[Federal Register Volume 59, Number 243 (Tuesday, December 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31202]
[[Page Unknown]]
[Federal Register: December 20, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35097; File No. SR-PHLX-94-54]
Self-Regulatory Organizations; Notice of Filing and Order Granting
Accelerated Approval of Proposed Rule Change by the Philadelphia
Stock Exchange, Inc., Relating to the Holiday Expiration Date for
Cash/Spot Foreign Currency Options
December 13, 1994.
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 November
7, 1994, 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 and II below, which Items have been prepared by the self-
regulatory organization.\1\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\On December 7, 1994, the PHLX withdrew the portion of the
proposal requesting approval to list cash/spot foreign currency
options in consecutive month and cycle month series. In addition,
the PHLX requested accelerated approval for the portion of the
proposal concerning holiday expirations and the definition of
``underlying foreign currency.'' See Letter from Michele R.
Weisbaum, Associate General Counsel, PHLX, to Michael Walinskas,
Branch Chief, Division of Market Regulation, Commission, dated
December 5, 1994 (``Amendment No. 1''). Under Amendment No. 1, the
contract listed on December 19, 1994, will be effected on Friday,
December 23, 1994, will not be effected by the new procedure.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The PHLX proposes to amend PHLX Rule 1000, ``Applicability,
Definitions, and References,'' to provide that the expiration date for
cash/spot foreign currency options (``3D options'') that expire on a
holiday or an Exchange designated bank holiday will be the business day
following the holiday or the Exchange designated bank holiday. In
addition, the PHLX proposes to amend PHLX Rule 1000(b)(14) to correct
the definition of ``underlying foreign currency'' as it applies to 3D
options. Under the proposal, the 3D option contract listed on December
19, 1994, will be effected by the proposed expiration procedure, but
the 3D contract expiring on Friday, December 23, 1994, will not be
effected by the proposed expiration procedure.\2\
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\2\See Amendment No. 1, supra note 1.
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The text of the proposed rule change is available at the Office of
the Secretary, 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 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
The PHLX proposes to amend its rules to make two changes to its 3D
options. Presently, 3D options expire every Monday at 11:59 p.m.
Eastern Standard Time. PHLX Rule 1000(b)(21)(iii), ``Expiration Date,''
provides that if Monday is a holiday or Exchange designated bank
holiday, 3D options will expire on the preceding business day. The
Exchange also trades physically settled foreign currency options that
expire on the Friday preceding the third Wednesday of each month
(``mid-month options'') and on the last Friday of each month (``month-
end options''). the PHLX states that the Exchange created 3D options
with a Monday expiration to attract users seeking an option capturing
the risk associated with the weekend.
Pursuant to existing PHLX Rule 1000(b)(21)(iii), if Monday is a
holiday, the expiration reverts back to the preceding business day,
which is usually Friday but on some occasions may be Thursday. The
Exchange now realizes that this defeats the purpose of using 3D options
to capture weekend risk. In response to this concern, which has been
raised by users of the product, the Exchange proposes that 3D options
expire on the following business day, instead of the previous business
day, when the regular Monday expiration occurs on an Exchange holiday
or designated bank holiday. This usually will be a Tuesday, however, it
may be a Wednesday. For example, Monday, December 26, 1994, is an
Exchange holiday, (Christmas) so expiration, as proposed, should be
Tuesday. However, Tuesday, December 27, 1994, is a designated bank
holiday (Boxing Day), so expiration would occur on Wednesday, December
28, 1994, if the proposed ``next business date'' rule were in effect.
In addition, the PHLX proposes to revise the definition of
``underlying foreign currency'' to reflect that for 3D options which
are cash settled, the underlying foreign currency is the currency that
the Options Clearing Corporation (``OCC'') would have been obligated to
sell or purchase upon exercise of the contract since OCC actually
transfers the cash value upon exercise of the foreign currency.
The Exchange believes that 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 and to protect investors and the public interest by
providing both a more appropriate expiration date for 3D options when
the expiration date falls on a holiday.
(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 either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The Exchange has requested that the proposed rule change be given
accelerated effectiveness pursuant to Section 19(b)(2) of the Act.
The Commission finds that the proposed rule change is consistent
with the requirements of the Act of the rules and regulations
thereunder applicable to a national securities exchange and, in
particular, the requirements of Section 6(b)(5).\3\ The PHLX state that
the Exchange created 3D options with a Monday expiration in order to
attract investors seeking an option that captures weekend risk. Under
current rules, however, if Monday is a holiday or designated bank
holiday, the 3D options will expire on the preceding business day,
which is usually the preceding Friday. By amending its rules to provide
that 3D options will expire on the following business day when the
regular expiration Monday is an Exchange holiday or designated bank
holiday, the Commission believes that the proposal will accommodate the
investment objectives of market participants and facilitate
transactions in 3D options by providing investors with a means to
capture weekend currency risk.
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\3\15 U.S.C. 78f(b)(50 (1988).
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The Commission believes that 3D options, as amended, should provide
investors with greater flexibility to tailor foreign currency options
positions to satisfy their investment objectives. In this regard, the
Commission notes that the PHLX has stated that foreign currency options
provide a strategic investment tool for sophisticated retail options
customers, multi-national corporations, and proprietary traders who
manage and hedge foreign currency exposure, as well as banks, which
trade short-term FCOs to hedge the risks of trading in the foreign
currency forward and cash markets.\4\ In addition, the Commission
continues to believe that 3D options broaden the hedging opportunities
of foreign currency market participants by providing them with an
alternative to using futures contracts, forward contracts and/or off-
exchange customized derivative instruments to satisfy their short-term
currency investment needs.
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\4\See Securities Exchange Act Release No. 33732 (March 8,
1994), 59 FR 12023 (March 15, 1994) (order approving File No. SR-
PHLX-93-10).
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The Commission believes that the proposal to revise the definition
of ``underlying foreign currency'' clarifies the definition in the
context of 3D options by reflecting the fact that the OCC delivers the
cash value, rather than the underlying currency, upon exercises of a 3D
option.
The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication of
notice of filing thereof in the Federal Register in order to allow the
Exchange to implement the new holiday expiration procedure prior to the
January 2, 1995, expiration, an Exchange holiday. The Commission
believes that the proposal to amend the holiday expiration procedure
for 3D options will allow investors to continue to use 3D options for
the purpose of hedging weekend currency risk. In addition, the
Commission notes that the PHLX has notified its members of the proposed
change and that the Commission has received no comments on the
proposal. The Commission also believes that it is appropriate to grant
accelerated approval to the proposal to revise the definition of
``underlying foreign currency'' because the proposal clarifies the
Exchange's rule without making any substantive change. Accordingly, the
Commission believes it is consistent with Sections 6(b)(5) and 19(b)(2)
of the Act to approve the proposed rule change 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, 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. Copies of such filing will also be available for
inspection and copying at the principal office of the above-mentioned
self-regulatory organization. All submissions should refer to the file
number in the caption above and should be submitted by January 10,
1995.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\5\ that the proposed rule change (SR-PHLX-94-54) is hereby
approved.
\5\15 U.S.C. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\6\
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\6\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35086; File No. SR-Amex-94-38]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 to Proposed Rule Change by the American
Stock Exchange, Inc. Relating to the Listing and Trading of Stock Index
and Currency Warrants
December 12, 1994.
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 September 12, 1994, the American Stock Exchange, Inc. (``Amex'' 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. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1991).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Amex proposes to: (1) Amend Section 106 of the Amex Company
Guide to revise the listing criteria for stock index (``stock index''
or ``index'') warrants and currency warrants (``currency
warrants'');\3\ (2) amend Rule 462 to specify the customer margin
requirements for the purchase or short sale of stock index and currency
warrants; (3) add a new Part VI to the rules of the Exchange to provide
rules for the trading of index and currency warrants; and (4) rescind
Commentaries .01 and .02 to Rule 411 (Duty to Know and Approve
Customers) upon the adoption of new Part VI of the Exchange's rules. On
Dec. 2, 1994, the Amex amended certain surveillance related matters
addressed in the filing. See footnote 5 infra.
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\3\Currency warrants, as used in this filing, may refer to
warrants on individual currencies (or cross currencies) or to
warrants on a specific currency index group (``currency index
warrants'').
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The text of the proposed rule change is available at the Office of
the Secretary, Amex 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 Amex 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 Amex 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 Amex proposes to: (1) Amend its listing guidelines and
establish uniform rules for the trading of stock index and currency
warrants; and (2) establish special customer margin requirements for
positions in stock index and currency warrants.
The Amex seeks to amend Section 106 of the Amex Company Guide to
provide higher standards for index and currency warrant issuers than
currently exists. In particular, such issuers would be expected to have
a minimum tangible net worth in excess of $150 million. In addition,
the aggregate original issuer price of all of a particular issuer's
warrant offerings (combined with offerings by its affiliates) that are
listed on a national securities exchange or that are National Market
securities traded through NASDAQ would not be permitted to exceed 25%
of the issuer's net worth. The proposed amendment requires that each
warrant issuer will be automatically exercised on either the delisting
date (if the issue is not listed upon another organized securities
market) or upon expiration. Section 106 also will be amended to provide
that opening prices (``a.m. settlement'') for all U.S. traded
securities will be used to determine an index's settlement value where
25 percent or more of the value of the index is represented by
securities whose primary trading market is in the U.S.
Rule 462 is being amended to apply the current customer margin
requirements for broad based stock index and currency options to stock
index and currency warrants, respectively. Thus, purchases of stock
index and currency warrants will require payment in full, and short
sales of stock index warrants will require initial margin of: (i) 100
percent of the current value of the warrant plus (ii) 15 percent of the
current value of the underlying broad stock index less the amount by
which the warrant is out of the money, up to a maximum of five percent
of the index value. Short sales of currency warrants will follow the
margin requirements applicable to listed currency options. The Exchange
proposes that its stock index and currency warrant margin requirements
be permitted offset treatment for spread, straddle and covered
positions.\4\
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\4\The staff of the Commission has indicated to the Exchange
that it must request and obtain appropriate interpretive or no-
action relief from the Commission in order to permit its index and
currency warrant margin requirements to allow offset treatment for
spread, straddle and covered positions.
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Proposed Part VI of the Exchange rules applies to the trading of
index warrants and currency warrants. Proposed Rule 1100 provides that,
unless the context otherwise requires or a specific rule in part VI
applies, the provisions of the Constitution and all other rules and
policies of the Exchange apply to trading of such securities.
Proposed Rule 1101 states that no member or member organization
shall accept an order from a customer for the purchase or sale of index
or currency warrants unless the customer's account has been approved
for options trading pursuant to Exchange Rule 921. Accordingly, the
Exchange will rescind Commentaries .01 and .02 to Rule 411, its current
suitability standard applicable to warrants, which currently provide
that the Exchange ``recommends'' that index and currency warrants only
be sold to investors whose accounts have been approved for options
trading. Furthermore, proposed Rules 1102-1105 require that the option
rules pertaining to suitability, discretionary account trading,
supervision of accounts and customer complaints be applied to stock
index an currency warrants.
Proposed Rule 1106 requires approval by a Compliance Registered
Options Principal of all advertisements, sales literature and
educational material issued by a member organization pertaining to
stock index and currency warrants. The rule further requires Exchange
approval of all advertisements and educational materials pertaining to
stock index and currency warrants.
Proposed Rule 1107 provides that position limits for stock index
warrants on the same index with original issue prices of ten dollars or
less will be fifteen million warrants covering all such issues. In
addition, with respect to warrants on the Standard & Poor's MidCap 400
Index, the position limit will be seven and one-half million warrants
covering all such issues, provided the original issue prices of the
warrants are not grater than ten dollars. The rule provides that
warrants with an original issue price of ten dollars or more will be
weighted more heavily than warrants with an original issue price of ten
dollars or less in calculating position limits. The rule also gives the
Exchange the authority to require the liquidation of a position in
stock index warrants that is in excess of the position limits set forth
in the rule, and Commentary V to the rule provides procedures for
allowing limited exceptions to the position limits.
Proposed Rule 1108 provides for exercise limits on stock index
warrants analogous to those found in stock index options and states
that such limits are distinct from any exercise limits that may be
imposed by the issuers of stock index warrants.
Proposed Rule 1109 requires that the trading halt provisions in
Rule 918C(b) shall be applied to the trading stock index warrants.
Upon Commission approval of the foregoing amendments, the Exchange
proposes that it will only file rule changes for specific warrant
issues where there is no corresponding option or warrant on the same
underlying index already listed on a national securities exchange or
NASDAQ. Accordingly, when a listed option overlies a particular broad
based index, the Exchange proposes it be allowed to list warrants on
that index without further Commission review and approval pursuant to
Section 19(b) of the Act.
Both initial and maintenance listing standards for stock index
warrants will require that no more than 20% of the securities in the
underlying index, by weight, may be comprised of foreign securities or
American depositary receipts (``ADRs'') overlying foreign securities
that are not subject to comprehensive surveillance sharing agreements
between the Amex and the primary exchange on which the foreign security
(including a foreign security underlying an ADR) is traded.\5\
Furthermore, proposed Rule 1100 provides that stock index and currency
warrants listed on the Exchange prior to SEC approval of this filing
shall continue to be governed by those provisions of the Exchange's
rules that were applicable to such warrants prior to approval of this
filing. Finally, prior to trading index or currency warrants, the
Exchange will distribute a circular to its membership providing
guidance regarding member firm compliance responsibilities (including
suitability recommendations) when handling transactions in index or
currency warrants.
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\5\Telephone conversation between Benjamin D. Krause, Amex, and
Michael Walinskas, SEC, on December 2, 1994 (``Amendment No. 1'').
The Exchange proposes that the ``20% test'' be applied in the same
manner as that contained in Securities Exchange Act Release No.
34157 (June 3, 1994), 59 FR 30062 (June 10, 1994) (Commission
approval order allowing the expedited trading approval of certain
narrow-based index options).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Act in general and furthers the objectives of
Section 6(b)(5) in particular in that it is designed to prevent
fraudulent and manipulative acts and practices and to promote just and
equitable principles of trade, and is not designed to permit unfair
discrimination between customers, issuers, brokers and dealers.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes the proposed rule change will impose no
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. 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 other 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. 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 Amex. All
submissions should refer to File No. SR-Amex-94-38 and should be
submitted by January 10, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\6\
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\6\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-31202 Filed 12-19-94; 8:45 am]
BILLING CODE 8010-01-M
