[Federal Register Volume 61, Number 208 (Friday, October 25, 1996)]
[Notices]
[Pages 55345-55346]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27389]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37842; File No. SR-PSE-96-40]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Pacific Stock Exchange, Inc., Relating to Index Options
on the Dow Jones & Co. Taiwan Index
October 18, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 17, 1996, the Pacific Stock Exchange, Inc. (``PSE'' 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 self-regulatory
organization. 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. Sec. 78s(b)(1) (1988).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The PSE, pursuant to Rule 19b-4 of the Act, proposes to list for
trading index options on the Dow Jones & Co. Taiwan Index (``Index'').
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
1. Purpose. The Exchange is proposing to list and trade cash-
settled, European-style stock index options on the Dow Jones & Co.
Taiwan Index. The Index is comprised of 113 representative stocks
traded on the Taiwan Stock Exchange (``TSE'').\3\ The Exchange
represents that the Index is representative of the Taiwan stock market
as a whole, and therefore, is deemed to be a broad-based index.
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\3\ A list of index components is available at the Commission
and at the PSE.
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Index Design
The Index was designed by, and is maintained by, Dow Jones & Co.
The 113 stocks comprising the Index were selected for their market
weight, trading liquidity, and representation of the business
industries reflected on the TSE. The Exchange believes that these
stocks reflect the industrial composition of the broader Taiwanese
equity market.
The Index is weighted by the market capitalization of the component
stocks. As of August 30, 1996, the market capitalization of the Index
was US$181 billion (at the exchange rate of NT $27.5 per dollar). The
average market capitalization of these stocks was $1.6 billion on the
same date (at the same rate of exchange). The individual market
capitalization of these stocks ranged from $150 million (Hong Ho
Precision Textile Co.) to $18.6 billion (Cathay Life Insurance) on the
same date. The largest stock accounted for 10.26% of the Index, while
the smallest accounted for .08%. The top five stocks in the Index, by
weight, accounted for approximately 31% of the Index. The average daily
trading volume of the component securities for the period April 1
through August 30, 1996, ranged from a low of 457,091 shares (Hsing Ta
Cement Co.) to a high of 49,879,418 shares (China Steel), with an
average daily trading volume for all components of the Index of
approximately 7,698,763 shares.
Calculation and Maintenance of Index
The value of the Index is determined by multiplying the price of
each stock by its number of shares outstanding, adding those sums, and
then dividing by a divisor which gives the Index a value of 100 on its
base date of December 31, 1991. The Index had a closing value of 160.33
on August 30, 1996. The Index will be maintained by Dow Jones & Co.
and, in order to maintain continuity of the Index, the divisor of the
Index will be adjusted to reflect certain events relating to the
component stocks. These events include, but are not limited to, changes
in the number of shares outstanding, spin-offs, certain rights
issuances, and mergers and acquisitions.
The composition of the Index will be reviewed periodically and Dow
Jones & Co. may make component changes at any time to ensure that the
Index continues to represent the overall character of the Taiwanese
equity market. When considering replacement stocks, Dow Jones & Co.
will choose from among the most heavily capitalized and actively traded
stocks on the TSE. In addition, Dow Jones & Co. will consider other
factors including industry grouping, level of foreign accessibility
(i.e., whether foreigners may purchase the stock), name recognition,
and volatility.
Index Option Trading
The Exchange proposes to base trading in options on the Index on
the full value of the Index as expressed in U.S. dollars. The Exchange
also may provide for the listing of long-term index option series
(``LEAPS'') on the Index. The Exchange will list expiration months for
Index options and Index LEAPS in accordance with PSE Rule 7.8.
The trading hours for options on the Index will be from 6:30 a.m.
Pacific time to 1:15 p.m. Pacific time. Dow Jones Telerate
(``Telerate'') will calculate the value of the Index every fifteen
seconds throughout the trading day and disseminate the Index value
through the Options Price Reporting Authority (``OPRA'').
The Exchange is proposing to establish position limits for Index
options equal to 50,000 contracts on the same side of the market, with
no more than 30,000 contracts in the series with the nearest expiration
date. These limits are roughly equivalent, in dollar terms, to the
limits applicable to options on other indices. Furthermore, the hedge
exemption rule applicable to broad-based index options, Commentary .02
to PSE Rule 7.6, will apply to Index options.
The PSE also represents that it has the necessary systems capacity
to support new series that would result from the introduction of the
Index options.
Exercise and Settlement
The proposed options on the Index will expire on the Saturday
following the third Friday of the expiration month, and trading in the
expiring contract month on the PSE will normally cease on Friday at
1:15 p.m. Pacific time unless a holiday occurs.
[[Page 55346]]
The exercise settlement value of Index options at expiration will be
determined from closing prices established at the close of the regular
Friday trading sessions in Taiwan. If a stock does not trade during
this interval or if it fails to open for trading, the last available
price of the stock will be used in the calculation of the Index. When
expirations are removed in accordance with Exchange holidays, such as
when the PSE is closed on the Friday before expiration, the last
trading day for expiring options will be Thursday and the exercise
settlement value of Index options at expiration will be determined at
the close of the regular Thursday trading sessions in Taiwan even if
the Taiwanese markets are open on Friday. If the Taiwanese markets are
closed on the Friday before expiration but the PSE is open for trading,
the last trading day for expiring options will similarly be Thursday,
with the exercise settlement value being determined from Thursday
closing prices on the TSE.
Surveillance
The Exchange will apply its existing index option surveillance
procedures to Index options. In addition, the Exchange has entered into
a surveillance sharing agreement with the TSE, which will enable the
Exchange to obtain information concerning the trading of the component
stocks of the Index.
2. Statutory basis. The PSE believes that the proposed rule change
is consistent with Section 6(b)(5) of the Act in that it is designed to
facilitate transactions in securities as well as to protect investors
and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The self-regulatory organization 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 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 the 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. 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 also will be available
for inspection and copying at the principal office of the PSE. All
submissions should refer to File No. SR-PSE-96-40 and should be
submitted by November 15, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
\4\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-27389 Filed 10-24-96; 8:45 am]
BILLING CODE 8010-01-M
