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Recently, clarification was requested concerning which products a Limited Trading Permit Holder ("LTP Holder") is permitted to trade in on our Floor. This Notice is to provide guidance on this issue. If you have any questions on this matter, please contact me at 306-1450.
According to Article IV, Section 1(h)(3) of our Constitution: "A limited trading permit holder may execute on the Floor of the Exchange transactions in options and other derivative products initiated by him for his own account and may give orders in options and other derivative products for his own account to regular members for execution provided, however, that a limited trading permit holder may not trade in individual stock options listed on the Exchange.
"A limited trading permit holder may not execute agency transactions on the Floor either for customers or for regular, associate, allied or options principal members or other permit holders, may not be registered as a specialist, may not execute on the Exchange any orders, whether as agent or principal, in stocks, warrants, bonds or other securities (except principal transactions in options and other derivative products as described above) and may not accept any orders from his member organization for execution.
"Derivative products shall have the meaning described in Section 3(d) of Article I."
According to Article I, Section 3(d): "The term 'derivative products' includes, in addition to standardized options, other securities which are issued by The Options Clearing Corporation or another limited purpose entity or trust, and which are based solely on the performance of an index or portfolio of other publicly traded securities. Notwithstanding the foregoing, the term 'derivative products' shall not include warrants of any type or closed-end management investment companies."
Accordingly, LTP Holders may execute transactions in those products designated by Amex Rules as "derivative products". Amex Rule 1000 designates Portfolio Depositary Receipts based on the Standard & Poor's 500 Composite Stock Price Index® (SPDRS®), the Dow Jones Industrial Average™ (DIAMONDS®), the Nasdaq-100 Index® (Nasdaq-100 Index Tracking Stock™), and the S&P MidCap 400 Index™ (MidCap SPDRS™) as "derivative products", and LTP Holders may execute transactions in them. Amex Rule 1000A designates Index Fund Shares (including iShares™, streetTRACKSSM, Select Sector SPDRs®, and Vanguard Total Stock Market VIPERs™) as "derivative products", and LTP Holders may execute transactions in them.
However, LTP Holders: may not execute transactions in:
- any equity-linked term notes (derivative products based on performance of a single security as opposed to a portfolio) such as GOALs, "HOLDRSSM 'MITTS®'", TARGETS®, PERQSSM, ELKSSM, and SPARQSSM;
- any index-linked notes which are issued directly by broker/dealers (as opposed to a "limited purpose entity or trust") such as MITTS®, ComPSSM, BASES, SUNSSM, PERKSSM, PRUDENTSSM, and RANGERSSM;
- any index-linked notes which are based on more than the performance of an index or portfolio such as TIERSSM;
- any trust preferred securities (derivative product based on performance of a single security as opposed to a portfolio) including TOPrS;
- Trust Issued Receipts which represent an undivided beneficial ownership (as opposed to "which are based solely on") a portfolio of securities (e.g., HOLDRSSM) as these products are not, pursuant to Rule 1200, "derivative products"; and
- any other structured product which does not conform to the definition of a derivative product within the meaning of Article I, Section 3(d).
In addition, LTP Holders have had the right, since the creation of the Permit in 1987, to trade index options as these options are not "individual stock options" and are settled with cash on exercise.
However, LTP Holders may not execute transactions in options on HOLDRS or options on any of the Exchange Traded Funds because those options are "individual stock options" which settle on exercise with delivery of the underlying HOLDRS or ETF.
If you have any questions, please call David Fisch at (212) 306-1450.
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