Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the American Stock Exchange, Inc. Relating to Short Sales of Nasdaq/NM Securities of Companies Involved in Mergers or Acquisitions

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34971; File No. SR-Amex-94-42]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the American Stock Exchange, Inc. Relating to Short Sales of

Nasdaq/NM Securities of Companies Involved in Mergers or Acquisitions

November 14, 1994.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''),\1\ notice is hereby given that on October 14, 1994, the

American Stock Exchange, Inc. (``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 Amex. The Commission is publishing this notice to

solicit comments on the proposed rule change from interested persons.

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\1\15 U.S.C. 78s(b)(1) (1982).

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I. Self-Regulatory Organization's Statement of the Terms of Substance

of the Proposed Rule Change

The Amex proposes to amend Rule 957 regarding the designation of

certain Nasdaq National Market securities (``NM securities'') by

specialists and registered options traders as exempt from the bid test

imposed under the NASD Rules of Fair Practice.

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 self-regulatory organization

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 self-regulatory organization

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

On September 6, 1994, the NASD put into effect a rule prohibiting

the execution of a short sale in NM securities at or below the current

inside bid when that inside bid is below the previous inside bid.\2\ In

part, the NASD's rule provides an exemption for qualified Amex options

specialists and Registered Options Traders (``Traders'') for which the

Exchange has also established rules to provide for this exemption for

those members.\3\ The Exchange now seeks to extend the exemption to

certain short sales of a company that is involved in a publicly

announced merger or acquisition with the issuer of a stock underlying

an option that is eligible for the exemption pursuant to Amex Rule 957

and the NASD's short sale rule.

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\2\See Securities Exchange Act Release No. 34277 (June 29,

1994), 59 FR 34885.

\3\See Securities Exchange Act Release No. 34632 (September 2,

1994), 59 FR 46999.

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The Exchange's proposal recognizes that when an NM security becomes

involved in a merger or acquisition, specialists and traders may need

to hedge positions in options on the NM security by buying or selling

shares of stock of the other company involved in the merger or

acquisition, whether or not the other company's stock has listed

overlying options. Indeed, where there are no options on that stock,

buying or selling the stock itself may at times be the only feasible

way for a specialist or trader to hedge a position in options on the NM

security, given the risk arbitrage relationship that is likely to exist

between the two stocks. The proposed rule change will facilitate

hedging by options specialists and traders by allowing them to sell

short shares of the ``other'' company involved in the merger for

hedging purposes and designate those short sales as exempt from the

NASD's short sale rule. The Exchange believes that its proposed rule

change will enhance the ability of specialists and traders to perform

their market-making functions, which will contribute to the liquidity

of the market for options, as well as the market for stocks of both

companies.

The Exchange believes that the proposed rule change is consistent

with Section 6(b) of the Act. Specifically, the Exchange believes that

its proposal is consistent with the objectives of Section 6(b)(5) 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 Amex believes that the proposed rule change will not impose any

burden on competition.

(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

Within 35 days of the date of publication of this notice in the

Federal Register or within such longer period (i) as the Commission may

designate up to 90 days of such date if it finds such longer period to

be appropriate and publishes its reasons for so finding or (ii) as to

which the self-regulatory organization consents, the Commission will:

(a) By order approve such proposed rule change, or

(b) Institute proceedings to determine whether the proposed rule

change should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views and

arguments concerning the foregoing. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.

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, 450 Fifth Street, N.W.,

Washington, D.C. Copies of such filing will also be available for

inspection and copying at the principal office of the above-mentioned

self-regulatory organization. All submissions should refer to File No.

SR-Amex-94-42 and should be submitted by December 12, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\4\

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\4\17 CFR 200.30-3(a)(12) (1993).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-28674 Filed 11-18-94; 8:45 am]

BILLING CODE 8010-01-M