[Federal Register Volume 62, Number 36 (Monday, February 24, 1997)]
[Notices]
[Pages 8291-8292]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-4447]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38292; File No. SR-Phlx-96-36]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change and Notice of Filing
of, and Order Granting Accelerated Approval to, Amendment No. 1 to the
Proposed Rule Change Relating to Index Value Calculations by the Index
Calculation Engine (``ICE'') System
February 14, 1997.
On October 3, 1996, the Philadelphia Stock Exchange, Inc. (``Phlx''
or ``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to permit the Phlx to act as the
reporting authority for its index options under certain circumstances.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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The proposed rule change was published for comment in the Federal
Register on October 10, 1996.\3\ No comments were received on the
proposal. Subsequently, the Phlx amended the proposed rule change.\4\
This order approves the proposal, including Amendment No. 1 on an
accelerated basis.
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\3\ Securities Exchange Act Release No. 37782 (Oct. 3, 1996), 61
FR 53254.
\4\ See Letter from Theresa McCloskey, Vice President,
Regulatory Services, Phlx, to Sharon Lawson, Senior Special Counsel,
Division of Market Regulation, Office of Market Supervision, SEC,
dated January 23, 1997, and letter from Theresa McCloskey, Vice
President, Regulatory Services, Phlx, to Sharon Lawson, Senior
Special Counsel, Division of Market Regulation, Office of Market
Supervision, SEC, dated January 29, 1997 (collectively ``Amendment
No. 1''). Amendment No. 1 withdraws that portion of the proposal
seeking ``interim authority'' to utilize the ICE system value.
Interim authority, in this case, refers to the Exchange's ability to
continue to utilize the ICE system during that interim time period
after a temporary operational problem at the designated reporting
authority is corrected, but before receiving Commission approval to
appoint a different reporting authority. In addition, Amendment No.
1 clarifies that designation of ICE as the reporting authority for a
particular options product must be filed pursuant to Section 19(b)
of the Act and that the Phlx's request for using ICE as the
reporting authority for FLEX options will be incorporated into the
FLEX options proposal (SR-Phlx-96-38).
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Currently, three market (broad-based) index options, seven industry
(narrow-based or sector) index options, and the Super Cap Index option
trade on the Exchange. The reporting authority for each index option is
currently Bridge Data. For each index option listed on the Exchange,
the specifications and descriptions filed with the Commission detail
how the index value is calculated and that the calculation is conducted
by Bridge.
In the course of reviewing inconsistencies in index value
calculations, as well as the disaster recovery implications of using a
single, outside reporting authority, the Exchange decided to create its
own internal system for the calculation and dissemination of index
values--the Index Calculation Engine (``ICE'') system. Recently, this
system was completed, tested, and implemented as a surveillance tool
for Phlx Regulatory Services and Market Surveillance staff monitoring
Exchange index options trading. In an effort to make use of the
capabilities of the ICE system, the Phlx proposes to utilize the ICE
system value as the official index value in two situations.
First, the ICE system value would act as the official index value
in the event the reporting authority designated by the Phlx is
experiencing difficulties in disseminating an accurate value (e.g.,
computer failure, line problem). Under these circumstances, the
Exchange would automatically switch to using the ICE system value as
the official index value, but only for the time period that is
necessary for the designated agent to correct its problem.
Second, the Phlx, when determining which entity to utilize as the
permanent reporting authority for its index options, would like to be
able to select the ICE system as the designated reporting authority.\5\
Economic and efficiency considerations are the impetus for this
request.
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\5\ Any request to utilize ICE as the permanent reporting
authority for a particular options product will have to be submitted
to the Commission for approval under Section 19(b) of the Act. See
Amendment No. 1, supra note 4.
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The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange, and, in
particular, with the
[[Page 8292]]
requirements of Section 6(b).\6\ Specifically, the Commission believes
the proposal is consistent with the Section 6(b)(5) \7\ requirements
that the rules of an exchange be designated to promote just and
equitable principles of trade, to facilitate transactions in
securities, to prevent fraudulent and manipulative acts, and, in
general, to protect investors and the public interest.\8\
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
\8\ In approving this rule, the Commission notes that it has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
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The Commission believes it is appropriate to allow the temporary
use of the ICE system value as the official index value when the
designated reporting authority is experiencing operating difficulties.
Utilizing the ICE system as a backup in such situations will add
stability to the affected options market because it will ensure the
continued availability of current index values, which are essential to
investment decisions in index options, while the designated reporting
authority identifies and corrects the problems prohibiting the
dissemination of an accurate index value.
The Commission also believes it is appropriate to provide the Phlx
with the option of designating the ICE system as the reporting
authority for its proprietary index options as long as prior Commission
approval pursuant to Section 19 of the Act is obtained. Permitting the
Phlx to act as the reporting authority for its proprietary index
options should benefit investors by reducing the response time needed
in the event there is a problem disseminating index values. Moreover,
the Phlx has represented that the ICE system has been tested fully and
that this system is capable of handling the proposed tasks.9
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\9\ See letter from Thomas A. Wittman, Vice President, Trading
Systems Development, Phlx, to George Jenkins, Division of Market
Regulation, SEC, dated November 20, 1996; telephone conversation
between Thomas A. Wittman, Vice President, Trading Systems
Development, Phlx, and Anthony P. Pecora, Attorney, Division of
Market Regulation, SEC, November 22, 1996 (representing that ICE is
capable of acting as a primary system despite the fact that it
originally was designed as a backup system).
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The Commission finds good cause for approving Amendment No. 1 prior
to the thirtieth day after the date of publication of notice thereof in
the Federal Register. Amendment No. 1 simply clarifies that designation
of ICE as the reporting authority must be filed pursuant to Section
19(b) of the Act, explains that the Phlx's request for using ICE as the
reporting authority for FLEX options will be proposed in the FLEX
options proposal (SR-Phlx-96-38), and removes the previous request for
interim authority to utilize ICE which was deemed to be unnecessary
given the Exchange's ability to use ICE until a problem in the
designated reporting authority has been corrected.10
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\10\ The proposal allows the Phlx to utilize the ICE system as
the official reporting authority whenever the designated reporting
authority is experiencing operating difficulties, but only until
such difficulties are resolved. As soon as the problem is corrected,
the Phlx must switch back to the designated reporting authority. If
the reporting authority's problems occur on a regular basis, the
Phlx can designate a different reporting authority, including ICE,
by submitting a filing with the Commission pursuant to Section
19(b)(1) of the Act and Rule 19b-4 thereunder.
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Therefore, the Commission believes that granting accelerated
approval to Amendment No. 1 is appropriate and consistent with Section
6 and Section 19(b)(2) of the Act.11
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\11\ 15 U.S.C. 78f, 78s(b)(2).
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Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 1 to the proposed rule change.
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 rules
change that are filed with the Commission, and all written
communications relating to Amendment No. 1 between the Commission and
any persons, 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 in the Commission's Public Reference Room.
Copies of such filing will also be available at the principal office of
the Phlx. All submissions should refer to File No. SR-Phlx-96-36 and
should be submitted by March 17, 1997.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,12 that the proposed rule change (SR-Phlx-96-36), as amended
by Amendment No. 1, is approved.
\12\ 15 U.S.C. 78s(b)(2).
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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).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-4447 Filed 2-21-97; 8:45 am]
BILLING CODE 8010-01-M
