[Federal Register Volume 59, Number 248 (Wednesday, December 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31887]
[Federal Register: December 28, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35131; File No. SR-Phlx-94-64]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change and Amendment No. 1 to the
Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Relating
to the Listing of Options on the Phlx Airlines Sector Index
December 20, 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 December
13, 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 Exchange. The
Exchange filed Amendment No. 1 to the proposed rule change on December
15, 1994.\1\ The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\In Amendment No. 1, the Exchange proposes that options on the
Phlx Airline Sector Index will be European-style instead of
American-style as originally proposed. See Letter from Michele
Weisbaum, Associate General Counsel, Phlx, to Brad Ritter, Senior
Counsel, Office of Market Supervision, Division of Market
Regulation, Commission, dated December 14, 1994 (``Amendment No.
1'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange, pursuant to Rule 19b-4 of the Act, proposes to list
and trade options on the Phlx Airline Sector Index (``Index''), a new
stock index developed by the Phlx and composed of 12 domestic airline
stocks. 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
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Section (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 the proposed rule change is to list for trading,
cash-settled, European-style\2\ options on the Phlx Airline Sector
Index, a new index developed by the Exchange. The Index is composed of
the stocks of 12 domestic passenger air carriers which, the Exchange
represents, effectively represent the available domestic air
transportation industry.\3\ The Exchange also represents that the Index
meets the generic criteria for listing options on narrow-based indexes
as set forth in Exchange Rule 1009A, as approved by the Commission.\4\
Accordingly, the Phlx is submitting this proposed rule change pursuant
to and in accordance with the procedures set forth in the Generic Index
Approval Order.\5\ The Phlx proposes to list and trade options on the
Index no sooner than 30 days after December 13, 1994, the filing date
of this proposed rule change. The contract specifications for options
on the proposed Index are as follows:
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\2\A European-style option can be exercised only during a
specified period immediately prior to expiration of the option.
\3\The components of the Index are: Alaska Air Group, Inc.; AMR
Corporation; Atlantic Southeast Airlines, Inc.; Continental
Airlines, Inc.; Comair Holdings Inc.; Delta Air Lines, Inc.;
Southwest Airlines Co.; Mesa Airline Inc.; Northwest Airlines Corp.;
Skywest, Inc.; USAir Group Inc.; and UAL Corporation.
\4\See Securities Exchange Act Release No. 34157 (June 3, 1994),
59 FR 30062 (June 10, 1994) (``Generic Index Approval Order'').
\5\Id.
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Underlying Index: The Index is an equal-dollar weighted sector
index composed of stocks from 12 domestic, passenger, air carriers.
Seven of the stocks are traded on the New York Stock Exchange
(``NYSE'') and the other five are national market securities traded
through Nasdaq. The Exchange represents that 11 out of 12 stocks in the
Index presently satisfy the Exchange's listing criteria for equity
options contained in Exchange Rule 1009. Moreover, the Phlx notes that
all 11 of such stocks are currently the subject of standardized options
trading in the U.S.
As of December 9, 1994, the market capitalization of each of the
stocks in the index exceeded $75 million. The Exchange represents that
the market capitalizations ranged from a low of $98 million to a high
of $3.8 billion. Eleven of the 12 component issues in the Index had
monthly trading volumes in excess of one million shares over each of
the past six months and the remaining component, accounting for 8.33%
of the value of the Index, had monthly trading volume in excess of
500,000 shares in each of the prior six months. Accordingly, the
Exchange represents that with respect to the criteria for market
capitalization and trading volume, the Index satisfies the generic
listing standards as stated in Phlx Rule 1009A and in the Generic Index
Approval Order.\6\
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\6\Id.
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Index Calculation: The methodology used to calculate the Index is
an equal dollar-weighting method, meaning that each of the component
stocks is represented in the Index in approximately equal dollar
amounts. The Exchange believes that this method of calculation is
important because it will provide each component issue with equivalent
influence on the movement of the Index value instead of allowing one
highly capitalized stock to dominate the movement of the Index. To
determine the initial dollar weighting of the stocks, the Exchange
calculated the number of shares of each stock that would represent an
investment of approximately $10,000 in each of those stocks comprising
the Index based on closing prices on December 1, 1994. The value of the
Index equals the current market value of the sum of the assigned number
of shares of all of the stocks in the Index divided by the current
Index divisor. the Index divisor was set to yield an initial Index
value of 200 at the opening of November 28, 1994.
Index Maintenance: The Exchange will rebalance the Index quarterly,
following the close of trading on the third Friday of each March, June,
September, and December by changing the number of shares of each
component stock so that each company is again represented in $10,000
``equal'' dollar amounts. If it becomes necessary, a divisor adjustment
will be made when rebalancing occurs to ensure continuity of the
Index's value. The newly adjusted portfolio will then become the basis
for the Index's value on the first trading day following the quarterly
adjustment.
The number of shares of each component stock in the Index will
remain fixed between quarterly reviews except in the event of certain
types of corporate action such as the payment of a dividend (other than
an ordinary cash dividend), stock distribution, stock split, rights
offering, recapitalization, reorganization or similar event with
respect to the component stocks. In the case of a merger or
consolidation of the issuer of a component stock, if the stock remains
in the index, the number of shares of that security in the portfolio
may be adjusted, to the nearest whole share, to maintain the
component's relative weight in the Index prior to the merger. Should a
stock replacement occur, the average dollar value of the remaining
portfolio components will be calculated and that amount invested in the
stock of the new component, to the nearest whole share. In selecting
replacement components for the Index, the Phlx will take into account
the capitalization, liquidity, volatility, and name recognition of any
proposed replacement stock, and will assure that the maintenance
criteria in Rule 1009A(c) continue to be met by the Index. In each of
the above cases the divisor will be adjusted, if necessary, to ensure
the continuity of the Index. If the Index fails at any time to satisfy
the maintenance criteria set forth in the Generic Index Approval
Order,\7\ the Exchange will immediately notify the Commission of that
fact and will not open for trading any additional series of options on
the Index unless such failure is determined by the Exchange not to be
significant and the Commission concurs in that determination or unless
the continued listing of options on the Phlx Airline Sector Index has
been approved by the Commission under Section 19(b)(2) of the Exchange
Act.
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\7\Id.
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Pursuant to the Generic Index Approval Order,\8\ absent prior
Commission approval, the Exchange will not increase to more than 15, or
decrease to fewer than 9, the number of stocks in the Index, nor will
the Phlx make any change in the composition of the Index that would
cause fewer than 90% of the stocks, by weight, or fewer than 80% of the
total number of stocks in the Index to qualify as stocks eligible for
equity options trading under Phlx Rule 1009.
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\8\Id.
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The Index value will be updated dynamically and disseminated at
least once every 15 seconds during the trading day. The Phlx has
retained Bridge Data, Inc. to compute and do all necessary maintenance
of the Index. Pursuant to Phlx Rule 1100A, updated Index values will be
disseminated and displayed by means of primary market prints reported
by the Consolidated Tape Association and over the facilities of the
Options Price Reporting Authority (``OPRA'').\9\ The Index value will
also be available on broker/dealer interrogation devices to subscribers
of the option information.
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\9\The Phlx represents that the Phlx and the OPRA have the
necessary systems capacity to support those new series of options
that would result from the introduction of options and long-term
options on the Index. See Letter from Joseph Corrigan, Executive
Director, OPRA, to Jamie Farmer, New Product Development, Phlx,
dated November 29, 1994.
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Unit of Trading: Each options contract will represent $100, the
index multiplier, times the Index value. For example, an Index value of
200 will result in an option contract value of $20,000 ($100 x 200).
Exercise Price: The exercise prices for Index options will be set
at 5 point intervals in terms of the current value of the Index.
Additional exercise prices will be added in accordance with Phlx Rule
1101A(a).
Aggregate Exercise Price: The aggregate exercise price is found by
multiplying the Index multiplier ($100) by the exercise price.
Settlement Price Determination: The Index option settlement value
will be determined by using the opening prices of the component stocks
of the Index on the third Friday of each month.
Last Trading Day: The Thursday prior to the third Friday of the
month for options which expire on the Saturday following the third
Friday of that month.
Trading Hours: 9:30 a.m. to 4:10 p.m. EST.
Position and Exercise Limits: The Phlx Airline Sector Index is an
industry index such that the Phlx will employ position and exercise
limits pursuant to Phlx Rules 1001A(b)(i) and 1002A, respectively.
Expiration Cycles: Three months from the March, June, September,
December, cycle plus two additional near-term months.
Premium Quotations: Premiums will be expressed in terms of dollars
and fractions of dollars pursuant to Phlx Rule 1033A. For example, a
bid or offer of 1\1/2\ will represent a premium per options contract of
$150 (1\1/2\ x 100). The minimum change in a premium under $3 will be
\1/16\ and \1/8\ for a quote of $3 or greater.
The options will be traded pursuant to current Phlx rules governing
the trading of index options.\10\ The Exchange also represents that
surveillance procedures currently used to monitor trading in each of
the Exchange's other index options will also be used to monitor trading
in options on the Index. These procedures include having complete
access to trading activity in the underlying securities which are all
traded on either the NYSE or as national market securities traded
through Nasdaq. In addition, the Intermarket Surveillance Group
Agreement (``ISG Agreement'') dated July 14, 1983, as amended on
January 29, 1990, will be applicable to the trading of options on the
Index. The Exchange also requests the ability to list long-term options
on the Index pursuant to Exchange Rule 1101A(b)(iii).
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\10\See Phlx Rules 1000 through 1072 and 1000A through 1102A.
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The Phlx represents that the proposed rule change is consistent
with Section 6(b) of the Act in general and furthers the objectives of
Section 6(b)(5)\11\ in particular in that it will permit trading in
options based on the Phlx Airline Sector Index pursuant to rules
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to facilitate
transactions in securities, and to remove impediments to and perfect
the mechanism of a free and open market.
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\11\15 U.S.C. Sec. 78f(b)(5) (1988).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any 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
Because the foregoing proposed rule change, as amended, complies
with the standards set forth in the Generic Index Approval Order,\12\
it has become effective pursuant to Section 19(b)(3)(A) of the Act.
Pursuant to the Generic Index Approval Order, the Exchange may not list
Phlx Airline Index options for trading prior to 30 days after December
13, 1994, the date the proposed rule change was filed with the
Commission. At any time within 60 days of the filing of the proposed
rule change, the Commission may summarily abrogate the rule change if
it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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\12\See supra note 4.
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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, 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-94-64 and should be
submitted by January 17, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-31887 Filed 12-27-94; 8:45 am]
BILLING CODE 8010-01-M
