Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing and Order Granting Accelerated Approval to Proposed Rule Change and Amendment No. 1 Thereto Relating to the Listing and Trading of Options on Certain Russell Indexes, 6111-6116 [E6-1536]
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Federal Register / Vol. 71, No. 24 / Monday, February 6, 2006 / Notices
RETRIEVABILITY:
[Release No. 34–53191; File No. SR–Amex–
2005–061]
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing and Order Granting
Accelerated Approval to Proposed
Rule Change and Amendment No. 1
Thereto Relating to the Listing and
Trading of Options on Certain Russell
Indexes
trade long-term options on each of the
full value Russell Indexes noted above.5
The text of the proposed rule change
is available on Amex’s Web site at
https://www.amex.com, at Amex’s
principal office and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
Records may be retrieved by the
individual’s name or by the categories
listed above under ‘‘Categories of
Records in the System.’’
SAFEGUARDS:
Records are safeguarded by restricted
computer passwords, locked file
cabinets, and safes. Access to the
records is restricted to those who
require the records in the performance
of official duties related to the purposes
for which the system is maintained.
January 30, 2006.
RETENTION AND DISPOSAL:
Periodic purging and disposal of those
records concerning individuals no
longer members, employees or
contractors of the Commission.
Otherwise, records are retained and
disposed of in accordance with the
appropriate National Archives and
Records Administration General
Records Schedules.
SYSTEM MANAGER(S) AND ADDRESS:
Executive Director, Office of the
Executive Director, U.S. Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–1627.
NOTIFICATION PROCEDURES:
All requests to determine whether this
system of records contains a record
pertaining to the requesting individual
may be directed to the Privacy Act
Officer, U.S. Securities and Exchange
Commission, Operations Center, 6432
General Green Way, Mail Stop 0–7,
Alexandria, VA 22312–2413.
RECORD ACCESS PROCEDURES:
Persons wishing to obtain information
on the procedures for gaining access to
or contesting the contents of this record
may contact the Privacy Act Officer,
U.S. Securities and Exchange
Commission, Operations Center, 6432
General Green Way, Mail Stop 0–7,
Alexandria, VA 22312–2413.
CONTESTING RECORDS PROCEDURES:
See record access procedures above.
RECORD SOURCE CATEGORIES:
Information is provided by current
members and employees of the
Commission and selected contractors.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (‘‘Act’’)
and Rule 19b–4 thereunder,2 notice is
hereby given that on June 3, 2005, the
American Stock Exchange LLC (‘‘Amex’’
or ‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange.3 On July 14, 2005,
Amex submitted Amendment No. 1 to
the proposed rule change.4 The
Commission is publishing this notice
and order to solicit comments on the
proposed rule change, as amended, from
interested persons and to approve the
proposal on an accelerated basis.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade on the Exchange the following
cash-settled, European-style index
options on the full value of the
following Russell Indexes: (1) Russell
1000 Index; (2) Russell 1000 Growth
Index; (3) Russell 1000 Value Index;
(4) Russell 2000 Index; (5) Russell
2000 Growth Index; (6) Russell 2000
Value Index; (7) Russell 3000 Index;
(8) Russell 3000 Growth Index; (9)
Russell 3000 Value Index; (10) Russell
Midcap Index; (11) Russell Midcap
Growth Index; (12) Russell Midcap
Value Index and (13) Russell Top 50
Index (each an ‘‘Index,’’ and
collectively, the ‘‘Russell Indexes’’ or
‘‘Indexes’’). Additionally, the Exchange
is also proposing to be able to list and
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The Commission has made technical and
clarifying changes to this notice with Amex’s
consent. Telephone conversation between Florence
Harmon, Special Counsel, Division of Market
Regulation (‘‘Division’’), Commission, Angela
Muehr, Attorney, Division, Commission, Kristie
Diemer, Attorney, Division, Commission and Jeffrey
P. Burns, Associate General Counsel, Amex on June
29, 2005.
4 In Amendment No. 1, Amex made clarifying
changes to the contract specifications.
2 17
EXEMPTIONS CLAIMED FOR THE SYSTEM:
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None.
Dated: January 31, 2006.
By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. E6–1574 Filed 2–3–06; 8:45 am]
BILLING CODE 8010–01–P
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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 III below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
(1) Purpose
The purpose of the proposed rule
change is to permit the Exchange to list
and trade cash-settled, European-style,
stock index options on the Russell
Indexes. Each Russell Index is a
capitalization-weighted index
containing various groups of stocks
drawn from the largest 3,000 companies
incorporated in the U.S. and its
territories. All component securities of
the Russell Indexes are traded on the
Amex, New York Stock Exchange, Inc.
(‘‘NYSE’’), or The Nasdaq Stock Market,
Inc. (‘‘Nasdaq’’). Options contracts on
the Russell Indexes (except for the
Russell Top 50) are currently listed and
traded on the Chicago Board Options
Exchange, Incorporated (‘‘CBOE’’) and
the International Securities Exchange,
Inc. (‘‘ISE’’).6
5 Under Amex Rule 903C(a)(iii), ‘‘Long-term
Options Series,’’ the Exchange may list long-term
options that expire twelve to sixty months from the
date of issuance.
6 See Securities Exchange Act Release Nos. 51619
(April 27, 2005), 70 FR 22947 (May 3, 2005)
(approving the listing and trading of ISE options on
21 Russell Indexes); 49388 (March 10, 2004), 69 FR
12720 (March 17, 2004) (approving listing and
trading on CBOE of options, including LEAPS, on
the Russell Top 200 Index, Russell Top 200 Growth
Index, and the Russell Top 200 Value Index); 48591
(October 2, 2003), 68 FR 58728 (October 10, 2003)
(approving listing and trading on CBOE of options,
including LEAPS, on the Russell 3000 Index,
Russell 3000 Value Index, Russell 3000 Growth
Index, Russell 2000 Value Index, Russell 2000
Growth Index, Russell 1000 Index, Russell 1000
Value Index, Russell 1000 Growth Index, Russell
MidCap Index, Russell MidCap Value Index, and
E:\FR\FM\06FEN1.SGM
Continued
06FEN1
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Federal Register / Vol. 71, No. 24 / Monday, February 6, 2006 / Notices
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Index Design and Composition
The Russell Indexes are designed to
be a comprehensive representation of
the investable U.S. equity market. These
Indexes are capitalization-weighted and
include only those common stocks of
corporations domiciled in the U.S. and
its territories and that are traded on
Amex, NYSE, or Nasdaq. The
component securities are weighted by
their ‘‘available’’ market capitalization
(also called ‘‘float-adjusted’’ market
capitalization), which is calculated by
multiplying the primary market price by
the ‘‘available’’ shares.7
The following is a brief description of
each Index: 8
Russell 3000—Measures the
performance of the 3,000 largest U.S.
companies based on total market
capitalization, which represents
approximately 98% of the investable
U.S. equity market.
Russell 3000 Growth—Measures the
performance of those Russell 3000 Index
companies with higher price-to-book
ratios and higher forecasted growth
values. The stocks in this index are also
members of either the Russell 1000
Growth or the Russell 2000 Growth
indexes.
Russell 3000 Value—Measures the
performance of those Russell 3000 Index
companies with lower price-to-book
ratios and lower forecasted growth
values. The stocks in this index are also
members of either the Russell 1000
Value or the Russell 2000 Value.
Russell 2000—Measures the
performance of the 2,000 smallest
companies in the Russell 3000 Index,
representing approximately 8% of the
total market capitalization of the Russell
3000 Index.
Russell 2000 Growth—Measures the
performance of those Russell 2000
Companies with higher price-to-book
ratios and higher forecasted growth
values.
Russell 2000 Value—Measures the
performance of those Russell 2000
Russell MidCap Growth Index); and 31382 (October
30, 1992), 57 FR 52802 (November 5, 1992)
(approving listing and trading on CBOE of options,
including LEAPS, on the Russell 2000 Index). Amex
recently listed the Rydex Russell Top 50 ETF and
options on the Rydex Russell Top 50 ETF. See
https://www.amex.com.
7 ‘‘Available shares’’ are the total shares
outstanding less corporate cross-owned shares,
ESOP and LESOP-owned shares comprising 10% or
more of shares outstanding, unlisted share classes
and shares held by an individual, a group of
individuals acting together, a corporation not in the
index that owns 10% or more of the shares
outstanding or shares subject to IPO lock-ups. ESOP
and LESOP-owned shares represent, generally,
those shares of a corporation that are owned
through employee stock ownership plans.
8 Additional information about the Russell
Indexes can be found at https://russell.com/us/
indexes/us/definitions.asp.
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Companies with lower price-to-book
ratios and lower forecasted growth
values.
Russell 1000—Measures the
performance of the 1,000 largest
companies in the Russell 3000 Index,
which represents approximately 92% of
the total market capitalization of the
Russell 3000 Index.
Russell 1000 Growth—Measures the
performance of those Russell 1000
Companies with higher price-to-book
ratios and higher forecasted growth
values.
Russell 1000 Value—Measures the
performance of those Russell 1000
Companies with lower price-to-book
ratios and lower forecasted growth
values.
Russell Midcap—Measures the
performance of the 800 smallest
companies in the Russell 1000 Index,
which represent approximately 26% of
the total market capitalization of the
Russell 1000 Index.
Russell Midcap Growth—Measures
the performance of those Russell
Midcap companies with higher price-tobook ratios and higher forecasted
growth values. The stocks are also
members of the Russell 1000 Growth
index.
Russell Midcap Value—Measures the
performance of those Russell Midcap
companies with lower price-to-book
ratios and lower forecasted growth
values. The stocks are also members of
the Russell 1000 Value index.
Russell Top 50—Measures the
performance of the 50 largest companies
in the Russell 3000 Index, representing
approximately 41% of the total market
capitalization of the Russell 3000.
All equity securities listed on Amex,
NYSE, or Nasdaq are considered for
inclusion in the universe of stocks that
comprise the Russell Indexes, with the
following exceptions: (1) Stocks trading
less than $1.00 per share on May 31
each year; (2) non-U.S. incorporated
companies; and (3) preferred and
convertible preferred stock, redeemable
shares, participating preferred stock,
warrants and rights, trust receipts,
royalty trusts, limited liability
companies, Bulletin Board and Pink
Sheet stocks, closed-end investment
companies, limited partnerships, and
foreign stocks. As a special exception,
Berkshire Hathaway is also excluded.
The Russell 3000 Index is comprised of
the top 3,000 eligible stocks ranked by
available market capitalization. All of
these stocks are ‘‘reported securities,’’ as
defined in Rule 11Aa3–1(a)(4) under the
Act.9
9 17 CFR 240.11Aa3–1(a)(4), n/k/a Rule 600(47) of
Regulation NMS under the Act, 17 CFR 242.600(47).
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All of the Russell Indexes described
above are subsets of the Russell 3000
Index. The Growth and Value versions
of each of the Russell 1000, Russell
2000, Russell 3000 and Russell Midcap
may contain common components, but
the capitalization of those components
is apportioned so that the sum of the
total capitalization of the Growth and
Value indexes equals the total
capitalization of the respective primary
index.
As of May 5, 2005, the stocks
comprising the Russell 3000 Index (and
the other Russell Indexes) had an
average market capitalization of $4.519
billion ranging from a high of $380.007
billion (General Electric Co.) to a low of
$22.2 million (ITC Deltacom, Inc.). The
number of available shares outstanding
ranged from a high of 10.8 billion
(Microsoft Corp.) to a low of 1.26
million (Seaboard Co.), and averaged
144.5 million shares. The six-month
average daily trading volume for Russell
3000 Index components was 1.072
million shares per day, ranging from a
high of 83.2 million shares per day
(Sirus Satellite Radio) to a low of 1,500
shares per day (Wesco Financial Corp.).
Component securities that averaged less
than 50,000 shares per day for the
previous six months accounted for
0.75% of the index weight. Over 66.18%
of the Russell 3000 Index components
satisfied Amex’s listing criteria for
equity options as set forth in Amex Rule
915, representing over 94.82% of the
index weight.
The Russell Indexes themselves range
in capitalization from a high of $13.6
trillion (Russell 3000) to a low of $866.2
billion (Russell 2000 Growth). The
number of index components range
from a high of 3,019 (Russell 3000) to
a low of 49 (Russell Top 50). The
Russell 1000 Growth Index has the
highest percentage of options-eligible
components with 100% by weight and
100% by number. The Russell 2000
Value Index has the lowest percentage
of options-eligible components with
54.70% by weight and 44.97% by
number.
Index Calculation and Index
Maintenance
The values of each Index are currently
calculated by Reuters on behalf of the
Frank Russell Company and would be
disseminated at 15-second intervals
during regular Amex trading hours to
market information vendors via the
Telephone conversation between Florence Harmon,
Special Counsel, Division, Commission and Jeffrey
P. Burns, Associate General Counsel, Amex on
January 29, 2006.
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Federal Register / Vol. 71, No. 24 / Monday, February 6, 2006 / Notices
Options Price Reporting Authority
(‘‘OPRA’’).
The methodology used to calculate
the value of the Russell Indexes is
similar to the methodology used to
calculate the value of other well-known
market-capitalization weighted indexes.
The level of each Index reflects the total
market value of the component stocks
relative to a particular base period and
is computed by dividing the total
market value of the companies in each
Index by its respective index divisor.
The divisor is adjusted periodically to
maintain consistent measurement of
each Index. The following is a table of
base dates and the respective Index
levels as of May 5, 2005:
Base date/
Base index value
Index
Russell 3000 ..................................................................................................................................................
Russell 3000 Growth .....................................................................................................................................
Russell 3000 Value ........................................................................................................................................
Russell 2000 ..................................................................................................................................................
Russell 2000 Growth .....................................................................................................................................
Russell 2000 Value ........................................................................................................................................
Russell 1000 ..................................................................................................................................................
Russell 1000 Growth .....................................................................................................................................
Russell 1000 Value ........................................................................................................................................
Russell Midcap ..............................................................................................................................................
Russell Midcap Growth ..................................................................................................................................
Russell Midcap Value ....................................................................................................................................
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Russell Top 50 ...............................................................................................................................................
Options on the Russell Indexes would
expire on the Saturday following the
third Friday of the expiration month.
Trading in options on the Russell
Indexes would normally cease at 4:15
p.m. Eastern time (‘‘ET’’) on the
Thursday preceding an expiration
Saturday. The exercise settlement value
at expiration of each Russell Index
option would be calculated by Reuters
on behalf of the Frank Russell Company,
based on the opening prices of the
Index’s component securities on the last
business day prior to expiration
(‘‘Settlement Day’’).10 The Settlement
Day would normally be the Friday
preceding ‘‘Expiration Saturday.’’ If a
component security in a Russell Index
does not trade on Settlement Day, the
last reported sales price in the primary
market from the previous trading day
would be used to calculate the
settlement value. Settlement values for
the Russell Indexes would be
disseminated by OPRA.
The Russell Indexes are monitored
and maintained by the Frank Russell
Company. The Frank Russell Company
is responsible for making all necessary
10 The aggregate exercise value of the option
contract is calculated by multiplying the Index
value by the Index multiplier, which is 100.
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14:55 Feb 03, 2006
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adjustments to the Indexes to reflect
component deletions, share changes,
stock splits, stock dividends (other than
an ordinary cash dividend), and stock
price adjustments due to restructuring,
mergers, or spin-offs involving the
underlying components. Some corporate
actions, such as stock splits and stock
dividends, require simple changes to the
available shares outstanding and the
stock prices of the component
securities. Other corporate actions, such
as share issuances, change the market
value of the Indexes and would require
the use of an index divisor to effect
adjustments.
The Russell Indexes are re-constituted
annually on June 30th, based on prices
and available shares outstanding as of
the preceding May 31st. New index
components are added only as part of
the annual re-constitution and, after
which, should a component security be
removed from an index for any reason,
it cannot be replaced until the next reconstitution.
Although not involved in the
maintenance of any of the Russell
Indexes, the Exchange would monitor
each Russell Index on a quarterly basis
and notify the Commission’s Division
by filing a proposed rule change
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6113
12/31/86 =
140.00
3/16/00 =
700.00
3/16/00 =
700.00
12/31/86 =
135.00
3/16/00 =
500.00
3/16/00 =
500.00
12/31/86 =
130.00
8/31/92 =
200.00
8/31/92 =
200.00
12/31/86 =
200.00
3/16/00 =
500.00
3/16/00 =
500.00
12/31/01 =
1,000
05/05/2005
Index value
670.29
379.95
848.58
595.64
303.72
892.40
632.33
470.62
648.51
768.48
321.56
859.76
973.11
pursuant to Rule 19b–4 of the Act 11 if:
(i) The number of securities in any
Index drops by one-third or more; (ii)
10% or more of the weight of any Index
is represented by component securities
having a market value of less than $75
million; (iii) less than 80% of the weight
of any Index is represented by
component securities that are eligible
for options trading pursuant to Amex
Rule 915; (iv) 10% or more of the weight
of any Index is represented by
component securities trading less than
20,000 shares per day; or (v) the largest
component security in any Index
accounts for more than 15% of the
weight of the Index, or the largest five
components in the aggregate account for
more than 50% of the weight of the
Index.
The Exchange would also notify the
Division immediately if the Frank
Russell Company ceases to maintain or
calculate any of the Russell Indexes on
which Amex is proposing to list and
trade options, or if the value of any of
these Russell Indexes is not
disseminated every 15 seconds by a
widely available source. If a Russell
Index ceases to be maintained or
calculated, or its values are not
11 17
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CFR 240.19b–4.
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disseminated every 15 seconds by a
widely available source, the Exchange
would not list any additional series for
trading and would limit all transactions
in options on that Index to closing
transactions only for the purpose of
maintaining a fair and orderly market
and protecting investors.
Contract Specifications
The proposed contract specifications
for the options on the Russell Indexes
are based on the contract specifications
of similar options currently listed on
CBOE and ISE.12 The Russell Indexes
are broad-based indexes, as defined in
Amex Rule 900C(b)(1). Options on the
Russell Indexes would be Europeanstyle and a.m. cash-settled. The
Exchange’s standard trading hours for
broad-based index options (9:30 a.m. to
4:15 p.m. ET), as set forth in
Commentary .02 to Amex Rule 1, would
apply to options on the Russell Indexes.
Exchange rules that apply to the trading
of options on broad-based indexes
would also apply to options on the
Russell Indexes.13 The trading of these
options would also be subject to, among
others, Exchange rules governing margin
requirements and trading halt
procedures for index options.
For options on the Russell Indexes,
the Exchange proposes to establish in
Amex Rule 904C(b) an aggregate
position limit of 50,000 contracts on the
same side of the market, provided that
no more than 30,000 of such contracts
are in the nearest expiration month
series.14 These limits are identical to the
limits applicable to options based on the
Russell Indexes that currently trade on
CBOE and ISE.15
However, neither CBOE nor ISE
currently list and trade options on the
Russell Top 50. The Exchange believes
that the proposed position and exercise
limits for the Russell Top 50 is
appropriate because it measures the
performance of the 50 largest companies
in the Russell 3000 Index, representing
approximately 41% of the total market
capitalization of the Russell 3000.
Russell Midcap options traded on both
CBOE and ISE have the same position
and exercise limits as are proposed for
the Russell Top 50 options. The Russell
Midcap measures the performance of
the 800 smallest companies in the
Russell 1000 Index, representing
approximately 26% of the total market
capitalization of the Russell 1000 Index.
Since the Russell Top 50 represents
12 See
supra note 6.
Amex Rules 900C through 980C.
14 14 The same limits that apply to position limits
would apply to exercise limits for these products.
15 See CBOE Rule 24.4(e) and ISE Rule 2004.
13 See
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41% of the Russell 3000 as compared to
the Russell Midcap representing 26% of
the Russell 1000, the Exchange believes
that the same position and exercise
limits are appropriate. Accordingly, the
Exchange submits that the Russell Top
50 should have position and exercise
limits of 50,000 contracts with no more
than 30,000 for the near term.
Commentary .01(c) to Amex Rule
904C provides that position limits for
hedged index options may not exceed
twice the established position limits for
broad stock index groups. The Exchange
proposes that a hedge exemption of
75,000 be available for the Russell
Indexes.
Furthermore, pursuant to
Commentary .02 to Amex Rule 904C,
proprietary accounts of member
organizations could receive an
exemption of up to three times the
established position limit for the
purpose of facilitating public customer
orders, to the extent they comply with
the procedures and criteria listed in
Commentary .02 to Amex Rules 950(d)
and 950(d)—ANTE.
The Exchange proposes to apply
broad-based index margin requirements
for the purchase and sale of options on
the Russell Indexes. Accordingly,
purchases of put or call options with
nine months or less until expiration
would have to be paid for in full.
Writers of uncovered put or call options
would have to deposit/maintain 100%
of the option proceeds, plus 15% of the
aggregate contract value (current index
level × $100), less any out-of-the-money
amount, subject to a minimum of the
option proceeds plus 10% of the
aggregate contract value for call options
and a minimum of the option proceeds
plus 10% of the aggregate exercise price
amount for put options.
The Exchange proposes to set a strike
price interval of at least 21⁄2 points for
a near-the-money series in a near-term
expiration month when the level of a
Russell Index is below 200, a 5-point
strike price interval for any options
series with an expiration up to one year,
and at least a 10-point strike price
interval for any longer-term option. The
minimum tick size for series trading
below $3 would be $0.05, and for series
trading at or above $3 would be $0.10.
The Exchange proposes to list options
on the Russell Indexes in the three
consecutive near-term expiration
months, plus up to three successive
expiration months in the March cycle.
For example, consecutive expirations of
January, February, March, plus June,
September, and December expirations
would be listed.16 In addition, long-term
option series having up to 60 months to
expiration may be traded.17 The trading
of long-term options on the Russell
Indexes would be subject to the same
rules that govern all the Exchange’s
index options, including sales practice
rules, margin requirements, and trading
rules.
Surveillance and Capacity
The Exchange represents that it has an
adequate surveillance program in place
for options on the Russell Indexes and
intends to apply those same procedures
that it applies to the Exchange’s other
index options. In addition, the Exchange
is a member of the Intermarket
Surveillance Group (‘‘ISG’’). The
members of the ISG include all of the
national securities exchanges, plus the
National Association of Securities
Dealers, Inc. The ISG members work
together to coordinate surveillance and
share information regarding the stock
and options markets. In addition, the
major futures exchanges are affiliated
members of the ISG, which allows for
the sharing of surveillance information
for potential intermarket trading abuses.
The Exchange also represents that it
has the necessary systems capacity to
support the new options series that
would result from the introduction of
options on the Russell Indexes,
including long-term options. The
Exchange has provided the Commission
with system capacity information to
support this representation.
(2) Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6 of the Act,18 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,19 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities,
and to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange believes that the
proposed rule change does not impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
17 See
Amex Rule 903C(a)(iii).
U.S.C. 78f.
19 15 U.S.C. 78f(b)(5).
18 15
16 See
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Federal Register / Vol. 71, No. 24 / Monday, February 6, 2006 / Notices
IV. Commission’s Findings and Order
Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the
proposed rule change, as amended, is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
III. Solicitation of Comments
securities exchange.20 In particular, the
Interested persons are invited to
Commission believes that the proposal
submit written data, views, and
is consistent with Section 6(b)(5) of the
arguments concerning the foregoing,
Act,21 which requires that the rules of
including whether the proposed rule
an exchange be designed to prevent
change, as amended, is consistent with
fraudulent and manipulative acts and
the Act. Comments may be submitted by practices, to promote just and equitable
any of the following methods:
principles of trade, to remove
impediments to and perfect the
Electronic Comments
mechanism of a free and open market
• Use the Commission’s Internet
and a national market system, and in
comment form (https://www.sec.gov/
general to protect investors and the
rules/sro.shtml); or
public interest.
• Send an e-mail to ruleThe Commission notes that it
comments@sec.gov. Please include File
previously has found that the listing and
Number SR–Amex–2005–061 on the
trading on CBOE and ISE of options on
subject line.
most of the Russell Indexes described
above, and CBOE’s position and ISE’s
Paper Comments
position and exercise limits associated
• Send paper comments in triplicate
with those options, are consistent with
to Nancy M. Morris, Secretary,
the Act. Amex has proposed
Securities and Exchange Commission,
substantially the same contract
100 F Street, NE., Washington, DC
specifications for these options, as well
20549–1090.
as identical position and exercise limits
All submissions should refer to File
for these options. The Commission
Number SR–Amex–2005–061. This file
presently is not aware of any issue that
number should be included on the
subject line if e-mail is used. To help the would cause it to revisit those earlier
findings or preclude the listing and
Commission process and review your
trading of these options on Amex.
comments more efficiently, please use
Amex also has proposed to list and
only one method. The Commission will
trade new options on the Russell Top 50
post all comments on the Commission’s
Index—options that have not previously
Internet Web site (https://www.sec.gov/
been approved by the Commission for
rules/sro.shtml). Copies of the
listing and trading on any national
submission, all subsequent
securities exchange. The Commission
amendments, all written statements
believes that the composition of this
with respect to the proposed rule
Index and the characteristics of Amex’s
change that are filed with the
proposed options on this Index will
Commission, and all written
minimize the potential for
communications relating to the
manipulation, and that listing and
proposed rule change between the
Commission and any person, other than trading them on Amex is reasonable and
consistent with the Act.
those that may be withheld from the
As noted above, the Russell Indexes
public in accordance with the
are designed to represent broad
provisions of 5 U.S.C. 552, will be
segments of the U.S. equity securities
available for inspection and copying in
markets. Furthermore, Amex has
the Commission’s Public Reference
represented that it would notify the
Section, 100 F Street, NE, Washington,
Commission if: (i) The number of
DC 20549. Copies of such filing also will
securities in any Index drops by onebe available for inspection and copying
third or more; (ii) 10% or more of the
at the principal office of Amex. All
weight of any Index is represented by
comments received will be posted
component securities having a market
without change; the Commission does
value of less than $75 million; (iii) less
not edit personal identifying
than 80% of the weight of any Index is
information from submissions. You
represented by component securities
should submit only information that
that are eligible for options trading
you wish to make available publicly. All
submissions should refer to File
20 In approving this proposal, the Commission has
Number SR–Amex–2005–061 and
considered its impact on efficiency, competition,
should be submitted on or before
and capital formation. See 15 U.S.C. 78c(f).
21 15 U.S.C. 78f(b)(5).
February 27, 2006.
rmajette on PROD1PC67 with NOTICES1
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received from
Members, Participants or Others
No written comments were solicited
or received with respect to the proposed
rule change.
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14:55 Feb 03, 2006
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6115
pursuant to Amex Rule 915; (iv) 10% or
more of the weight of any Index is
represented by component securities
trading less than 20,000 shares per day;
or (v) the largest component security
accounts for more than 15% of the
weight of any Index or the largest five
components in the aggregate account for
more than 50% of the weight of any
Index.
The Commission also believes that the
position and exercise limits for the new
Russell Index options, including the
index hedge exemption from such
position limits, are reasonable and
consistent with the Act. These limits are
modeled on existing position and
exercise limits for options on very
similar Russell Indexes that previously
have been approved by the Commission.
In approving this proposal, the
Commission has specifically relied on
the following representations made by
the Exchange:
1. The Exchange will notify the
Division immediately if the Frank
Russell Company ceases to maintain or
calculate any Russell Index on which an
Amex option is based, or if the value of
any such Russell Index is not
disseminated every 15 seconds by a
widely available source. If a Russell
Index ceases to be maintained or
calculated, or its values are not
disseminated every 15 seconds by a
widely available source, the Exchange
will not list any additional series on that
Index and will limit all transactions in
such options to closing transactions
only for the purpose of maintaining a
fair and orderly market and protecting
investors.
2. The Exchange has an adequate
surveillance program in place for the
proposed options on the Russell
Indexes.
3. The additional quote and message
traffic that will be generated by listing
and trading the proposed options on the
Russell Indexes will not exceed the
Exchange’s current message capacity
allocated by the Independent System
Capacity Advisor.
The Commission further notes that, in
approving this proposal, it relied on the
Exchange’s discussion of how the Frank
Russell Company currently calculates
the Russell Indexes. If the manner in
which any Russell Index is calculated
were to change substantially, this
approval order, with respect to any
Amex options on that Index, might no
longer be effective.
The Commission finds good cause for
approving this proposal before the
thirtieth day after the publication of
notice thereof in the Federal Register.
Most of the proposed options on the
Russell Indexes already have been
E:\FR\FM\06FEN1.SGM
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6116
Federal Register / Vol. 71, No. 24 / Monday, February 6, 2006 / Notices
approved for listing and trading on
another exchange and are governed by
contract specifications that are
substantially the same as those
proposed by Amex. The new options
proposed by Amex will be governed by
contract specifications that are
substantially the same as those that
govern the similar existing products.
Therefore, accelerating approval of
Amex’s proposal should benefit
investors by creating, without undue
delay, additional competition in the
market for the existing options, as well
as an additional investment opportunity
with regard to the new options.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,22 that the
proposed rule change, as amended (SR–
Amex–2005–061), is hereby approved.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.23
Nancy M. Morris,
Secretary.
[FR Doc. E6–1536 Filed 2–3–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53187; File No. SR–NASD–
2006–006]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change and Amendment No. 1
Thereto To Modify the Hours of
Operation of Nasdaq’s Brut System
rmajette on PROD1PC67 with NOTICES1
January 30, 2006.
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 January
20, 2006, the National Association of
Securities Dealers, Inc.(‘‘NASD’’),
through its subsidiary, The Nasdaq
Stock Market, Inc. (‘‘Nasdaq’’),
submitted to the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
in Items I and II below, which Items
have been prepared by Nasdaq. Nasdaq
filed the proposed rule change pursuant
to section 19(b)(3)(A) of the Act 3 which
renders it effective upon filing with the
Commission. On January 25, 2006, the
Amex filed Amendment No. 1 to the
22 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a))12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
23 17
VerDate Aug<31>2005
14:55 Feb 03, 2006
Jkt 208001
proposed rule change.4 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
Nasdaq proposes to amend NASD
Rule 4912. The text of the proposed rule
change is below. Additions are
italicized; deletions are [bracketed].5
*
*
*
*
*
4912. Normal Business Hours
The Brut System operates from [6:30]
7:30 a.m. to 8:00 p.m. Eastern Time on
each business day.
*
*
*
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Nasdaq 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. Nasdaq has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Nasdaq proposes to modify the
starting time for the Brut ECN hours of
operation, order acceptance time, from
6:30 a.m. to 7:30 a.m. (Eastern Time).
This change will standardize the system
start times of the Nasdaq Market Center
and Nasdaq’s Brut Facility.
The current configuration allows
connectivity and order entry from the
time the System is brought online
beginning at 6:30 a.m., which allows
orders and executions to begin at 6:30
a.m.6
The proposed amendment would:
4 Amendment No. 1 clarified that the filing was
made pursuant to section 19(b)(3)(A)(iii) of the Act
and Rule 19b–4(f)(6) thereunder.
5 Changes are marked to the rule text that appears
in the electronic NASD Manual found at https://
www.nasd.com. Prior to the date when The
NASDAQ Stock Market LLC (‘‘NASDAQ LLC’’)
commences operations, NASDAQ LLC will file a
conforming change to the rules of NASDAQ LLC
approved in Securities Exchange Act Release No.
53128 (January 13, 2006).
6 Phone call from Jonathan Cayne, Associate
General Counsel, Nasdaq, to Angela R. Muehr,
Attorney, Commission, on January 27, 2006.
PO 00000
Frm 00084
Fmt 4703
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(1) Allow client connection from
System up time, scheduled to begin at
6:30 a.m. (this process takes 10–15
minutes);
(2) Reject orders entered prior to 7:30
a.m.;
(3) Allow orders and executions
beginning at 7:30 a.m.
2. Statutory Basis
Nasdaq believes that the proposed
rule change is consistent with section
15A of the Act,7 in general, and furthers
the objectives of section 15A(b)(6) of the
Act,8 in particular, in that it is designed
to protect investors and the public
interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Nasdaq does not believe that the
proposed rule change will result in any
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
Written comments on the proposed
rule change were neither solicited nor
received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Nasdaq has filed the proposed rule
change pursuant to section 19(b)(3)(A)
of the Act 9 and subparagraph (f)(6) of
Rule 19b–4 thereunder.10 Because the
foregoing proposed rule change: (1)
Does not significantly affect the
protection of investors or the public
interest; (2) does not impose any
significant burden on competition; and
(3) does not become operative for 30
days from the date of filing, or such
shorter time as the Commission may
designate if consistent with the
protection of investors and the public
interest, the proposed rule change has
become effective pursuant to section
19(b)(3)(A) of the Act and Rule 19b–
4(f)(6) thereunder. As required under
Rule 19b–4(f)(6)(iii), Nasdaq provided
the Commission with written notice of
its intent to file the proposed rule
change at least five business days prior
to filing the proposal with the
Commission or such shorter period as
designated by the Commission.
At any time within 60 days of the
filing of such proposed rule change, the
77
15 U.S.C. 78o–3.
15 U.S.C. 78o–3(6).
9 9 15 U.S.C. 78s(b)(3)(A).
10 10 17 CFR 240.19b–4(f)(6).
88
E:\FR\FM\06FEN1.SGM
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]]>Agencies
[Federal Register Volume 71, Number 24 (Monday, February 6, 2006)]
[Notices]
[Pages 6111-6116]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-1536]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53191; File No. SR-Amex-2005-061]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing and Order Granting Accelerated Approval to Proposed
Rule Change and Amendment No. 1 Thereto Relating to the Listing and
Trading of Options on Certain Russell Indexes
January 30, 2006.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') and Rule 19b-4 thereunder,\2\ notice is hereby given
that on June 3, 2005, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the
Exchange.\3\ On July 14, 2005, Amex submitted Amendment No. 1 to the
proposed rule change.\4\ The Commission is publishing this notice and
order to solicit comments on the proposed rule change, as amended, from
interested persons and to approve the proposal on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The Commission has made technical and clarifying changes to
this notice with Amex's consent. Telephone conversation between
Florence Harmon, Special Counsel, Division of Market Regulation
(``Division''), Commission, Angela Muehr, Attorney, Division,
Commission, Kristie Diemer, Attorney, Division, Commission and
Jeffrey P. Burns, Associate General Counsel, Amex on June 29, 2005.
\4\ In Amendment No. 1, Amex made clarifying changes to the
contract specifications.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade on the Exchange the
following cash-settled, European-style index options on the full value
of the following Russell Indexes: (1) Russell 1000[supreg] Index; (2)
Russell 1000[supreg] Growth Index; (3) Russell 1000[supreg] Value
Index; (4) Russell 2000[supreg] Index; (5) Russell 2000[supreg] Growth
Index; (6) Russell 2000[supreg] Value Index; (7) Russell 3000[supreg]
Index; (8) Russell 3000[supreg] Growth Index; (9) Russell 3000[supreg]
Value Index; (10) Russell Midcap[supreg] Index; (11) Russell
Midcap[supreg] Growth Index; (12) Russell Midcap[supreg] Value Index
and (13) Russell Top 50[supreg] Index (each an ``Index,'' and
collectively, the ``Russell Indexes'' or ``Indexes''). Additionally,
the Exchange is also proposing to be able to list and trade long-term
options on each of the full value Russell Indexes noted above.\5\
---------------------------------------------------------------------------
\5\ Under Amex Rule 903C(a)(iii), ``Long-term Options Series,''
the Exchange may list long-term options that expire twelve to sixty
months from the date of issuance.
---------------------------------------------------------------------------
The text of the proposed rule change is available on Amex's Web
site at https://www.amex.com, at Amex's principal office and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, 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 III below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
(1) Purpose
The purpose of the proposed rule change is to permit the Exchange
to list and trade cash-settled, European-style, stock index options on
the Russell Indexes. Each Russell Index is a capitalization-weighted
index containing various groups of stocks drawn from the largest 3,000
companies incorporated in the U.S. and its territories. All component
securities of the Russell Indexes are traded on the Amex, New York
Stock Exchange, Inc. (``NYSE''), or The Nasdaq Stock Market, Inc.
(``Nasdaq''). Options contracts on the Russell Indexes (except for the
Russell Top 50) are currently listed and traded on the Chicago Board
Options Exchange, Incorporated (``CBOE'') and the International
Securities Exchange, Inc. (``ISE'').\6\
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release Nos. 51619 (April 27,
2005), 70 FR 22947 (May 3, 2005) (approving the listing and trading
of ISE options on 21 Russell Indexes); 49388 (March 10, 2004), 69 FR
12720 (March 17, 2004) (approving listing and trading on CBOE of
options, including LEAPS, on the Russell Top 200 Index, Russell Top
200 Growth Index, and the Russell Top 200 Value Index); 48591
(October 2, 2003), 68 FR 58728 (October 10, 2003) (approving listing
and trading on CBOE of options, including LEAPS, on the Russell 3000
Index, Russell 3000 Value Index, Russell 3000 Growth Index, Russell
2000 Value Index, Russell 2000 Growth Index, Russell 1000 Index,
Russell 1000 Value Index, Russell 1000 Growth Index, Russell MidCap
Index, Russell MidCap Value Index, and Russell MidCap Growth Index);
and 31382 (October 30, 1992), 57 FR 52802 (November 5, 1992)
(approving listing and trading on CBOE of options, including LEAPS,
on the Russell 2000 Index). Amex recently listed the Rydex Russell
Top 50 ETF and options on the Rydex Russell Top 50 ETF. See https://
www.amex.com.
---------------------------------------------------------------------------
[[Page 6112]]
Index Design and Composition
The Russell Indexes are designed to be a comprehensive
representation of the investable U.S. equity market. These Indexes are
capitalization-weighted and include only those common stocks of
corporations domiciled in the U.S. and its territories and that are
traded on Amex, NYSE, or Nasdaq. The component securities are weighted
by their ``available'' market capitalization (also called ``float-
adjusted'' market capitalization), which is calculated by multiplying
the primary market price by the ``available'' shares.\7\
---------------------------------------------------------------------------
\7\ ``Available shares'' are the total shares outstanding less
corporate cross-owned shares, ESOP and LESOP-owned shares comprising
10% or more of shares outstanding, unlisted share classes and shares
held by an individual, a group of individuals acting together, a
corporation not in the index that owns 10% or more of the shares
outstanding or shares subject to IPO lock-ups. ESOP and LESOP-owned
shares represent, generally, those shares of a corporation that are
owned through employee stock ownership plans.
---------------------------------------------------------------------------
The following is a brief description of each Index: \8\
---------------------------------------------------------------------------
\8\ Additional information about the Russell Indexes can be
found at https://russell.com/us/indexes/us/definitions.asp.
---------------------------------------------------------------------------
Russell 3000--Measures the performance of the 3,000 largest U.S.
companies based on total market capitalization, which represents
approximately 98% of the investable U.S. equity market.
Russell 3000 Growth--Measures the performance of those Russell 3000
Index companies with higher price-to-book ratios and higher forecasted
growth values. The stocks in this index are also members of either the
Russell 1000 Growth or the Russell 2000 Growth indexes.
Russell 3000 Value--Measures the performance of those Russell 3000
Index companies with lower price-to-book ratios and lower forecasted
growth values. The stocks in this index are also members of either the
Russell 1000 Value or the Russell 2000 Value.
Russell 2000--Measures the performance of the 2,000 smallest
companies in the Russell 3000 Index, representing approximately 8% of
the total market capitalization of the Russell 3000 Index.
Russell 2000 Growth--Measures the performance of those Russell 2000
Companies with higher price-to-book ratios and higher forecasted growth
values.
Russell 2000 Value--Measures the performance of those Russell 2000
Companies with lower price-to-book ratios and lower forecasted growth
values.
Russell 1000--Measures the performance of the 1,000 largest
companies in the Russell 3000 Index, which represents approximately 92%
of the total market capitalization of the Russell 3000 Index.
Russell 1000 Growth--Measures the performance of those Russell 1000
Companies with higher price-to-book ratios and higher forecasted growth
values.
Russell 1000 Value--Measures the performance of those Russell 1000
Companies with lower price-to-book ratios and lower forecasted growth
values.
Russell Midcap--Measures the performance of the 800 smallest
companies in the Russell 1000 Index, which represent approximately 26%
of the total market capitalization of the Russell 1000 Index.
Russell Midcap Growth--Measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000 Growth
index.
Russell Midcap Value--Measures the performance of those Russell
Midcap companies with lower price-to-book ratios and lower forecasted
growth values. The stocks are also members of the Russell 1000 Value
index.
Russell Top 50--Measures the performance of the 50 largest
companies in the Russell 3000 Index, representing approximately 41% of
the total market capitalization of the Russell 3000.
All equity securities listed on Amex, NYSE, or Nasdaq are
considered for inclusion in the universe of stocks that comprise the
Russell Indexes, with the following exceptions: (1) Stocks trading less
than $1.00 per share on May 31 each year; (2) non-U.S. incorporated
companies; and (3) preferred and convertible preferred stock,
redeemable shares, participating preferred stock, warrants and rights,
trust receipts, royalty trusts, limited liability companies, Bulletin
Board and Pink Sheet stocks, closed-end investment companies, limited
partnerships, and foreign stocks. As a special exception, Berkshire
Hathaway is also excluded. The Russell 3000 Index is comprised of the
top 3,000 eligible stocks ranked by available market capitalization.
All of these stocks are ``reported securities,'' as defined in Rule
11Aa3-1(a)(4) under the Act.\9\
---------------------------------------------------------------------------
\9\ 17 CFR 240.11Aa3-1(a)(4), n/k/a Rule 600(47) of Regulation
NMS under the Act, 17 CFR 242.600(47). Telephone conversation
between Florence Harmon, Special Counsel, Division, Commission and
Jeffrey P. Burns, Associate General Counsel, Amex on January 29,
2006.
---------------------------------------------------------------------------
All of the Russell Indexes described above are subsets of the
Russell 3000 Index. The Growth and Value versions of each of the
Russell 1000, Russell 2000, Russell 3000 and Russell Midcap may contain
common components, but the capitalization of those components is
apportioned so that the sum of the total capitalization of the Growth
and Value indexes equals the total capitalization of the respective
primary index.
As of May 5, 2005, the stocks comprising the Russell 3000 Index
(and the other Russell Indexes) had an average market capitalization of
$4.519 billion ranging from a high of $380.007 billion (General
Electric Co.) to a low of $22.2 million (ITC Deltacom, Inc.). The
number of available shares outstanding ranged from a high of 10.8
billion (Microsoft Corp.) to a low of 1.26 million (Seaboard Co.), and
averaged 144.5 million shares. The six-month average daily trading
volume for Russell 3000 Index components was 1.072 million shares per
day, ranging from a high of 83.2 million shares per day (Sirus
Satellite Radio) to a low of 1,500 shares per day (Wesco Financial
Corp.). Component securities that averaged less than 50,000 shares per
day for the previous six months accounted for 0.75% of the index
weight. Over 66.18% of the Russell 3000 Index components satisfied
Amex's listing criteria for equity options as set forth in Amex Rule
915, representing over 94.82% of the index weight.
The Russell Indexes themselves range in capitalization from a high
of $13.6 trillion (Russell 3000) to a low of $866.2 billion (Russell
2000 Growth). The number of index components range from a high of 3,019
(Russell 3000) to a low of 49 (Russell Top 50). The Russell 1000 Growth
Index has the highest percentage of options-eligible components with
100% by weight and 100% by number. The Russell 2000 Value Index has the
lowest percentage of options-eligible components with 54.70% by weight
and 44.97% by number.
Index Calculation and Index Maintenance
The values of each Index are currently calculated by Reuters on
behalf of the Frank Russell Company and would be disseminated at 15-
second intervals during regular Amex trading hours to market
information vendors via the
[[Page 6113]]
Options Price Reporting Authority (``OPRA'').
The methodology used to calculate the value of the Russell Indexes
is similar to the methodology used to calculate the value of other
well-known market-capitalization weighted indexes. The level of each
Index reflects the total market value of the component stocks relative
to a particular base period and is computed by dividing the total
market value of the companies in each Index by its respective index
divisor. The divisor is adjusted periodically to maintain consistent
measurement of each Index. The following is a table of base dates and
the respective Index levels as of May 5, 2005:
------------------------------------------------------------------------
Base date/ Base 05/05/2005
Index index value Index value
------------------------------------------------------------------------
Russell 3000........................ 12/31/86 = 140.00 670.29
Russell 3000 Growth................. 3/16/00 = 700.00 379.95
Russell 3000 Value.................. 3/16/00 = 700.00 848.58
Russell 2000........................ 12/31/86 = 135.00 595.64
Russell 2000 Growth................. 3/16/00 = 500.00 303.72
Russell 2000 Value.................. 3/16/00 = 500.00 892.40
Russell 1000........................ 12/31/86 = 130.00 632.33
Russell 1000 Growth................. 8/31/92 = 200.00 470.62
Russell 1000 Value.................. 8/31/92 = 200.00 648.51
Russell Midcap...................... 12/31/86 = 200.00 768.48
Russell Midcap Growth............... 3/16/00 = 500.00 321.56
Russell Midcap Value................ 3/16/00 = 500.00 859.76
Russell Top 50...................... 12/31/01 = 1,000 973.11
------------------------------------------------------------------------
Options on the Russell Indexes would expire on the Saturday
following the third Friday of the expiration month. Trading in options
on the Russell Indexes would normally cease at 4:15 p.m. Eastern time
(``ET'') on the Thursday preceding an expiration Saturday. The exercise
settlement value at expiration of each Russell Index option would be
calculated by Reuters on behalf of the Frank Russell Company, based on
the opening prices of the Index's component securities on the last
business day prior to expiration (``Settlement Day'').\10\ The
Settlement Day would normally be the Friday preceding ``Expiration
Saturday.'' If a component security in a Russell Index does not trade
on Settlement Day, the last reported sales price in the primary market
from the previous trading day would be used to calculate the settlement
value. Settlement values for the Russell Indexes would be disseminated
by OPRA.
---------------------------------------------------------------------------
\10\ The aggregate exercise value of the option contract is
calculated by multiplying the Index value by the Index multiplier,
which is 100.
---------------------------------------------------------------------------
The Russell Indexes are monitored and maintained by the Frank
Russell Company. The Frank Russell Company is responsible for making
all necessary adjustments to the Indexes to reflect component
deletions, share changes, stock splits, stock dividends (other than an
ordinary cash dividend), and stock price adjustments due to
restructuring, mergers, or spin-offs involving the underlying
components. Some corporate actions, such as stock splits and stock
dividends, require simple changes to the available shares outstanding
and the stock prices of the component securities. Other corporate
actions, such as share issuances, change the market value of the
Indexes and would require the use of an index divisor to effect
adjustments.
The Russell Indexes are re-constituted annually on June 30th, based
on prices and available shares outstanding as of the preceding May
31st. New index components are added only as part of the annual re-
constitution and, after which, should a component security be removed
from an index for any reason, it cannot be replaced until the next re-
constitution.
Although not involved in the maintenance of any of the Russell
Indexes, the Exchange would monitor each Russell Index on a quarterly
basis and notify the Commission's Division by filing a proposed rule
change pursuant to Rule 19b-4 of the Act \11\ if: (i) The number of
securities in any Index drops by one-third or more; (ii) 10% or more of
the weight of any Index is represented by component securities having a
market value of less than $75 million; (iii) less than 80% of the
weight of any Index is represented by component securities that are
eligible for options trading pursuant to Amex Rule 915; (iv) 10% or
more of the weight of any Index is represented by component securities
trading less than 20,000 shares per day; or (v) the largest component
security in any Index accounts for more than 15% of the weight of the
Index, or the largest five components in the aggregate account for more
than 50% of the weight of the Index.
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\11\ 17 CFR 240.19b-4.
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The Exchange would also notify the Division immediately if the
Frank Russell Company ceases to maintain or calculate any of the
Russell Indexes on which Amex is proposing to list and trade options,
or if the value of any of these Russell Indexes is not disseminated
every 15 seconds by a widely available source. If a Russell Index
ceases to be maintained or calculated, or its values are not
[[Page 6114]]
disseminated every 15 seconds by a widely available source, the
Exchange would not list any additional series for trading and would
limit all transactions in options on that Index to closing transactions
only for the purpose of maintaining a fair and orderly market and
protecting investors.
Contract Specifications
The proposed contract specifications for the options on the Russell
Indexes are based on the contract specifications of similar options
currently listed on CBOE and ISE.\12\ The Russell Indexes are broad-
based indexes, as defined in Amex Rule 900C(b)(1). Options on the
Russell Indexes would be European-style and a.m. cash-settled. The
Exchange's standard trading hours for broad-based index options (9:30
a.m. to 4:15 p.m. ET), as set forth in Commentary .02 to Amex Rule 1,
would apply to options on the Russell Indexes. Exchange rules that
apply to the trading of options on broad-based indexes would also apply
to options on the Russell Indexes.\13\ The trading of these options
would also be subject to, among others, Exchange rules governing margin
requirements and trading halt procedures for index options.
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\12\ See supra note 6.
\13\ See Amex Rules 900C through 980C.
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For options on the Russell Indexes, the Exchange proposes to
establish in Amex Rule 904C(b) an aggregate position limit of 50,000
contracts on the same side of the market, provided that no more than
30,000 of such contracts are in the nearest expiration month
series.\14\ These limits are identical to the limits applicable to
options based on the Russell Indexes that currently trade on CBOE and
ISE.\15\
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\14\ 14 The same limits that apply to position limits would
apply to exercise limits for these products.
\15\ See CBOE Rule 24.4(e) and ISE Rule 2004.
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However, neither CBOE nor ISE currently list and trade options on
the Russell Top 50. The Exchange believes that the proposed position
and exercise limits for the Russell Top 50 is appropriate because it
measures the performance of the 50 largest companies in the Russell
3000 Index, representing approximately 41% of the total market
capitalization of the Russell 3000. Russell Midcap options traded on
both CBOE and ISE have the same position and exercise limits as are
proposed for the Russell Top 50 options. The Russell Midcap measures
the performance of the 800 smallest companies in the Russell 1000
Index, representing approximately 26% of the total market
capitalization of the Russell 1000 Index. Since the Russell Top 50
represents 41% of the Russell 3000 as compared to the Russell Midcap
representing 26% of the Russell 1000, the Exchange believes that the
same position and exercise limits are appropriate. Accordingly, the
Exchange submits that the Russell Top 50 should have position and
exercise limits of 50,000 contracts with no more than 30,000 for the
near term.
Commentary .01(c) to Amex Rule 904C provides that position limits
for hedged index options may not exceed twice the established position
limits for broad stock index groups. The Exchange proposes that a hedge
exemption of 75,000 be available for the Russell Indexes.
Furthermore, pursuant to Commentary .02 to Amex Rule 904C,
proprietary accounts of member organizations could receive an exemption
of up to three times the established position limit for the purpose of
facilitating public customer orders, to the extent they comply with the
procedures and criteria listed in Commentary .02 to Amex Rules 950(d)
and 950(d)--ANTE.
The Exchange proposes to apply broad-based index margin
requirements for the purchase and sale of options on the Russell
Indexes. Accordingly, purchases of put or call options with nine months
or less until expiration would have to be paid for in full. Writers of
uncovered put or call options would have to deposit/maintain 100% of
the option proceeds, plus 15% of the aggregate contract value (current
index level x $100), less any out-of-the-money amount, subject to a
minimum of the option proceeds plus 10% of the aggregate contract value
for call options and a minimum of the option proceeds plus 10% of the
aggregate exercise price amount for put options.
The Exchange proposes to set a strike price interval of at least
2\1/2\ points for a near-the-money series in a near-term expiration
month when the level of a Russell Index is below 200, a 5-point strike
price interval for any options series with an expiration up to one
year, and at least a 10-point strike price interval for any longer-term
option. The minimum tick size for series trading below $3 would be
$0.05, and for series trading at or above $3 would be $0.10.
The Exchange proposes to list options on the Russell Indexes in the
three consecutive near-term expiration months, plus up to three
successive expiration months in the March cycle. For example,
consecutive expirations of January, February, March, plus June,
September, and December expirations would be listed.\16\ In addition,
long-term option series having up to 60 months to expiration may be
traded.\17\ The trading of long-term options on the Russell Indexes
would be subject to the same rules that govern all the Exchange's index
options, including sales practice rules, margin requirements, and
trading rules.
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\16\ See Amex Rule 903C(a).
\17\ See Amex Rule 903C(a)(iii).
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Surveillance and Capacity
The Exchange represents that it has an adequate surveillance
program in place for options on the Russell Indexes and intends to
apply those same procedures that it applies to the Exchange's other
index options. In addition, the Exchange is a member of the Intermarket
Surveillance Group (``ISG''). The members of the ISG include all of the
national securities exchanges, plus the National Association of
Securities Dealers, Inc. The ISG members work together to coordinate
surveillance and share information regarding the stock and options
markets. In addition, the major futures exchanges are affiliated
members of the ISG, which allows for the sharing of surveillance
information for potential intermarket trading abuses.
The Exchange also represents that it has the necessary systems
capacity to support the new options series that would result from the
introduction of options on the Russell Indexes, including long-term
options. The Exchange has provided the Commission with system capacity
information to support this representation.
(2) Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act,\18\ in general, and furthers the objectives
of Section 6(b)(5) of the Act,\19\ in particular, in that it is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, and to remove impediments to and perfect the mechanism of a
free and open market and a national market system.
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\18\ 15 U.S.C. 78f.
\19\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposed rule change does not impose
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
[[Page 6115]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with the Act. 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-2005-061 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-Amex-2005-061. 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 Section, 100 F Street,
NE, Washington, DC 20549. Copies of such filing also will be available
for inspection and copying at the principal office of Amex. 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-2005-061 and should be
submitted on or before February 27, 2006.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the proposed rule change, as amended, is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\20\ In particular, the Commission believes that the proposal
is consistent with Section 6(b)(5) of the Act,\21\ which requires that
the rules of an exchange be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and in general
to protect investors and the public interest.
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\20\ In approving this proposal, the Commission has considered
its impact on efficiency, competition, and capital formation. See 15
U.S.C. 78c(f).
\21\ 15 U.S.C. 78f(b)(5).
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The Commission notes that it previously has found that the listing
and trading on CBOE and ISE of options on most of the Russell Indexes
described above, and CBOE's position and ISE's position and exercise
limits associated with those options, are consistent with the Act. Amex
has proposed substantially the same contract specifications for these
options, as well as identical position and exercise limits for these
options. The Commission presently is not aware of any issue that would
cause it to revisit those earlier findings or preclude the listing and
trading of these options on Amex.
Amex also has proposed to list and trade new options on the Russell
Top 50 Index--options that have not previously been approved by the
Commission for listing and trading on any national securities exchange.
The Commission believes that the composition of this Index and the
characteristics of Amex's proposed options on this Index will minimize
the potential for manipulation, and that listing and trading them on
Amex is reasonable and consistent with the Act.
As noted above, the Russell Indexes are designed to represent broad
segments of the U.S. equity securities markets. Furthermore, Amex has
represented that it would notify the Commission if: (i) The number of
securities in any Index drops by one-third or more; (ii) 10% or more of
the weight of any Index is represented by component securities having a
market value of less than $75 million; (iii) less than 80% of the
weight of any Index is represented by component securities that are
eligible for options trading pursuant to Amex Rule 915; (iv) 10% or
more of the weight of any Index is represented by component securities
trading less than 20,000 shares per day; or (v) the largest component
security accounts for more than 15% of the weight of any Index or the
largest five components in the aggregate account for more than 50% of
the weight of any Index.
The Commission also believes that the position and exercise limits
for the new Russell Index options, including the index hedge exemption
from such position limits, are reasonable and consistent with the Act.
These limits are modeled on existing position and exercise limits for
options on very similar Russell Indexes that previously have been
approved by the Commission.
In approving this proposal, the Commission has specifically relied
on the following representations made by the Exchange:
1. The Exchange will notify the Division immediately if the Frank
Russell Company ceases to maintain or calculate any Russell Index on
which an Amex option is based, or if the value of any such Russell
Index is not disseminated every 15 seconds by a widely available
source. If a Russell Index ceases to be maintained or calculated, or
its values are not disseminated every 15 seconds by a widely available
source, the Exchange will not list any additional series on that Index
and will limit all transactions in such options to closing transactions
only for the purpose of maintaining a fair and orderly market and
protecting investors.
2. The Exchange has an adequate surveillance program in place for
the proposed options on the Russell Indexes.
3. The additional quote and message traffic that will be generated
by listing and trading the proposed options on the Russell Indexes will
not exceed the Exchange's current message capacity allocated by the
Independent System Capacity Advisor.
The Commission further notes that, in approving this proposal, it
relied on the Exchange's discussion of how the Frank Russell Company
currently calculates the Russell Indexes. If the manner in which any
Russell Index is calculated were to change substantially, this approval
order, with respect to any Amex options on that Index, might no longer
be effective.
The Commission finds good cause for approving this proposal before
the thirtieth day after the publication of notice thereof in the
Federal Register. Most of the proposed options on the Russell Indexes
already have been
[[Page 6116]]
approved for listing and trading on another exchange and are governed
by contract specifications that are substantially the same as those
proposed by Amex. The new options proposed by Amex will be governed by
contract specifications that are substantially the same as those that
govern the similar existing products. Therefore, accelerating approval
of Amex's proposal should benefit investors by creating, without undue
delay, additional competition in the market for the existing options,
as well as an additional investment opportunity with regard to the new
options.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\22\ that the proposed rule change, as amended (SR-Amex-2005-061),
is hereby approved.
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\22\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a))12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-1536 Filed 2-3-06; 8:45 am]
BILLING CODE 8010-01-P
