Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the American Stock Exchange, Inc. Relating to the In Person Trading Volume Requirement for Registered Option Traders

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35050; File No. SR-Amex-94-51]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the American Stock Exchange, Inc. Relating to the In Person

Trading Volume Requirement for Registered Option Traders

December 5, 1994.

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

(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on November

18, 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.

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

Substance of the Proposed Rule change

The Exchange proposes to amend Rule 958 to (a) require that a

Registered Option Trader (``Trader'') execute at least 25% of his/her

options transactions and volume in person\1\ and (b) provide that if a

Trader executes at least 80% of his options transactions and volume in

person, the Trader can receive favorable capital and margin treatment

for certain opening off-floor activity. The text of the proposed rule

change is available at the Office of the Secretary, the Amex, and at

the Commission.

---------------------------------------------------------------------------

\1\``In person'' means that options transactions are personally

executed by the Trader on the Amex floor and not through the use of

orders given to a floor broker or left on a specialist's book.

---------------------------------------------------------------------------

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 Amex has prepared summaries, set forth in sections

(A), (B), and (C) below, of the most significant aspects of such

statements.

(A) Self-Regulatory Organization's Statement of the Purpose of, and the

Statutory Basis for, the Proposed Rule Change

Exchange Rule 958 sets forth the obligations of Traders when they

initiate options transactions on the floor of the Exchange for accounts

in which they have an interest. These obligations include, but are not

limited to, contributing to the maintenance of fair and orderly

markets, bidding and offering within prescribed parameters and, when

establishing or increasing an options position, initiating such

transactions on the floor of the Exchange.

The Exchange now proposes to establish an additional requirement

that at least 25% of a Trader's transactions and contract volume during

each calendar quarter be executed in person and not through the use of

orders given to a floor broker or left on a specialist's book. The

Exchange believes that establishing such a requirement will result in

better, more liquid markets because Traders will be available in

trading crowds to contribute to the maintenance of fair and orderly

markets, to make competitive bids and offers, and to trade for their

own account when there exists a lack of price continuity, a temporary

disparity between the supply of and demand for options contracts or a

temporary distortion of the price relationships between options.

While the Exchange believes an in person requirement of 25% is

appropriate at this time, it is further proposed that the Exchange be

given the authority to increase the in person requirement above 25%

should such action be deemed necessary by the Exchange.

The Exchange also proposes to extend favorable capital and margin

treatment to certain opening orders entered by Traders from off the

Exchange floor provided at least 80% of their total transactions and

contract volume is executed in person during any calendar quarter.

These off-floor orders shall also be subject to Rule 958 and may be

effected only for the purpose of hedging, reducing the risk of, or

rebalancing a Trader's open positions.

Currently, pursuant to Exchange Rule 958, only transactions

initiated on the floor of the Exchange can count as Registered Trader

transactions.\2\ Only on-floor transactions qualify for favorable

capital and margin treatment, even if such orders are entered to adjust

or hedge the risk of a Trader's positions that are the result of on-

floor market making activity. Because Traders cannot, according to the

Exchange, effectively adjust positions or engage in hedging or other

risk-limiting opening transactions from off the Exchange floor without

incurring a significant economic penalty, they must be either

physically present on the floor at all times while the market is open,

or face significant risk of adverse market movements during those times

when they must necessarily be absent from the trading floor. The

Exchange believes that the imposition of these costs on such risk-

adjusting transactions prevents Traders from effectively discharging

their market making obligations and exposes them to unacceptable levels

of risk. The Exchange believes that the proposal presents a more

appropriate and realistic treatment of Traders' transactions initiated

from off-floor than is currently provided by Exchange rules. Extending

favorable capital and margin treatment to off-floor transactions to

those Traders who satisfy an 80% in person requirement will, in the

Exchange's opinion, increase the extent to which Traders' transactions

contribute to liquidity and to the maintenance of fair and orderly

markets by providing for a greater degree of in person trading and by

enabling Traders to better manage the risk of their market making.

---------------------------------------------------------------------------

\2\See Amex Rule 958, Commentary .01.

---------------------------------------------------------------------------

The Exchange believes that the proposed rule change is consistent

with Section 6(b) of the Act, in general, and furthers the objectives

of Section 6(b)(5) 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 Amex does not believe that the proposed rule change will impose

any inappropriate burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the

Proposed Rule Change Received From Members, Participants or Others

No written comments were solicited or received with respect to the

proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing

for Commission Action

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

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

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

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

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

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

(B) Institute proceedings to determine whether the proposed rule

change should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views and

arguments concerning the foregoing. 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 Amex. All

submissions should refer to File No. SR-Amex-94-51 and should be

submitted by January 3, 1995.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\3\

---------------------------------------------------------------------------

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

---------------------------------------------------------------------------

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-30466 Filed 12-9-94; 8:45 am]

BILLING CODE 8010-01-M