[Federal Register Volume 61, Number 39 (Tuesday, February 27, 1996)]
[Notices]
[Pages 7297-7298]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-4353]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36862; File No. SR-Phlx-95-86]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc., Relating to Index
Options Exercise Advices
February 20, 1996
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 28, 1995, 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.
\1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
\2\ 17 CFR 240.19b-4 (1994).
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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 amend Phlx
Rule 1042A, Exercise of Option Contracts, and Floor Procedure Advice
(``Advice'') G-1, Exercise Requirements, by extending the deadline for
the receipt or preparation of a memorandum to exercise, as well as the
submission of an exercise advice form, from five minutes after the
close of trading to 4:30 p.m. In addition, as minor changes to
paragraph (ii) will result in the inclusion of the National Over-the-
Counter Index option, Phlx Rule 1042A(a)(iii) is being deleted. The
text of the proposed rule change is available at the Office of the
Secretary, the Phlx, and 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 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
1. Purpose
Phlx Rule 1042A and Advice G-1 govern the exercise of index
options. These provisions state that with respect to index option
contracts, clearing members are required to follow the procedures of
the Options Clearing Corporation (``OCC'') for tendering exercise
notices. Phlx member organizations are also required to comply with the
following procedures. First, a memorandum to exercise any American
style index option must be received or prepared by the Phlx member
organization no later than five minutes after the close of trading on
the day of exercise. Thus, the current deadline is 4:15 p.m. for
narrow-based index options and 4:20 p.m. for broadbased index options.
Second, when exercising 25 or more American style index option
contracts, other than an option contract on the National Over-the-
Counter Index, submission on an exercise advice form to the Exchange is
required no later than five minutes after the close of trading on the
day of exercise. Third, with respect to options on the National Over-
the-Counter Index, the deadline for compliance with the
[[Page 7298]]
above provisions is 4:20 p.m. or five minutes after the close of
trading.
Purusant to Phlx Rule 1042A(b), however, the above requirements are
not applicable with respect to any series of stock index options on the
last day of trading prior to the expiration date of such series of
options. The above stated requirements are also not applicable to
European style index options which, by definition, cannot be exercised
prior to expiration. Lastly, the Exchange notes that the procedures for
exercising equity option contracts contained in Phlx Rule 1042, are not
affected by this rule proposal.
The Phlx proposes to establish a 4:30 p.m. deadline for both a
memorandum to exercise and exercise advice forms for all index options.
This will extend the cut-off time by 15 minutes for narrow-based index
options and by 10 minutes for broad-based index options. According to
the Phlx, the purpose of this rule change is to provide additional time
for the preparation and transmission of the required exercise
information. After the close of trading, index option position holders
are not instantly aware of their final positions, including hedges in
the underlying security and futures contracts. According to the Phlx,
knowing the exact, final position is often crucial to making a
determination of whether to exercise.
In addition, the current procedure for these submissions presents
logistical problems for compliance within five minutes after the close
of trading. For example, the distance between trading stations for
certain index options on the Phlx trading floor (e.g., Gold/Silver
Index) and the depository for advice submissions is not easy to
traverse within five minutes, especially at the close of trading when
there is a great deal of movement on the trading floor. If a trade
occurs during the final minute of trading, this situation is
exacerbated since additional time might be used to ensure that the
trade ticket and participation was properly submitted. And, as stated
above, reports from futures orders placed to hedge option positions
must still be ascertained, usually by going to another location on the
floor (e.g., the booth where telephones and clerks are located). The
Phlx believes that it is in the interest of order and safety to change
this process.
The Phlx believes that the current deadline not only creates time
pressure and uncertainty, but may also force index option traders not
to participate in large or complex trades, especially near the close,
thereby hampering liquidity. The Phlx believes that the extra time is
reasonable under these circumstances.
Lastly, to improve clarity, the Exchange proposes to delete
paragraph (a)(iii) of Phlx Rule 1042A and incorporate the exercise
requirements pertaining to options on the National Over-the-Counter
Index in paragraph (a)(ii).
2. Statutory Basis
The Phlx believes that the proposed rule change is consistent with
Section 6(b) of the Act in general, and with Section 6(b)(5) in
particular, \3\ in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and, by eliminating the hardship to all index
option investors and traders that is caused by having insufficient time
after the close to make exercise decisions, will serve to protect
investors and the public interest.
\3\ 15 U.S.C. Sec. 78f (b)(5) (1988).
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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 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 Phlx 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, 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, D.C. 20549. Copies of such filing also will be available
for inspection and copying at the principal office of the Phlx. All
submissions should refer to File No. SR-Phlx-95-86 and should be
submitted by March 19, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority. \4\
\4\ 17 CFR 200.30-3 (a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-4353 Filed 2-26-96; 8:45 am]
BILLING CODE 8010-01-M
