[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: 94-31208]
[[Page Unknown]]
[Federal Register: December 20, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35090; File No. SR-Phlz-94-49]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 to Proposed Rule Change by the Philadelphia
Stock Exchange, Inc. Relating to the Establishment of Uniform Listing
and Trading Guidelines for Stock Index and Currency Warrants
December 12, 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
30, 1994, 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 self-regulatory
organization. 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: (1) Rule 803(e) to revise the listing
criteria for stock index (``stock index'' or ``index'') warrants and
currency warrants (``currency warrants'');\1\ (2) Rule 722 to specify
the customer margin for the purchase or short sale of index and
currency warrants; (3) Option Rules 1001, 1002, 1024, 1025, 1047A,
1049, and 1070 thereby extending these trade practice rules to currency
and index warrants; and (4) Rule 1000 to add applicable definitions. On
Dec. 2, 1994, the Phlx amended certain surveillance related matters
addressed in the filing. See footnote 3, infra.
---------------------------------------------------------------------------
\1\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'').
---------------------------------------------------------------------------
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 Phlx 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 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
Statutory Basis for, the Proposed Rule Change
The Purpose of this rule change is to: (1) amend listing guidelines
for stock index and currency warrants, (2) amend various rules thereby
extending their applicability to index and currency warrants trading,
and (3) establish special customer margin requirements for positions in
stock index and currency warrants.
The Phlx seeks to amend its listing standards for currency and
index warrants. Phlx Rule 803(e) will provide that issuers must have a
minimum tangible net worth in excess of $150 million. In addition, the
aggregate original issue price of all of a particular issuer's stock
index or currency warrant offerings (combined with offerings by its
affiliates) that are listed on a national securities exchange or on
NASDAQ would not be permitted to exceed 25% of the issuer's net worth.
The proposed amendment will also provide for automatic exercise of
warrants upon expiration and that opening prices will be used to
determine the settlement value of an underlying index.
Exchange Rule 722 is being amended to apply the customer margin
required for broad based 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 an initial margin of 100 percent of
the current value of the warrant plus 15 percent of the current value
of the underlying 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 similarly will follow the margin
requirements applicable to listed currency options. The Exchange
proposes that its index and currency warrant margin requirements be
permitted offset treatment for spread, straddle and covered
positions.\2\
---------------------------------------------------------------------------
\2\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.
---------------------------------------------------------------------------
Exchange Option Rules 1024, 1025, and 1070 concerning opening of
accounts, supervision of accounts, and customer complaints will all be
made applicable to index and currency warrants. Presently, Exchange
Rule 1026 and 1027 respecting suitability and discretionary accounts
for option transactions already are applicable to index and currency
warrants.
Rule 1049 respecting written customer communications about listed
options will apply to index and currency warrants and require 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.
Rule 1001 is being amended to provide that index warrants on the
same index with original issuer prices of ten dollars or less will be
15 million warrants covering all such warrant issues and that warrant
issues with an original issue price over ten dollars will be weighted
more heavily than warrants with an original issue price of ten dollars
or less. Rule 1002 is being amended to provide that the exercise limits
for index warrants will be analogous to those found in stock index
options and that such limits are separate and distinct from any
exercise limits imposed by the issuer of such warrants.
Rule 1047A regarding trading halts in index options is being
amended to indicate that it also will apply to the trading of index and
currency warrants.
Rule 1000 will be amended to include applicable definitions of
``stock index group,'' ``stock index warrant,'' ``currency warrant,''
``currency index group'' and ``currency index warrant.''
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 or warrant overlies a
particular broad based index, the Exchange proposes that 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 compromised of foreign securities
or American Depositary Receipts (``ADRs'') overlying foreign securities
that are not subject to comprehensive surveillance sharing agreements
between the Phlx and the primary exchange on which the foreign security
(including a foreign security underlying an ADR) is traded.\3\ 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.
---------------------------------------------------------------------------
\3\Telephone conversation between Michele R. Weisbaum, Phlx, and
Michael Walinskas, SEC, on December 2, 1994 (``Amendment No. 1'').
The Exchange proposes that the ``20% test'' be applied similarly to
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).
---------------------------------------------------------------------------
The Phlx 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, 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 Phlx. All
submissions should refer to File No. SR-Phlx-94-49 and should be
submitted by January 10, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
---------------------------------------------------------------------------
\4\17 CFR 200.30-3(a)(12) (1993).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-31208 Filed 12-19-94; 8:45 am]
BILLING CODE 8010-01-M
