[Federal Register Volume 60, Number 7 (Wednesday, January 11, 1995)]
[Notices]
[Pages 2800-2801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-658]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35194; File No. SR-NYSE-94-47]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the New York
Stock Exchange, Inc., Relating to an Extension of the Hedge Exemption
Pilot Program
January 5, 1995.
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 December
9, 1994, the New York Stock Exchange, Inc. (``NYSE'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. 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 NYSE proposes to amend NYSE Rule 704, ``Position Limits,'' to
extend until May 17, 1995, the Exchange's pilot program for position
limit exemptions for certain hedged (1) equity option positions; and
(2) broad-based index option positions.\1\
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\1\ Position limits impose a ceiling on the aggregate number of
options contracts on the same side of the market that can be held or
written by an investor or group of investors acting in concert.
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The text of the proposals are available at the Office of the
Secretary, NYSE, and at the Commission.
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 self-regulatory organization
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 self-regulatory organization
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
Statutory basis for, the Proposed Rule Change
(a) Purpose
On March 14, 1990, the Commission approved, on a pilot basis,
amendments to NYSE Rule 704 providing (1) an exemption from equity
option position limits for certain equity option positions that are
fully hedged and (2) an exemption from the broad-based index option
position limits for certain hedged broad-based index option
positions.\2\
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\2\ See Securities Exchange Act Release No. 27786 (March 8,
1990), 55 FR 9523 (March 14, 1990) (order approving File No. SR-
NYSE-89-09).
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On July 12, 1991, the Commission approved both (1) an expansion of
the scope of the exemptions to include short positions in the
underlying hedged portfolio and to allow the underlying hedged
portfolio to include securities that are readily convertible into
common stock, and (2) an extension of the termination date of the pilot
program.\3\
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\3\ See Securities Exchange Act Release No. 29436 (July 12,
1991), 56 FR 33317 (July 19, 1991) (order approving File No. SR-
NYSE-91-19).
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On September 14, 1993, the Commission approved both (1) an
expansion of the equity option position limit hedge exemption to
include ``securities readily converted into or economically equivalent
to that number of shares of such stock'' as the basis for the exemption
and (2) an extension of the termination date of the pilot program.\4\
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\4\ See Securities Exchange Act Release No. 32901 (September 14,
1993), 58 FR 49073 (September 21, 1993) (order approving File No.
SR-NYSE-92-23).
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On November 17, 1993, the Commission approved an extension of the
termination date of the pilot program until November 17, 1994.\5\ The
Exchange now proposes to extend the pilot program for six months to May
17, 1995.
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\5\ See Securities Exchange Act Release No. 33212 (November 17,
1993), 58 FR 62173 (November 24, 1993) (order approving File Nos.
SR-Amex-93-38, SR-CBOE-93-52, SR-NYSE-93-42, SR-PSE-93-30, and SR-
PHLX-93-46).
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Early in 1995, the Exchange plans to submit to the Commission a
report on the pilot program covering the period ending December 31,
1994. In addition, for the duration of the pilot program, the NYSE will
continue to monitor on a daily basis (1) the use of the exemptions to
determine if the positions are being maintained in accordance with all
conditions and requirements and (2) the effects of the exemptions on
the market.
(b) Basis
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 promote
just and equitable principles of trade, to remove impediments to and
perfect the mechanism of a free and open market and a national system,
and, in general, to protect investors and the public interest.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change imposes
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
(C) Self-Regulatory Organization's Statements on Comments on the
Proposed Rule Change Received From Members, Participants or Others
The Exchange has not solicited, and does not intend to solicit,
comments on the proposed rule change. The Exchange has nor received any
unsolicited written comments from members or other interested parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has requested that the proposed rule change be given
accelerated effectiveness pursuant to Section 19(b)(2) of the Act.
The Commission finds that the proposed rule change to extend the
pilot program until May 17, 1995, is consistent with the requirements
of the Act and the rules and regulations thereunder applicable to a
national securities exchange, and, in particular, the requirements of
Section 6(b)(5) thereunder.\6\ The Commission concludes, as it did when
originally approving the pilot program, that providing for increased
position and exercise limits for equity options and stock index options
in circumstances where those excess positions are fully hedged with
offsetting stock positions will provide greater depth and liquidity to
the market and allow investors to hedge their stock portfolios more
effectively, without significantly increasing concerns regarding
intermarket manipulations or disruptions of either the options market
or the underlying stock market.
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\6\ 15 U.S.C. 78f(b)(5) (1982).
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[[Page 2801]]
The Commission also notes that before the NYSE's pilot program can
be extended or approved on a permanent basis, the Exchange must provide
the Commission with a report on the operation of its pilot program
since its inception by January 31, 1995. Specifically, the Exchange
must provide the Commission details on (1) the frequency with which the
exemptions have been used; (2) the types of investors using the
exemptions; (3) the size of the positions established pursuant to the
pilot program; (4) what types of convertible securities are being used
to hedge positions and how frequently the convertible securities have
been used to hedge; (5) whether the Exchange has received any
compliants on the operation of the pilot program; (6) whether the
Exchange has taken any disciplinary action against, or commenced any
violation of any term or condition of the pilot program; (7) the market
impact, if any of the pilot program; and (8) how the Exchange has
implemented surveillance procedures to ensure compliance with the terms
and conditions of the pilot program. In addition, the Commission
expects the Exchange to inform the Commission of the results of any
surveillance investigations undertaken for apparent violations of the
provisions of its position limit hedge exemption rules.
The Commission finds good cause for approving the extension of the
pilot programs prior to the thirtieth day after the date of publication
of notice of filing thereof in the Federal Register in order to permit
the continuation of the pilot program. The Commission notes that the
Exchange has not experienced any significant problems with the pilot
program since its inception and that the Exchange will continue to
monitor the pilot program to ensure that no problems arise. Finally, no
adverse comments have been received by the Exchange or the Commission
concerning the pilot program. Based on the above, the Commission
believes good cause exists to approve the extension of the pilot
program through May 17, 1995, on an accelerated basis. Therefore, the
Commission believes that granting accelerated approval of the proposal
is appropriate and consistent with Sections 6 and 19(b)(2) of the Act.
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. 522, will be available for inspection and copying at 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 above-mentioned
self-regulatory organization. All submissions should refer to the file
number in the caption above and should be submitted by February 1,
1995.
It Is Therefore Ordered, pursuant to Section 19(b)(2) of the
Act,\7\ that the proposed rule change (SR-NYSE-94-47) relating to an
extension of the hedge exemption pilot program until May 17, 1995, is
approved.
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\7\ 15 U.S.C. 78s(b)(2) (1982).
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) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-658 Filed 1-10-95; 8:45 am]
BILLING CODE 8010-01-M
