[Federal Register Volume 61, Number 26 (Wednesday, February 7, 1996)]
[Notices]
[Pages 4694-4695]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-2542]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36784; File No. SR-Phlx-95-79]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc., Relating to the Bid
Test Exemption
January 29, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on January 2, 1996, 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. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Phlx proposes to amend its Rule 1072, Reporting Requirements
Applicable to Short Sales in NASD/NM Securities, to permit affiliated
Registered Option Traders (``ROTs'') to trade for each other's account
pursuant to the market maker exemption contained therein. Rule 1072
establishes specific criteria exempting Phlx specialists and ROTs from
the NASD's ``bid test'' applicable to Nasdaq/National Market (``NM'')
securities. The NASD bid test, with certain exception, prohibits short
sales at or below the current inside bid when that bid is below the
previous inside bid.\2\ Specifically, the Phlx proposes to extend its
market maker exemption to include short sales by affiliated ROTs as
``by or for a qualified options market maker'' consistent with Rule
1072(c)(2). The proposed language in Rule 1072(c)(2)(iii)(A) would thus
permit ROTs of the same member organization to trade pursuant to the
exemption, even when the ROT trading the account has not designated
that NM issue.
\2\ NASD Rules of Fair Practices, Art. III, Section 48.
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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 self-regulatory organization
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 self-regulatory organization
has prepared summaries, set forth in Sections (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
In 1994, the NASD adopted a bid test rule applicable to NM
securities traded through Nasdaq prohibiting short sales of NM
securities at or below the current inside bid when that bid is below
the previous inside bid.\3\ An exemption from this rule exists for
option market makers hedging options positions with the related
underlying securities, and the qualifying short sales are referred to
as ``exempt hedge transactions.'' Pursuant to this market maker
exemption, the Phlx adopted Rule 1072 establishing specific criteria
for a short sale to qualify as an ``exempt hedge transaction'' in
``designated'' NM issues.\4\ Generally, option specialists may rely on
the exemption for short sales in NM securities underlying their
specialist equity options, and index options if at least 10% of the
value of the index is comprised of NM securities. In addition, ROTs
must be assigned in that option to rely on the exemption and may only
use the exemption in 20 designated NM issues.
\3\ Securities Exchange Act Release No. 34277 (June 6, 1994), 59
FR 34885 (granting temporary approval).
\4\ Securities Exchange Act Release No. 34632 (September 2,
1994), 59 FR 46999. The other options exchanges adopted rules
similar to Phlx Rule 1072. See Chicago Board Options Exchange
(``CBOE'') Rule 15.10, New York Stock Exchange (``NYSE'') Rule 759A,
American Stock Exchange (``Amex'') Rule 957, and Pacific Stock
Exchange (``PSE'') Rule 4.19. Id.
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The Phlx now proposes to permit affiliated ROTs to trade one
another's accounts pursuant to Rule 1072. Specifically, the amendment
would allow an ROT to effect bid test exempt short sales in a Nasdaq/NM
security which that ROT has not designated as qualifying for the
exemption, provided that the security is a designated Nasdaq/NM
security of another ROT of the same member organization, and further
provided that such other ROT is not also present or represented by a
Floor Broker in the same trading crowd at the time of the bid test
exempt sale. The Exchange notes that this amendment is similar to a
CBOE proposal to permit nominees of a market maker organization to
qualify for the exemption.\5\
\5\ Securities Exchange Act Release No. 35281 (January 26,
1995), 60 FR 6575.
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The Phlx believes that the proposed amendment should facilitate ROT
activity by allowing member organizations to manage better their market
making activities. Managing these obligations and monitoring positions
is especially critical when a ROT is absent from the trading floor. The
Exchange also believes that the proposed provision is consistent with
the intent of the market maker exemption to the short sale rule, in
that the exemption continues to be limited to those Nasdaq/NM
securities which are
[[Page 4695]]
used to hedge option transactions in the primary classes in which the
member organization makes markets.
For these reasons, the Exchange believes that its proposal 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
principals of trade, and remove impediments to and perfect the
mechanism of a free and open market while preventing fraudulent and
manipulative acts and practices.
(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
Written comments on the proposed rule change were neither solicited
nor received.
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, 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, N.W.,
Washington, DC. Copies of such filing will also be available for
inspection and copying at the principal office of the above-mentioned
self-regulatory organization. All submissions should refer to File No.
SR-Phlx-95-79 and should be submitted by February 28, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\6\
\6\ 17 CFR 200.30-3(a)(12)(1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-2542 Filed 2-6-96; 8:45 am]
BILLING CODE 8010-01-M
