[Federal Register Volume 59, Number 28 (Thursday, February 10, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3152]
[[Page Unknown]]
[Federal Register: February 10, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33579; File No. SR-Phlx-93-64]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange Relating to the Listing and
Trading of Options on The Big Cap Index
February 4, 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 January
2, 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 Phlx.\1\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\On January 5, 1994, the Phlx amended the proposal, changing
the name of the index from the ``Nifty Fifty Index'' to ``The Big
Cap Index.'' See letter from Michele R. Weisbaum, Associate General
Counsel, Phlx, to Brad Ritter, Office of Derivatives Regulation,
Division of Market Regulation (``Division''), SEC, dated January 5,
1994 (``Amendment No. 1''). On January 25, 1994, the Phlx amended
the proposal: (1) to set the exercise prices at 5 point intervals
instead of 2\1/2\ point intervals; and (2) to request accelerated
approval of the proposed rule change. See Letter from Michele R.
Weisbaum, Associate General Counsel, Phlx, to Richard Zack, Branch
Chief, Office of Derivatives Regulation, Division, SEC, dated
January 25, 1994. On January 28, 1994, the Phlx amended the
proposal: (1) to reflect the new ticker symbol as a result of
Amendment No. 1; (2) to provide that the index will be updated
during the trading day at least once every 15 seconds, rather than
once every minute; (3) to specify that the expiration cycle
applicable to options of the Index will be three expiration months
from the March, June, September, December cycle plus two additional
near-term months; and (4) to clarify the Exchange's obligations with
respect to delisting and replacing components of the Index. See
Letter from Michele R. Weisbaum, Associate General Counsel, Phlx, to
Richard Zack, Branch Chief, Office of Derivatives Regulation,
Division, SEC, dated January 27, 1994.
---------------------------------------------------------------------------
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, proposes to list and
trade options on The Big Cap Index (``Index''), an index developed by
the Phlx and comprised of fifty highly capitalized U.S. stocks
representing a variety of industries.
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 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 the
Statutory basis for, the Proposed Rule Change
The Phlx proposes to list for trading European-style options\2\ on
the Index, a capitalization-weighted index comprised of fifty highly
capitalized U.S. common stocks in a variety of industries, including
but not limited to technology, manufacturing, and the service
industries. The Index also includes some of the largest and most
widely-held U.S. common stocks.\3\ The Exchange proposes classifying
the Index as a broad-based index.
---------------------------------------------------------------------------
\2\A European-style option can be exercised only during a
specified period before the option expires.
\3\The components of the Index are: General Electric; Exxon;
AT&T; Wal-Mart; Coca Cola; Philip Morris Co.; Proctor & Gamble;
Merck & Co.; GTE Corp.; Mobil; DuPont; American International; Pepsi
Co.; Intel; General Motors; Bristol-Meyers Squibb; Amoco; Bell
Atlantic; Ford; Johnson & Johnson; Motorola; IBM; Ameritech; 3M;
Walt Disney Co.; Eastman Kodak; Sears, Roebuck; Home Depot;
McDonalds Corp.; Atlantic Reichfield; Hewlett-Packard; American
Express; Time Warner; Schlumberger Ltd.; Dow Chemical; BankAmerica;
Southern Co; Citicorp; Boeing Co.; ITT Corp.; Toys R Us; Merrill
Lynch; K Mart; H.J. Heinz; Weyerhauser; The Limited; Colgate
Palmolive; Monsanto; Xerox; and International Paper.
---------------------------------------------------------------------------
The formula for calculating the Index is as follows:
TN10FE94.016
Where:
MV=Market Value (Price x Shares outstanding), summed for all issues.
BMV=Base Market Value; Summation of (Closing Price x Shares
Outstanding) for the day prior to the start of the Index calculation.
The current price of each component issue is multiplied by the
number of outstanding shares. The resulting market values are added to
determine the current aggregate market value of the issues in the
Index. To compute the current Index value, the aggregate market value
is divided by the base market value and multiplied by 100. The value of
the Index was set to equal 200 on December 1, 1993.
To account for changes in capitalization of any of the component
issues resulting from mergers, acquisitions, delistings, substitutions,
etc., the base market value will be adjusted periodically. The
following formula is used to make such adjustments:
TN10FE94.017
Where:
NBMV=new base market value
OBMV=old base market value
NMV=new market value
OMV=old market value
Adjustments in the value of the Index which are necessitated by the
addition and/or deletion of an issue from the Index are made by adding
and/or subtracting the market value (price x shares outstanding) of
the relevant issues.
The Index value will be updated dynamically at least once every 15
seconds during the trading day. The Phlx has retained Bridge Data, Inc.
to compute the value 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. The Index
value will also be available on broker/dealer interrogation devices to
subscribers of the option information.
In accordance with Phlx Rule 1009A, if any change in the nature of
any stock in the Index occurs as a result of delisting, merger,
acquisition or otherwise, the Exchange will take appropriate steps to
delete this stock from the Index and replace it with another stock
which the Exchange believes would be compatible with the intended
market character of the Index.
The Exchange believes that there is a market need for an index that
captures and reflects the sentiment, direction, and pricing of the
largest and most important companies in the U.S. but remains based on a
relatively small number of stocks for easy replication of the Index
with a basket of stocks for more accurate hedging. The Phlx proposes to
list only European-style options on the Index, which, they believe,
should appeal to sellers of the option that desire to contain any risks
attendant with early exercises. In light of these features, the Phlx
believes that the proposed Index option is unique and will fill a
current void in the options market.
Index options will be traded pursuant to the current Phlx rules
governing the trading of index options, particularly Phlx Rules 1000A
through 1103A, and generally, Phlx Rules 1000 through 1070.
Index options will be ``A.M.-settled index options'' and will
expire on the Saturday following the third Friday of the expiration
month, and the last day for trading in an expiring series will be the
second business day (ordinarily a Thursday) preceding the expiration
date.
The Phlx proposes to employ position and exercise limits pursuant
to Phlx Rule 1001A(a)(1) and 1002A, respectively. Essentially, the
Exchange proposes to establish position limits for Index options of
25,000 contracts total, with no more than 5,000 such contracts in the
series with the nearest expiration date. Exercise price intervals will
be initially set at 5 point intervals and additional exercise prices
will be added in accordance with Phlx Rule 1012(a)(iii).
The Phlx will trade consecutive and cycle month series pursuant to
Phlx Rule 1101A. Specifically, there will be three expiration months
from the March, June, September, December cycle plus two additional
near-term months so that the three nearest term months will always be
available.
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act, in general, and with Section 6(b)(5), in
particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, to facilitate transactions in
securities, and to remove impediments to and perfect the mechanism of a
free and open market.
(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 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 date of 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 such 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, 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 in 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 Phlx. All submissions should refer to File No.
SR-Phlx-93-64 and should be submitted by March 3, 1994.
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. 94-3152 Filed 2-9-94; 8:45 am]
BILLING CODE 8010-01-M
