NASD Notice to Members 98-049 - July 1998

SEC Approves Amendments to Rule Regarding Options Position Limits; Effective June 12, 1998

Executive Summary

On June 12, 1998, the Securities and Exchange Commission (SEC) approved amendments to National Association of Securities Dealers, Inc. (NASD®) Rule 2860 and Interpretive Material 2860-1 (IM-2860-1). The amendments to Rule 2860 make three basic changes. First, the amendments increase the position limits on conventional equity options to the greater of three times the basic limit of 4,500 contracts, or three times any standardized equity options position limit for which the underlying security qualifies or would be able to qualify. Second, the amendments disaggregate conventional equity options from standardized equity options and FLEX equity options for position limit purposes, i.e., standardized and FLEX equity option positions do not count towards the position limits for conventional equity options on the same underlying security. Third, the amendments provide that the OTC Collar Aggregation Exemption shall be available with respect to an entire conventional equity options position, not just that portion of the position that is established pursuant to the NASD’s Equity Option Hedge Exemption (Hedge Exemption). In addition, the amendments to IM-2860-1 clarify and update the illustrative examples to be consistent with the new amendments and prior increases in the Hedge Exemption. The amendments became effective on June 12, 1998. The text of the amended rules and the Federal Register version of the SEC Release are attached. See 63 FR 33746 (June 19, 1998).