[Federal Register Volume 62, Number 14 (Wednesday, January 22, 1997)]
[Notices]
[Pages 3321-3323]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-1434]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38168; File No. SR-Phlx-96-52]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change and Amendment No.
1 Thereto by the Philadelphia Stock Exchange, Inc. Relating to
Customized Foreign Currency Option Expiration Times
January 14, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on
December 20, 1996, the Philadelphia Stock Exchange, Inc. (``Phlx'') or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the self-regulatory
organization. The Phlx has requested accelerated approval for the
proposal. On January 10, 1997, Phlx submitted Amendment No. 1 to the
proposal in order to clarify when certain classes of foreign currency
options (``FCOs'') expire.\1\ This Order approves the Phlx proposal, as
amended, on an accelerated basis and solicits comments from interested
persons.
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\1\ See Letter from Michele Weisbaum, Associate General Counsel,
Phlx, to Sharon Lawson, Senior Special Counsel, SEC, dated January
6, 1997.
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[[Page 3322]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Phlx proposes to amend Exchange Rule 1000(b)(21)(iv) in order
to clarify the transition process in regard to moving the expiration
time for customized FCO contracts from an 11:59 p.m. expiration time to
a 10:15 a.m. Eastern Time (``ET'') expiration time for customized FCO
contracts expiring on a regular mid-month or month-end expiration day.
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 Phlx 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 Phlx 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
On September 24, 1996, the Exchange received approval to change the
expiration time for customized FCO contracts which expire on a regular
mid-month or month-end expiration date from an 11:59 p.m. expiration
(``11:59 p.m. expiration scheme'') \2\ to a 10:15 a.m. expiration
scheme (``10:15 a.m. expiration scheme'') \3\ so that the expiration
times for those options would conform to the expiration times for other
customized FCO contracts which expire on all other business days
(custom dated FCOs).\4\ The filing also provided that for those
contracts that would expire at 10:15 a.m., the cease trading time and
the assignment methodology would also be changed so that the contracts
would cease trading at 8:00 a.m. ET on their expiration date and would
be subject to a pro-rata (rather than random) assignment process. These
changes, however, were approved contingent upon subsequent Commission
approval of a corresponding OCC filing.\5\ Because OCC only recently
received approval for its corresponding filing, Phlx has been unable to
implement the new expiration times.\6\
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\2\ Under an 11:59 p.m. expiration scheme, customized FCOs cease
trading at 2:30 p.m. on their expiration date and are subject to
random assignment.
\3\ Under a 10:15 a.m. expiration scheme, customized FCOs cease
trading at 8:00 a.m. on their expiration date and are subject to
pro-rata assignment.
\4\ See Securities Exchange Act Release No. 37718 (September 4,
1996) (approving SR-Phlx-96-13 (``SR-PLX-96-13'')) (``Release No.
37718''). The Commission notes, however, that the implementation of
these changes was delayed pending approval of conforming changes to
the rules of the Options Clearing Corporation (``OCC'').
\5\ Release No. 37718 did, however, provide for immediate
effectiveness for that portion of the filing which changed the cease
trading time from 9:00 a.m. to 8:00 a.m. for custom dated FCOs that
currently expire at 10:15 a.m. because they expire on days other
than regular mid-month and month-end expiration days.
\6\ See Securities Exchange Act Release No. 38165 (January 14,
1997) (approving SR-OCC-96-19).
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Phlx's original filing, SR-Phlx-96-13, proposed that the earlier
expiration time (i.e., the 10:15 a.m. expiration scheme) would become
applicable with respect to all newly opened customized FCOs with a few
noted exceptions for existing open contracts (``exception dates'').
Because Phlx has been unable to implement these changes, however,
additional existing series have been opened. Accordingly, Phlx must
amend the portion of Phlx Rule 1000(b)(21)(iv) which stated the
original exception dates.
Currently, open interest exists in customized FCOs expiring on mid-
month and/or month-end expiration Fridays for the months of March,
April, July, September and October 1997. These existing series will be
``grandfathered,'' i.e., they will remain subject to an 11:59 pm.
expiration scheme. The parties to these contracts (except for the
contracts expiring in March),\7\ will have the ability to change the
expiration times from 11:59 p.m. to the 10:15 a.m. expiration scheme if
they desire by notifying the OCC in writing. Phlx believes the ability
to switch expiration schemes may be an attractive option to existing
parties to the transaction, because the contracts which expire at 11:59
p.m. will not be fungible with those that expire at 10:15 a.m. Further,
because the existing contracts may not expire for several months,
having different expiration times may become confusing to investors as
the expiration date approaches.
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\7\ This will not be available for the contract's expiring in
March 1997 because the change will be implemented for contracts
expiring on or after April 1, 1997. Any contracts expiring prior to
April 1, 1997, will remain subject to an 11:59 p.m. expiration
scheme.
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Accordingly, Phlx proposes to amend Rule 1000(b)(21) to clarify
when customized FCO contracts expire. Specifically, for any customized
FCO contract which will expire on a date prior to April 1, 1997, the
contract will remain subject to an 11:59 p.m. expiration scheme.
Customized FCO contractors opened prior to January 14, 1997 and which
expire on or after April 1, 1997 will also remain subject to an 11:59
p.m. expiration scheme unless all parties to the transaction agree to
switch to a 10:15 a.m. expiration scheme and notify OCC thereof in
writing. Customized FCO contracts opened after January 14, 1997, which
expire on or after April 1, 1997, will be subject to a 10:15 a.m.
expiration scheme.\8\
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\8\ See supra note 3.
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The Phlx believes 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, prevent fraudulent and manipulative acts and
practices, to foster cooperation and coordination with persons engaged
in regulating, clearing, settling and processing information with
respect to, and facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, as well as to protect investors and the
public interest by providing for a transition procedure for changing
the time of certain custom FCO contracts.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Findings and Conclusions
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, and, in
particular, the requirements of Section 6(b)(5).\9\ The purpose of the
proposal is to clarify the transition process for customized FCOs as
they switch from an 11:59 p.m. expiration scheme, as discussed above,
to a 10:15 a.m. expiration scheme.\10\ By establishing that any
customized FCO contract opened on or after January 14, 1997 and which
expires on or after April 1, 1997 will be subject to the 10:15 a.m.
expiration scheme, the Phlx is able
[[Page 3323]]
to create a uniform expiration scheme for all customized FCOs. By
allowing existing series of FCOs to remain subject to the 11:59 p.m.
expiration scheme, Phlx has adequately ensured that existing parties to
the transaction will not see the terms of their contracts unexpectedly
changed prior to expiration. As such, the Commission believes the
proposal is a reasonable attempt by the Phlx to balance the need to
create uniform cease trading and expiration times for all customized
FCOs with the need to protect the interests of existing customized FCO
holders.
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\9\ 15 U.S.C. 78f(b)(5) (1988).
\10\ See supra note 3.
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The Phlx proposal also allows holders and writers of existing
series of customized FCOs to convert the terms of their
``grandfathered'' contracts to the 10:15 a.m. expiration scheme, as
long as all parties to the transaction agree. Because contracts which
expire at 11:59 p.m. will not be fungible with contracts that expire at
10:15 a.m., the Commission believes that the ability of holders to
convert their contracts to a 10:15 a.m. expiration scheme (if all
parties to the transaction agree) may increase the liquidity of their
existing contracts. The ability to convert will also allow existing
holders to more carefully tailor their customized FCO holdings to meet
their investment objectives (e.g., increased liquidity, known exercise
exposure with pro-rata assignment).
By requiring that all parties to the transaction agree to change
the expiration times of their contracts prior to such changes becoming
effective also will ensure that writers and holders are not forced to
change their contract terms at the desire of only one party to the
transaction. Accordingly, the Commission believes the Phlx proposal, by
allowing investors to convert their customized FCO contracts from an
11:59 p.m. expiration scheme to a 10:15 a.m. expiration scheme, will
increase liquidity in the FCO market and help to facilitate
transactions in securities.
The Commission finds good cause to approve the proposed rule change
and Amendment No. 1 thereto prior to the thirtieth day after the date
of publication of notice of filing thereof in the Federal Register. The
proposal and Amendment No. 1, as discussed above, clarify the
transition process as customized FCOs switch to a 10:15 a.m. expiration
scheme. Specifically, the proposal, as amended, provides that existing
holders of customized FCO contracts will not have the terms of their
contracts changed unless all parties to the transaction specifically
notify OCC in writing of their intent to change contract terms. As
such, the Commission believes the proposed changes will foster investor
protection and facilitate transactions in securities. Furthermore, the
Commission notes that Release No. 37718, in which Phlx adopted the
10:15 a.m. expiration scheme, was subject to the full notice period and
that no comments were received. Accordingly, the Commission believes it
is consistent with the Act to approve the proposal, as amended, on an
accelerated basis.
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. Sec. 552, will be available for inspection and copying at
the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. 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-96-52 and should be
submitted by February 12, 1997.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\11\ that the proposed rule change (SR-Phlx-96-52) is hereby approved,
as amended, on an accelerated basis.
\11\ 15 U.S.C. Sec. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-1434 Filed 1-21-97; 8:45 am]
BILLING CODE 8010-01-M
