[Federal Register Volume 64, Number 47 (Thursday, March 11, 1999)]
[Notices]
[Pages 12203-12204]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-6045]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41136; File No. SR-Phlx-00-02]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc., Relating to Changing
the Required Minimum Value Size for an Opening Transaction in FLEX
Equity Options
March 3, 1999.
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 January 19, 1999, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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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 Exchange Rule 1079 to change the
required minimum value size for an opening transaction in any FLEX
equity option series which has no open interest to the lesser of 250
contracts or the number of contracts overlying $1 million of the
underlying securities. Below is the text of the proposed rule change.
Deletions are in brackets; additions are italicized.
Rule 1079.
(a)(1)-(7) No change.
(8) Minimum size--
(A) Opening--If there is no open interest in the particular series
when an RFQ \3\ is submitted, the minimum size of an RFQ is:
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\3\ Exchange Rule 1079(a)(7) defines an RFQ as a Request-for-
Quote.
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(i) $10 million underlying equivalent value, respecting FLEX market
index options, and $5 million underlying equivalent value respecting
FLEX industry options; and
(ii) [250 contracts, respecting FLEX equity options;] the lesser of
250 contracts or the number of contracts having $1 million of
underlying equivalent value, with respect to FLEX equity options.
* * * * *
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 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
1. Purpose
The Exchange is proposing to change the minimum value size for
opening transactions, other than FLEX Quotes responsive to a FLEX
Request for Quotes, in any FLEX equity option series in which there is
no open interest at the time the Request for Quotes is submitted.
Currently, Exchange Rule 1079 states that the minimum value size for
these opening transactions shall be 250 contracts. The Exchange is
proposing to amend this rule to change the minimum value size for these
transactions to the lesser of 250 contracts or the number of contracts
overlying $1 million of the underlying securities.
The Exchange is proposing this change because it believes the
current rule is unduly restrictive. The rule was originally put in
place to limit participation in FLEX equity options to sophisticated,
high net worth individuals.\4\ The Exchange believes, however, that
limiting participation in FLEX equity options based solely on the
number of contracts purchased may diminish liquidity and trading
interest in FLEX equity options on higher priced equities. The Exchange
believes the value of the securities underlying the FLEX equity options
is an equally valid restraint as the number of contracts and, if set at
the appropriate limit, can also prevent the participation of investors
who do not have adequate resources. In fact, the limitation on the
minimum value size for opening transactions in FLEX market index
options and FLEX industry index options is tied to the same type of
standard, the underlying equivalent value.\5\ The Exchange believes the
number of contracts overlying $1 million in underlying securities is
adequate to provide the requisite amount of investor protection. An
opening transaction in a FLEX equity option series on a stock priced at
$40.01 or more would reach this $1 million limit before it would reach
the contract size limit, i.e., 250 contracts times the multiplier (100)
times the stock price ($40.01) totals $1,000,250 in underlying value.
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\4\ Securities Exchange Act Release No. 37691 (September 17,
1996), 61 FR 50060 (September 24, 1996) (adopting SR-Phlx-96-38).
\5\ See Exchange Rule 1079(a)(8)(A)(i).
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Currently, an investor can purchase 250 contracts in a FLEX equity
series on lower priced stocks, meeting the minimum requirement without
reaching
[[Page 12204]]
an underlying equivalent value of $1 million. For example, a purchase
of FLEX equity options overlying a $10 stock is permitted although the
underlying value for the options would be $250,000, i.e., 250 contracts
times the multiplier (100) times the stock price ($10). Conversely,
under the proposed amendment, a participant could open a new FLEX
equity option series overlying a $110 stock with a trade of 91
contracts or more since the underlying equivalent value would be
$1,001,000.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the objectives of Section 6(b) of the Act,\6\ in general, and furthers
the objectives of Section 6(b)(5),\7\ in particular, in that it is
designed to promote just and equitable principles of trade, prevent
fraudulent and manipulative acts and practices, 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.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78(b)(5).
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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 either solicited or 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 Phlx 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, including whether the proposed rule
change is consistent with the Act. 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. 552, will be available for inspection and copying in the
Commission's Public Reference Room in Washington, D.C. 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-99-02 and should
be submitted by April 1, 1999.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-6045 Filed 3-10-99; 8:45 am]
BILLING CODE 8010-01-M
