
[Federal Register: March 4, 2008 (Volume 73, Number 43)]
[Notices]               
[Page 11688]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04mr08-110]                         


[[Page 11688]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57384; File No. SR-Amex-2007-95]

 
Self-Regulatory Organizations; American Stock Exchange, LLC; 
Order Granting Approval of a Proposed Rule Change Relating to the 
Execution of NDX and RUT Combination Orders

February 26, 2008.
    On August 20, 2007, the American Stock Exchange, LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder, a 
proposed rule change regarding the definitions and the execution 
procedure for NDX and RUT combination orders.\2\ The proposed rule 
change was published for comment in the Federal Register on September 
7, 2007, for a 15-day comment period.\3\ The Commission received no 
comments regarding the proposal. This order approves the proposed rule 
change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 56343 (August 30, 
2007), 72 FR 51481.
---------------------------------------------------------------------------

    The Exchange proposes to adopt Commentary .01 to Amex Rule 950-
ANTE(e) to add the definitions pertaining to NDX and RUT combination 
orders.\4\ Pursuant to proposed Commentary .01(a) to Amex Rule 950-
ANTE(e), a ``NDX Combination'' is a long (short) NDX call and a short 
(long) NDX put having the same expiration date and strike price. An 
``RUT Combination'' is a long (short) RUT call and a short (long) RUT 
put having the same expiration date and strike price. As defined in 
proposed Commentary .01(c) to Amex Rule 950-ANTE(e), a ``NDX 
combination order'' is an order to purchase or sell NDX options and the 
offsetting number of NDX Combinations defined by the delta. Further, an 
``RUT combination order'' is an order to purchase or sell RUT options 
and the offsetting number of RUT Combinations defined by the delta. The 
``delta'' is defined in proposed Commentary .01(b) to Amex Rule 950-
ANTE(e) as the positive (negative) number of NDX or RUT combinations 
that must be sold (bought) to establish a market neutral hedge with the 
corresponding NDX or RUT option position.
---------------------------------------------------------------------------

    \4\ NDX is the NASDAQ-100 Index; RUT is the Russell 2000 Index.
---------------------------------------------------------------------------

    The Exchange further proposes to adopt execution procedures 
regarding NDX and RUT combination orders. The proposed Amex Rule 953-
ANTE(c) would enable an member holding a NDX or RUT combination order, 
and bidding or offering in a multiple of the minimum price variation on 
the basis of a total debit or credit for the order, to execute the NDX 
or RUT combination order even if the member has determined that the 
combination order may not otherwise be executable (e.g., the bids and 
offers displayed in the Amex limit order book or in the trading crowd 
will not satisfy the net debit or credit price of the combination 
order). Pursuant to proposed Amex Rule 953-ANTE(c)(i), a member may 
execute an NDX or RUT combination order at the best net debit or credit 
price, so long as no leg of the order would trade at a price outside 
the currently displayed bids or offers in the trading crowd or bids or 
offers in the limit order book, and at least one leg of the order would 
trade at a price that is better than the corresponding bid or offer in 
the Amex limit order book.
    Further, the Exchange proposes that if an NDX or RUT combination 
order is not executed immediately, that same order may be executed and 
printed at the price originally quoted for each component option series 
within two (2) hours after the original quote, provided the prices 
originally quoted satisfied the requirements of proposed Amex Rule 953-
ANTE(c)(i), and, at the time of execution, no individual leg of such 
order trades ahead of the corresponding bid or offer in the NDX or RUT 
limit order book. Amex will report to the trading floor, and the 
Options Price Reporting Authority, component legs of an NDX or RUT 
combination order executed in such manner using a sold sale indicator 
to notify the public that the reported prices are part of an out-of-
range combination trade.
    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\5\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\6\ which requires that the 
rules of exchange be designed 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 securities system, and, in general, to 
protect investors and the public interest.
---------------------------------------------------------------------------

    \5\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    According to Amex, it may be difficult in a volatile market to 
complete trades on options tied to an NDX Combination or an RUT 
Combination, because the originally quoted price for a component leg 
may be out-of-range by the time market participants are prepared to 
complete the transaction. By permitting execution and printing of NDX 
and RUT combination orders two hours from the original quote, the 
proposed rule change may help market participants complete such trades.
    The Commission notes that the proposed rule change takes into 
account the protection of public customer orders by providing that no 
individual leg of the NDX or RUT combination order may trade ahead of 
the corresponding bid or offer in the NDX or RUT limit order book. 
Further, the Commission notes that Amex will issue a regulatory 
circular reminding its members that the adoption of Amex Rule 953-
ANTE(c) does not minimize the best execution obligations for customer 
orders. The Commission also notes that Amex will report to the trading 
floor, and the Options Price Reporting Authority, component legs of 
out-of-range NDX or RUT combination orders with a sold sale indicator. 
The Commission believes that the indicator should help to avoid 
investor confusion regarding such trades and minimize any negative 
impact on price discovery. In addition, the indicator should help the 
Exchange monitor the trading of NDX and RUT combination orders.
    The Commission expects the Exchange to monitor compliance with the 
proposal. In particular, the Commission expects the Exchange to monitor 
compliance with the requirement in proposed Amex Rule 953-ANTE(c)(ii) 
that at time of the execution no individual leg of NDX or RUT 
combination order trades ahead of the corresponding bid or offer in the 
NDX or RUT limit order book.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\7\ that the proposed rule change (SR-Amex-2007-95) be, and it 
hereby is, approved.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-4079 Filed 3-3-08; 8:45 am]

BILLING CODE 8011-01-P
