[Federal Register Volume 62, Number 32 (Tuesday, February 18, 1997)]
[Notices]
[Pages 7288-7289]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-3916]
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38269; File No. SR-Phlx-96-41]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change by the Philadelphia Stock Exchange, Inc. Relating to Designating
Options as Tier I Securities
February 11, 1997.
On October 11, 1996, the Philadelphia Stock Exchange, Inc.
(``Phlx'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'' or ``SEC'') the proposed rule change,
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ to include equity options, index options and other option
like products issued, cleared and guaranteed by the Options Clearing
Corporation (``OCC'') as Tier I securities under Exchange Rule 803.
Notice of the proposed rule change, together with the substance of the
proposal, was published in the Federal Register.\2\ One comment letter
was received on the proposal.\3\ The Commission is approving the
proposed rule change contingent upon NASAA's\4\ amendment of the Phlx
MOU to permit OCC issued options to be designated as Tier I
securities.\5\
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\1\ 15 U.S.C. Sec. 78s(b)(1).
\2\ Securities Exchange Act Release No. 37914 (Nov. 1, 1996), 61
FR 57940 (Nov. 8, 1996).
\3\ See Letter from Karen M. O'Brien, General Counsel, North
American Securities Administrators Association, Inc. (``NASAA''), to
Karl Varner, Division of Market Regulation, SEC, dated January 27,
1997, which indicated that OCC cleared options qualify for
designation as Tier I securities under the NASAA Memorandum of
Understanding (``MOU'') between NASAA and the Phlx. But see infra
note 5.
\4\ NASAA is an association of securities administrators from
each of the 50 states, the District of Columbia, Puerto Rico and ten
Canadian provinces.
\5\ NASAA plans to have its board ratify this amendment to the
Phlx MOU at its February 21, 1997, board meeting. According to
NASAA, because the Phlx MOU is a membership document, it cannot be
revised until the members vote on this amendment during the April
1997, membership meeting. Telephone conversation between Karen
O'Brien, General Counsel, NASAA, and Karl Varner, Attorney, Division
of Market Regulation, SEC, on February 7, 1997.
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I. Background
In 1994, the Exchange adopted a two tier listing criteria program
for equity and debt securities.\6\ The Exchange originally adopted its
Tier I listing standards based on standards established in a MOU
between the NASAA and the Phlx. The Phlx MOU is modeled after the MOU
between the
[[Page 7289]]
National Association of Securities Dealers (``NASD'') and NASAA,\7\
which is entitled ``A Model Uniform Marketplace Exemption.''
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\6\ See Securities Exchange Act Release No. 34235 (June 17,
1994), 59 FR 32736 (June 24, 1994).
\7\ See Securities Act Release No. 6810 (Dec. 16, 1988), 53 FR
52550 (Dec. 28, 1988).
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In the order approving the Exchange's Tier I listing standards, the
Commission noted that the Exchange was adopting the MOU standards in an
effort to provide issuers whose securities were designated as Tier I a
greater opportunity to obtain blue sky exemptions.\8\ With the adoption
of the MOU, the Exchange has received blue sky exemptions for its
listed securities designated as Tier I from a number of states. When
the Exchange adopted its two tiered listing standards, however, the
Exchange did not include equity and index options as Tier I securities,
and the Phlx MOU with NASAA did not designate such options as Tier I
securities. The Exchange has explained that exclusion of options as
Tier I securities was merely an oversight rather than an intentional
exclusion because the Exchange's equity and debt security listing
standards are provided in a separate rule from its option listing
standards.\9\
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\8\ See supra note 6 n. 12.
\9\ See Rules Phlx 803 through 805 for equity and debt security
listing standards; Phlx Rules 1009 and 1009A for listing applicable
to options on equities and indexes respectively.
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The OCC, which is considered the issuer of all Phlx listed options,
has the responsibility of registering these options. OCC has indicated
to the Exchange that it must register Phlx listed options in numerous
states in which the OCC would not otherwise be required to register if
the options were able to take advantage of the blue sky exemptions
accorded to the Phlx's Tier I securities. Thus, the Exchange proposes
to include its equity options, index options and any other OCC issued,
cleared and guaranteed products as Tier I securities for blue sky
purposes. Under the proposal, options would still have to meet existing
eligibility listing standards set forth in Phlx rules specifically for
options.\10\ Further, the Phlx and NASAA have agreed that OCC issued
options may qualify for designation as Tier I securities and are in the
process of amending the Phlx MOU to reflect this change.\11\
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\10\ See supra note 9.
\11\ See supra notes 3 and 5. As discussed above, NASAA plans to
revise the Phlx MOU. The Commission notes that this approval order
is contingent on the NASAA's formal amendment of the Phlx MOU to
permit OCC issued options to be designated as Tier I securities.
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Discussion
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, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, as
well as to protect investors and the public interest.
The proposed rule change should facilitate transactions in
securities and remove impediments to a free and open market by
eliminating the need for OCC to register Phlx listed options in those
states that currently grant a blue sky exemption to Phlx's Tier I
securities. This rule change should help to eliminate some of the costs
associated with listing options as well as making the process of
listing options easier and quicker.
As discussed above, under the rule being approved herein, OCC
cleared options will be designated as Tier I securities for blue sky
purposes only. Accordingly, the rule change does not affect or change
in any way the standards that must be met to initially, or continue to,
list equity and index options or such other OCC issued options
permitted under Phlx rules. In approving the Phlx's proposal, the
Commission recognizes that the listing criteria set forth in Phlx Rules
803 through 805 for Tier I securities are for equity-type securities as
opposed to options issued by the OCC. Nevertheless, because it is clear
under Phlx's rule that listed options will still have to meet options
listing criteria and that the Tier I designation for options is merely
to eliminate the need to register such securities under certain state
blue sky laws, we believe the change is appropriate and consistent with
the Act.\12\
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\12\ The Commission notes that Phlx's proposed rule is almost
identical to the Pacific Stock Exchange's (``PSE'') current rule
designating PSE listed options as PSE Tier I securities for blue sky
purposes.
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Finally, as noted above, in conjunction with this proposal, NASAA
and Phlx have agreed that OCC issued options may be designated as Tier
I securities for blue sky purposes,\13\ and NASAA has represented to
the Commission that the Phlx MOU will be amended as soon as practical
to reflect this agreement.\14\ Accordingly, this rule change will not
become operative until NASAA amends the Phlx MOU to permit OCC issued
options to be designated as Tier I securities.\15\ This amendment would
ensure that the MOU is consistent with Phlx rules designating OCC
cleared options as Tier I securities, and that those states that grant
Phlx a blue sky exemption based on the MOU will recognize such
exemption for Phlx listed options. In addition, in its letter to the
Commission, NASAA states that this approach is similar to the structure
adopted in the MOU between the PSE and NASAA.\16\
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\13\ See Supra note 3.
\14\ See supra notes 5 and 11.
\15\ Id.
\16\ See supra note 3.
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change SR-Phlx-96-41 be, and hereby is, approved
contingent upon NASAA's amendment of the Phlx MOU to permit OCC issued
options to be designated as Tier I securities.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-3916 Filed 2-14-97; 8:45 am]
BILLING CODE 8010-01-M
