[Federal Register Volume 64, Number 75 (Tuesday, April 20, 1999)]
[Notices]
[Pages 19396-19397]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-9815]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41277; File No. SR-Phlx-99-02]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change by the Philadelphia Stock Exchange, Inc. to Change the Required
Minimum Value Size for an Opening Transaction in FLEX Equity Options
April 13, 1999.
I. Introduction
On January 19, 1999, the Philadelphia Stock Exchange, Inc.
(``Phlx'' or ``Exchange'') submitted to the Securities and Exchange
Commission (``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 reduce the required minimum
value size for an opening transaction in FLEX Equity Options. The
Federal Register published the proposed rule change for comment on
March 11, 1999.\3\ The Commission received no comments on the proposal.
This order approves the proposal.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Exchange Act Release No. 41136 (March 3, 1999), 64 FR 12203
(March 11, 1999).
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II. Description of Proposal
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, under Exchange Rule 1079 the minimum value size for these
opening transactions is 250 contracts. The Exchange is proposing 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\ 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 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
[[Page 19397]]
91 contracts or more since the underlying equivalent value would be
$1,001,000.
III. Discussion
The Commission finds that the proposed rule change is consistent
with the objectives of section 6(b) of the Act.\6\ In particular, the
Commission finds that the proposed rule change furthers the objectives
of section 6(b)(5) \7\ which requires an exchange's rules to be
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, and to protect
investors and the public interest.\8\ Specifically, the Commission
believes that the proposed rule change will increase liquidity and
trading interest in FLEX equity options on higher priced securities.
The Commission also believes that limiting the minimum value size for
opening transactions in FLEX equity options to the lesser of 250
contracts or $1 million of underlying equivalent value is an
appropriate level to prevent investors who do not have adequate
resources from trading such options.
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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 has considered the
proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
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IV. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\9\ that the proposed rule change (SR-PHLX-99-02) is approved.
\9\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 99-9815 Filed 4-19-99; 8:45 am]
BILLING CODE 8010-01-M
