Rules, a trade resulting from an
erroneous quote in the underlying security may be adjusted or
cancelled. However, pursuant to these Rules, a quote from an exchange
in an underlying security that is declared ``erroneous'' by that
exchange may not qualify for cancellation or adjustment.\10\ Therefore,
the Exchange proposes to amend Amex Rules 936(a)(5), 936(a)(5)--ANTE,
936C(a)(5) and 936C(a)(5)--ANTE so that when an exchange for an
underlying security or Nasdaq if the underlying security trades on
Nasdaq declares its quote(s) ``non-firm'' or when an exchange or Nasdaq
communicates to the Amex that it is experiencing systems or other
problems affecting the reliability of its disseminated quotes, a trade
resulting from such ``erroneous'' underlying quote could be cancelled
or adjusted. In order for a trade to be cancelled or adjusted, the
Exchange would have to have proper documentation of that market's non-
firm declaration or notification of unreliable quotes, as applicable.
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\10\ The Obvious Error Rules define an erroneous quote as a
quote that occurs when the underlying security has a width of at
least $1.00 and a width at least five times greater than the average
quote width for such underlying security on the primary market (as
defined in Amex Rule 900(b)(26) and Rule 900(b)(26)--ANTE) during
the time period encompassing two minutes before and after the
dissemination of such quote. The average quote width is determined
by adding the quote widths of each separate quote during the four
minute time period referenced above (excluding the quote in
question) and dividing the number of quotes during such time period
(excluding the quote in question).
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Transactions Executed Outside of Trading Hours
The Exchange further proposes that any equity options or index
options transaction that occurs outside normal trading hours
(currently, 9:30 a.m. until 4:02 p.m. Eastern time (``ET'') for equity
options and 9:30 a.m. until 4:15 p.m. ET for broad-based index options
and options on select Exchange-Traded Fund Shares) would be cancelled
if the Trading Officials determine that the transaction took place
outside of Amex trading hours, except as set forth in Commentary .02 to
Amex Rule 1.
Amex Rule 1 sets forth the hours of business at the Exchange.
Commentary .02 to Rule 1 provides that no option series may freely
trade after 4:02 p.m. ET except that broad stock index group options
and options on select Exchange-Traded Fund Shares shall freely trade
until 4:15 p.m. ET each business day. Three (3) exceptions to the
general rule are provided in Commentary .02 so that a trading rotation
in any class of options may be effected even though the transaction
will occur after 4:02 p.m. as follows: (i) Trading in the underlying
security opens or re-opens after 3:30 p.m. ET; (ii) such rotation was
initiated due to unusual market conditions pursuant to Rule 918 and
notice of such rotation is publicly disseminated no later than the
commencement of the rotation or 4:00 p.m. whichever is earlier or
notice of such rotation is publicly disseminated after 4:00 p.m. and
the rotation does not commence until five (5) minutes after news of
such rotation is publicly disseminated; or (iii) for option classes
trading on ANTE, an automated trading rotation is held at the close of
trading as soon as practicable after 4:02 p.m. ET. Accordingly, equity
options and index options transactions would be cancelled if the
Trading Officials determine that the transaction occurred outside of
the Amex trading hours.
Verifiable Disruptions or Malfunctions of Exchange Systems
In connection with transactions arising out of ``verifiable
disruptions or malfunctions of Exchange systems,'' the Obvious Error
Rules provide that those transactions that qualify for price adjustment
will be adjusted to the Theoretical Price for equity options or Fair
Market Value for index options. The Exchange submits that unintended
results may occur due to the manner in which price adjustments are
handled during these circumstances. Accordingly, the Exchange proposes
that unless the parties agree to a price adjustment, the transaction
would be cancelled. This new standard would replace the current price
adjustment to the Theoretical Price for equity options or Fair Market
Value for index options and clarify that the transaction will be
cancelled if a price adjustment is not agreed to.
An example of such unintended consequences is set forth below. The
current market for a particular equity call option is established by
the Amex at 1.15 bid/1.30 offer. The underlying security subsequently
increases in price. The other options exchanges (excluding the Amex)
change their quote so that the market is now 1.20 bid/1.35 offer. The
Amex due to a systems problem does not change its quote and remains at
1.15 bid/1.30 offer. The underlying security continues to increase in
price. The other options exchanges now post a market of 1.25 bid/1.40
offer. The Amex remains at 1.15 bid/1.30 offer. An order to buy is
executed on the Amex at 1.30. As defined by the current Rule, the
Theoretical Price for this option is 1.25 so that in adjusting the
price the specialist would be disadvantaged by the adjustment to 1.25
compared to the selling price of 1.30 (when the market was actually
1.40). Under the proposal,
[[Page 67772]]
unless the parties agreed to an adjustment, the transaction would be
cancelled.
No Bid Series
Under the current Obvious Error Rules ``no bid provisions,''
electronic transactions in option series quoted no bid at a nickel
(i.e. $0.05 offer) will be cancelled provided at least one strike price
below (for calls) or above (for puts) in the same options class was
quoted no bid at a nickel at the time of execution. A ``no bid'' option
refers to an option where the bid price is $0.00.\11\ Series of options
quoted no bid are typically deep out-of-the-money series that are
perceived as having little if any chance of expiring in-the-money. For
this reason, relatively few transactions occur in these series and
those that do are usually the result of a momentary pricing error. In
some cases, the pricing error is substantial enough such that the other
provisions in the equity and index options obvious error rules become
applicable. However, in many cases, the no bid provisions are the only
provisions that would apply to the pricing error.
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\11\ When the bid price is $0.00, the offer price is typically
$0.05. In this instance, the option typically is referred to as ``no
bid at a nickel.''
---------------------------------------------------------------------------
The proposal seeks to revise the no bid provision in the Obvious
Error Rules that provide that the option series must be quoted no bid
at a nickel and instead only require that the option series be quoted
no bid. The reason for this change is that options that are priced at
no bid, regardless of the offer, are typically deep out-of-the-money
series that are perceived as having little if any chance of expiring
in-the-money. This is especially the case when the series below (for
calls) or above (for puts) in the same option class similar is quoted
no bid. In this regard, the offer price is irrelevant. Therefore,
transactions in series that are quoted no bid at a dime, for example,
are just as likely to be the result of an obvious error as are
transactions in series that are quoted no bid at a nickel when the
series below (for calls) or above (for puts) in the same option class
similarly is quoted no bid.
2. Statutory Basis
The Amex represents that the filing provides objective guidelines
for the nullification or adjustment of transactions executed at clearly
erroneous prices. Moreover, the proposed rule provides uniformity
regarding obvious pricing errors, which will serve to benefit
customers. For these reasons, the Exchange believes the proposal is
consistent with Section 6(b) of the Act \12\, in general, and furthers
the objectives of Section 6(b)(5) of the Act,\13\ in particular, in
that it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, and, in
general, to protect investors and the public interest.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes the proposed rule change will impose no
burden on competition that is 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 by the Exchange on
this proposal.
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 the 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-2005-060 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-2005-060. 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 the
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-2005-060 and should be submitted on or before
November 29, 2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 05-22164 Filed 11-7-05; 8:45 am]
BILLING CODE 8010-01-P
