[Federal Register Volume 60, Number 19 (Monday, January 30, 1995)]
[Notices]
[Pages 5745-5746]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2139]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35261; International Series Release No. 777 File No.
SR-Phlx-95-03]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc., Relating to Customized
Foreign Currency Options Transaction Size
January 23, 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 January
17, 1995, 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 Phlx. 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 Phlx proposes to amend Exchange Rule 1069(a) to revise the
minimum transaction size for customized foreign currency options
(``Customized FCOs'') from 300 to 200 contracts. The text of the
proposed rule change is available at the Office of the Secretary, the
Phlx, 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 Phlx included statements
concerning the purpose of and basis for the proposed rule change the
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 the
Statutory Basis for, the Proposed Rule Change
On November 1, 1994, the Commission approved the Exchange's
proposal to trade customized foreign currency options.\1\ Customized
FCOs provide users of the Exchange's FCO markets with the ability to
customize the strike price and quotation method and to choose any
underlying and base currency combination out of all Exchange-listed
currencies, including the U.S. dollar, for their FCO transactions. The
Phlx represents that Customized FCOs were introduced to attract
institutional customers who enjoy the flexibility and variety offered
in the over-the-counter foreign currency market but who prefer the
benefits attributed to an exchange auction market for hedging their
exchange rate risks.
\1\See Securities Exchange Act Release No. 34925 (November 1,
1994), 59 FR 55720 (November 8, 1994).
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The Exchange imposed a 300 contract minimum opening transaction
size pursuant to Rule 1069(a)(6) for a number of reasons. Because the
Customized FCOs are not continuously quoted and, therefore, only
reported to the Options Price Reporting Authority (``OPRA'') when a
request for quote or responsive quote is voiced and when a trade
occurs,\2\ there is somewhat less transparency in the Customized FCO
market than in the market for regular FCOs. Further, the Exchange
represents that Customized FCOs are extremely labor intensive to quote,
therefore making it impractical to offer the ability to request quotes
for small opening transactions.
\2\See Phlx Rule 1069(h).
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The Exchange represents that a number of mid-sized corporations and
institutions have told the Exchange that the current minimum contract
value is too large for their purposes. They believe that Customized
FCOs would fill a market need for them but that the opening transaction
size is prohibitive. The Exchange's analysis (see chart below) shows
that the average value of a 300 contract trade at prevailing exchange
rates is approximately $15 million. The Exchange believes that an
important corporate market segment is being priced out of the market by
this excessively large opening transaction size. Therefore, the
Exchange proposes to reduce the minimum opening transaction size for
Customized FCO transactions to 200 contracts, which, the Exchange
represents, would still result in an average minimum transaction value
of approximately $10 million. This, in the Exchange's opinion, would be
consistent with Flexible Exchange Options (``FLEX Options'') traded on
the Chicago Board Options Exchange and the American Stock Exchange
which also have a $10 million minimum opening transaction
requirement.\3\ [[Page 5746]]
\3\See CBOE Rule 24A.4(e)(ii) and Amex Rule 903G(d)(ii).
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Value of 300 Value of 200
Underlying currency Rate\4\ Contract size contracts contracts
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Australian dollar............................... 0.776300 50,000 $11,644,500 $7,763,000
Canadian dollar................................. 0.721400 50,000 10,821,000 7,214,000
Swiss franc..................................... 0.752600 62,500 14,111,250 9,407,500
German mark..................................... 0.636900 62,500 11,941,875 7,961,250
French franc.................................... 0.184800 250,000 13,860,000 9,240,000
British pound................................... 1,561500 31,500 14,639,063 9,759,375
Japanese yen.................................... 0.009965 6,250,000 18,684,375 12,456,250
ECU............................................. 1,212700 62,500 22,738,125 15,158,750
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Averages.................................. .............. .............. 14,805,023 9,870,016
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\4\As of December 15, 1994, assuming that the U.S. dollar is the base currency.
The Exchange believes that the foregoing rule change proposal is
consistent with Section 6 of the Act, in general, and with Section
6(b)(5), in particular, in that it is designed to promote just and
equitable principles of trade, foster cooperation and coordination with
persons engaged in regulating, clearing, settling, and processing
information, and facilitate transactions in securities, remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, protect investors and the
public interest by opening up the Customized FCC market to smaller
corporate FCC users while keeping the market geared primarily towards
institutional investors.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Phlx 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
No written comments were solicited or received with respect to the
proposed rule 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 self-regulatory organization 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, 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. 552, will be available for inspection and copying in the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. Copies of such filing with also be available for
inspection and copying at the principal office of the Phlx. All
submissions should refer to File No. SR-Phlx-95-03 and should be
submitted by February 21, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
\5\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-2139 Filed 1-27-95; 8:45 am]
BILLING CODE 8010-01-M
