[Federal Register Volume 63, Number 15 (Friday, January 23, 1998)]
[Notices]
[Pages 3611-3612]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1553]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39552; File No. SR-Phlx-97-55]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc. Establishing an
Enhanced Parity Split Pilot Program for Specialists in Foreign Currency
Options Effective Until December 31, 1998
January 14, 1998.
Purusant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on December 1, 1997, 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, II, and III below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange seeks to revise Exchange Rule 1014(h) to establish an
enhanced parity split pilot program (``Pilot Program'') for its foreign
currency option (``FCO'') specialists effective until December 31,
1998.
The text of the proposed rule change is available at the Office of
the Secretary, the Exchange, 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 Exchange 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 Exchange 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
1. Purpose
The Exchange previously provided and enhanced parity split to the
specialist dealing in dollar denominated delivery German Mark (``3D
German Mark'') options.\2\ The enhanced parity split gave the
specialist 50% of the first 500 contracts of any trade in 3D German
Mark options. The Exchange eliminated the enhanced parity split earlier
this year because the specialist in 3D German Mark options and other
traders of the product found it to be of little benefit.\3\ At the time
the enhanced parity split was eliminated, the Exchange informed the
Commission that it would continue to study the potential use of an
enhanced parity split for all FCO specialists on a broader basis. This
proposed rule change sets forth the Exchange's plan for the expanded
use of the enhanced parity split in FCOs.
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\2\ The enhanced parity split for the specialist in 3D German
Mark options was first approved on December 29, 1994. See Securities
Exchange Act Release No. 35177 (Dec. 29, 1994), 60 FR 2419 (Jan. 9,
1995). 3D German Mark options are cash-settled, European-style,
cash/spot foreign currency option contracts on the German Mark that
trade in one-week and two-week expirations.
\3\ The enhanced parity split was eliminated as of September 8,
1997. See Securities Exchange Act Release No. 39030 (Sept. 8, 1997),
62 FR 48332 (Sept. 15, 1997). The sole specialist firm trading 3D
German Mark options indicated that the enhanced parity split was not
particularly useful and that it did not generally take advantage of
it. Furthermore, the Exchange represented that the order size in 3D
German Mark options generally was not large enough to trigger the
application of the enhanced parity split (i.e., such orders
represented less than 100 contracts).
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The Exchange seeks to implement an enhanced parity split procedure
similar to the one currently applied to transactions in equity and
index options at the Exchange.\4\ Under the Pilot Program, however, the
application of the proposed FCO enhanced parity split would be more
widespread, and the enhanced parity split would be available to all FCO
specialists assigned to FCO products.\5\ The Pilot Program would be in
effect until December 31, 1998.
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\4\ The Exchange recently amended its enhanced parity split
pilot program for equity and index option specialists to expand its
application. As a result of the amendment, all index options and all
newly listed equity options receive the enhanced parity split.
However, only 50% of those equity options not considered ``newly
listed'' are eligible to receive the enhanced parity split. In
addition, specialists are now permitted to revise the list of
eligible equity options on a quarterly basis, rather than an annual
basis. See Securities Exchange Act Release No. 39401 (Dec. 4, 1997),
62 FR 65300 (Dec. 11, 1997).
\5\ It should be noted that because FCOs on the Italian Lira and
the Spanish Peseta are traded as customized options, there are no
specialists assigned to those products. For simplicity and clarity,
all further references to FCOs shall not include these two products.
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The enhanced parity split would apply to the first 500 contracts in
a FCO transaction in a FCO transaction. When the enhanced parity split
is applied, the
[[Page 3612]]
FCO specialist will be counted as two crowd participants when
determining the allocation of the FCO contracts among the trading crowd
participants on parity, except in the following circumstances: (i) when
there is one other trading crowd participant on parity, the FCO
specialist will receive 60% of the FCO contracts making up the order;
or (ii) when there are two other trading crowd participants on parity,
the FCO specialist will receive 40% of the FCO contracts making up the
order.
Because a customer bid/offer for under 100 FCO contracts is deemed
to have time priority over all other bids/offers, such an order will
not be subject to the enhanced parity split.\6\ This provision will
help ensure that small customer orders are not disadvantaged by the
application of the enhanced parity split. If a FCO transaction involves
more than 500 contracts, those contracts exceeding the 500 contract
threshold will be allocated on a pro rata basis among the crowd
participants on parity.
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\6\ Exchange Rule 1014(h), ``Options on Foreign Currencies,''
Section (i), states that ``all bids/offers of customer accounts for
under 100 contracts have time priority over all other bids/offers''
on the FCO floor. In that instance, the FCO specialist cannot be on
parity with such customer so the enhanced parity split will not
apply. However, because Exchange Rule 1014(h)(i) does not confer
time priority on customer orders for 100 or more contracts, FCO
specialists may avail themselves of the enhanced parity split when
interacting with customer orders involving 100 or more FCO
contracts.
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It should be noted that the application of this enhanced parity
split will be mandatory. Therefore, with respect to any FCO transaction
that implicates the enhanced parity split, the FCO specialist will be
required to accept the preferential allocation and may not decline the
enhancement.\7\
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\7\ Telephone conversation between Michele R. Weisbaum, Vice
President and Associate General Counsel, Exchange, and Michael L.
Loftus, Attorney, Division of Market Regulations, Commission
(December 15, 1997).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act,\8\ in general, and with Section 6(b)(5),\9\
in particular, in that it is designed to promote just and equitable
principles of trade; to prevent fraudulent and manipulative acts and
practices; to foster cooperation and coordination with persons engaged
in regulating, clearing, settling, 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; and to protect investors and the public interest. The
Exchange further believes that the proposed rule change balances the
competing interests of specialists and market makers while assisting
specialists in making tight and liquid markets and protecting customer
interests.
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\8\ 15 U.S.C. 78f.
\9\ 15 U.S.C. 78f(b)(5).
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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 did not solicit or receive written comments with
respect to the proposed change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding, or (ii) as to
which the Exchange consents, the Commission will:
(A) by order approve such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
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, NW., Washington, DC 20549.
Copies of the submissions, 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 persons, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such filing will also be available for
inspection and copying at the principal office of the Exchange. All
submissions should refer to File No. SR-Phlx-97-55 and should be
submitted by February 13, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-1553 Filed 1-22-98; 8:45 am]
BILLING CODE 8010-01-M
