[Federal Register Volume 61, Number 225 (Wednesday, November 20, 1996)]
[Notices]
[Pages 59125-59126]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29612]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37944; International Series Release No. 1027; File No.
SR-PHLX-96-45]
Self-Regulatory Organizations; Philadelphia Stock Exchange,
Incorporated; Notice of Filing of Proposed Rule Change Relating to
Minimum Transaction Size for Customized Foreign Currency Options
November 13, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ Notice is hereby given that on November 1, 1996, the
Philadelphia Stock Exchange, Inc. (``PHLX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``SEC'' or ``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.
\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 PHLX, pursuant to Rule 19b-4 of the Act,\2\ proposes to amend
Exchange Rule 1069(a) to revise the minimum opening and closing
transaction size and responsive quotation size for customized foreign
currency options from 100 to 50 contracts.
\2\ 17 CFR 240.19b-4.
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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
On November 1, 1994, the Commission approved the Exchange's
proposal to trade customized foreign currency options.\3\ Users now
have the ability to customize the strike price and quotation method and
choose any underlying and base currency combination out of all Exchange
listed currencies including the U.S. dollar. The product was introduced
to attract institutional customers who like the flexibility and variety
offered in the over-the-counter market but would prefer the benefits
attributed to an exchange auction market to hedge their exchange rate
risks.
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\3\ Securities Exchange Act Release No. 34925 (November 1,
1994), 59 FR 55720.
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The Exchange originally instituted a 300 contract minimum opening
transaction size pursuant to Rule 1069(a)(6). A number of mid-sized
corporations and institutions then told the Exchange that the contract
value was too large for their purposes. They believed that customized
currency options would fill a market need for them, but that the
opening transaction size was prohibitive. The Exchange, thus,
determined to reduce the transaction size in stages. In March of 1995,
the Exchange reduced the size of an opening transaction to 200
contracts \4\ and then reduced it further to 100 contracts in August of
that year.\5\ That size, however, still remains too large for a
significant segment of medium sized corporations, especially those that
are located in Canada and the Pacific basin. Those companies would like
the opportunity to hedge their currency risk using an exchange traded
customized option contract in a cost-effective manner. Therefore, the
Exchange now proposed to reduce the minimum opening transaction size to
50 contracts which would still allow for an average minimum transaction
value of between $2 and $3 million as shown below.
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\4\ Securities Exchange Act Release No. 35464 (March 9, 1995),
60 FR 14043.
\5\ Securities Exchange Act Release No. 36176 (August 31, 1995),
60 FR 46879.
[[Page 59126]]
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Underlying
Exchange contract Value of 100 Value of 50
Currency rate \6\ Contract size value contracts contracts
(dollars) (dollars) (dollars)
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Australian dollar........................ 0.878200 50,000 43,910 4,391,000 2,195,500
Canadian dollar.......................... 0.823000 50,000 41,150 4,115,000 2,057,500
Swiss franc.............................. 0.889700 62,500 55,606 5,560,625 2,780,312
German mark.............................. 0.727600 62,500 45,475 4,547,500 2,273,750
French franc............................. 0.215100 250,000 53,775 5,377,500 2,688,750
British pound............................ 1.741600 31,250 56,602 5,660,200 2,830,100
Japanese yen............................. 0.008999 6,250,000 56,244 5,624,375 2,812,188
ECU...................................... 1.391600 62,500 86,975 4,115,000 2,057,500
Italian lira............................. 0.0007309 50,000,000 36,547 3,654,704 2,812,188
Spanish peseta........................... 0.007779 5,000,000 38,895 3,889,500 1,944,750
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Averages............................. ............ .............. ........... 5,151,790 2,575,895
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\6\ As of October 11, 1996, assuming that the U.S. dollar is the base currency.
The minimum size of the closing transaction and the minimum
responsive quote size obligation would also be reduced from 100
contracts to the lesser of 50 contracts or the remaining contracts.
2. Statutory Basis
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, facilitate transactions
in securities, remove impediments to and perfect the mechanism of a
free and open market and a national market system, and protect
investors and the public interest by opening up the market to smaller
institutional and corporate users who are currently priced out of the
market yet still keeping the entry requirements high enough to
discourage smaller less sophisticated users.
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
No written comments were either solicited or received.
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, NW., Washington, DC 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 at 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-96-45 and should be
submitted by December 11, 1996.
For the Commission, by the Division of Market Regulations,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-29612 Filed 11-19-96; 8:45 am]
BILLING CODE 8010-01-M
