[Federal Register Volume 62, Number 106 (Tuesday, June 3, 1997)]
[Notices]
[Pages 30365-30366]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14353]
[[Page 30365]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38679; International Series Release No. 1086; File No.
SR-PHLX-97-07]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change And Notice of Filing and Order Granting Accelerated Approval of
Amendment No. 1 of the Philadelphia Stock Exchange, Inc. Regarding 3D
Foreign Currency Option Holiday Expirations
May 27, 1997.
On March 14, 1997, the Philadelphia Stock Exchange, Inc. (``PHLX''
or ``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ a proposed rule change
not to list any 3D foreign currency options (``3D FCOs'') that would
expire during the period December 20 through and including January 2 of
each year.
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\1\ 15 U.S.C. Sec. 78s(b)(1).
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Notice of the proposed rule change, together with the substance of
the proposal, was published in the Federal Register.\2\ No comment
letters were received. The Exchange subsequently filed Amendment No. 1
to the proposal on April 18, 1997.\3\ This order approves the proposed
rule change, as amended.
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\2\ Securities Exchange Act Release No. 38527 (April 18, 1997),
International Series Release No. 1075, 62 FR 20055 (April 24, 1997).
\3\ Amendment No. 1 states that the Exchange will provide notice
to its membership that it is not listing any 3D FCOs that would
expire during the period December 20 through and including January 2
of each year: (1) upon approval of this proposed rule change; (2) in
any marketing literature respecting the 3D FCOs which is printed in
the future; (3) in early November of each year to remind the
membership; and (4) in a circular at the time when the 3D FCO
contracts that are not being listed, would have been listed
(approximately early in December). Letter from Michele R. Weisbaum,
Vice President and Associate General Counsel, PHLX, to Karl Varner,
Staff Attorney, Office of Market Supervision, Division of Market
Regulation, SEC, dated April 18, 1997.
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I. Background
The Exchange proposes not to list any 3D FCOs that would expire
during the period December 20 through and including January 2 of each
year. 3D FCOs are presently traded on the PHLX on the German mark and
the Japanese yen.\4\ These are cash settled options that have an
expiration every Monday at 11:59 p.m. Eastern Time (or the following
business day if Monday is a holiday). The settlement value is based on
a formula which averages random samples of bids and offers from
contributor banks. The Exchange's experience with the 3D FCO on the
German mark over the last two years has shown that it is often
difficult to gather enough updated quotes during the Christmas and New
Year's weeks each year. Thus, the Exchange believes the integrity of
the derived settlement value may be called into question. Accordingly,
the Exchange has determined not to list for trading any series of 3D
FCOs which would expire between December 20 each year and January 2 of
the following year. As a result of approval of this change, in 1997 the
last expiration date of 3D FCOs would occur on December 15, 1997. After
the December 15 expiration, the next 3D FCO expiration would occur on
January 5, 1998.
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\4\ The Exchange has traded 3D German marks since September of
1994. See Securities Exchange Act Release No. 33732 (March 8, 1994),
59 FR 12023 (March 15, 1994). The Exchange recently started trading
3D options on the Japanese yen on February 24, 1997. See Securities
Exchange Act Release No. 36505 (Nov. 22, 1995), International Series
Release No. 889, 60 FR 61277 (Nov. 29, 1995).
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The Exchange also proposed to adopt a permanent list of holidays
which, if they fall on a Monday, would cause the 3D FCOs scheduled to
expire that day to expire the next business day pursuant to Exchange
Rule 100(b)(21)(iii).\5\ The holidays are: Martin Luther King, Jr. Day;
Memorial Day; Presidents Day; Independence Day; Easter Monday; Labor
Day; May Day; Columbus Day and Veterans Day.
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\5\ The rule originally required expirations to fall back to the
preceding business day (usually Friday) when Monday was a holiday
but was changed so that the options would still capture weekend
risk. See Securities Exchange Act Release No. 35097 (Dec. 13, 1994),
59 FR 65559 (Dec. 20, 1994).
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II. Discussion
The Commission finds that the proposed rule change is consistent
with Section 6 of the Act in general, and in particular, with Section
6(b)(5) in that it is designed to promote just and equitable principles
of trade and to protect investors and the public interest in that it
allows the Exchange to forego or postpone expirations of 3D FCOs on
days when the integrity of the settlement value may be questionable. As
noted above, the Exchange's experience with the 3D FCO on the German
mark over the last two years has shown that it is often difficult to
gather enough updated bids and offers from contributor banks during the
Christmas and New Year's weeks each year. Although the Exchange does
not have any trading experience with expiring 3D FCOs on the Japanese
yen during the month of December, the Commission believes that, based
on PHLX's experience with the German mark, it is reasonable for the
Exchange to conclude that the same problems in obtaining updated quotes
would occur for FCOs in the Japanese yen.\6\ As a result of these
concerns, the Commission believes that the Exchange's decision not to
list 3D FCOs during the Christmas and New Year's weeks each year will
help to maintain the integrity of the settlement values by ensuring
that 3D FCOs will not be expiring when the available pool of bids and
offers may be stale.
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\6\ See note 4 supra.
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Further, to avoid confusion, the Exchange has committed to notify
members in early November of each year that 3D FCOs expiring between
December 20 and January 2 will not be available and again in early
December when the PHLX announces 3D FCOs about to be listed. The PHLX
has also committed to include in any marketing information on 3D FCOs
the unavailability of expirations during the holiday period. These
modifications should provide members and investors with adequate
information far enough in advance to make any desired adjustments to
their trading strategies due to the lack of 3D FCOs expiring during the
holiday period.
The Commission also finds that by adopting a permanent schedule of
holidays, the Exchange and investors will know for certain, in advance,
when a holiday expiration will occur.\7\ The holidays on the schedule
were chosen because they are either U.S. bank holidays or European bank
holidays (May Day). On those days, the interbank foreign exchange
participants which provide quotations for the settlement value are not
open for business so it would be very difficult to obtain enough
updated quotations to provide a random sample. The Commission also
believes that publishing the list of holidays to the Exchange's
membership in a circular each year and through weekly expiration memos
that note when certain options expire on a day other than a Monday due
to a holiday should adequately inform Exchange members of the 3D FCOs
that will not be listed during the holidays.
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\7\ See note 5 and accompanying text.
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The Commission finds good cause for approving Amendment No. 1 to
the proposed rule change prior to the thirtieth day after the date of
publication of notice of the filing of the proposed rule change in the
Federal Register to require the Exchange to begin providing notice to
its membership of the dates when 3D FCOs will not be listed, without
further delay. Amendment No. 1 ensures that members will have adequate
notice that 3D FCOs will not be listed if their
[[Page 30366]]
expirations would occur during the period December 20 through and
including January 2 of each year. The Exchange will provide additional
notices to their membership: (1) Upon approval of this proposed rule
change; (2) in any marketing literature respecting the 3D FCOs which is
printed in the future; (3) in early November of each year to remind the
membership; and (4) in a circular at the time when the 3D FCO contracts
that are not being listed, would have been listed (approximately early
in December). These additional notices serve to minimize the potential
for confusion concerning the application of the Exchange's rules
regarding the dates of listing of 3D FCOs, and will ensure investors
have adequate time to adjust their trading strategies if they so
desire.
The Commission also believes that Amendment No. 1 does not raise
any significant new issues that require public notice prior to
approval, because Amendment No. 1 only addresses the notification
provided to the Exchange's membership concerning the dates the dates
when 3D FCOs will not be listed and no comments were received on the
substance of the original proposal. Accordingly, the Commission
believes it is consistent with Section 6(b)(5) of the Act to approve
Amendment No. 1 to the proposed rule change on an accelerated basis.
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 1. Persons making written
submissions should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street, NW, Washington,
DC 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. Sec. 552, will be available for inspection and
copying in the Commission's Public Reference Room. Copies of such
filing will also be available for inspection and copying at the
principal office of the PHLX. All submissions should refer to File No.
SR-PHLX-97-07 and should be submitted by June 24, 1997.
III. Conclusion
For the reasons discussed above, the Commission finds that the
proposed rule change, as amended, is consistent with the Act and
Section 6 of the Act in particular.
It is therefore Ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change, SR-PHLX-97-07 be, and hereby is,
approved.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-14353 Filed 6-2-97; 8:45 am]
BILLING CODE 8010-01-M
