[Federal Register Volume 60, Number 90 (Wednesday, May 10, 1995)]
[Notices]
[Pages 24941-24942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-11508]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35677; International Series Release No. 808; File No.
SR-Phlx-95-21]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc., Relating to the
Trading of Customized Foreign Currency Options on the Spanish Peseta
May 4, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on April 5,
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 Phlx. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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 trade
customized foreign currency options (``FCOs'') on the Spanish peseta.
The text of the proposed rule change is available at the Office of the
Secretary, the Phlx, and at 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 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 the
Statutory Basis for, the Proposed Rule Change
Currently the Phlx offers listed FCOs on the British pound, French
franc, Swiss franc, Japanese yen, Canadian dollar, Australian dollar,
German mark and European Currency Unit. Since November 1994, the
Exchange has offered the ability to trade ``customized'' FCOs on all of
these currencies.\1\ The Exchange now proposes to add the Spanish
peseta to the list of approved currencies on which customized FCO's may
be listed and traded pursuant to Exchange Rule 1069. Thus, there would
be no continuously quoted series of Spanish peseta contracts. Rule
1069(a)(1) provides that customized FCOs may be traded on any approved
underlying foreign currency pursuant to Exchange Rule 1009, so the
Exchange proposes to amend Rule 1009 to add the Spanish peseta to the
list of approved underlying foreign currencies.
\1\More specifically, customized FCOs provide investors with the
ability, within specified limits, to trade FCOs with customized
strike prices, cross-rate FCOs on any two approved currencies, and
FCOs where the U.S. dollar is the underlying currency. In addition,
FCO participants may express quotes for customized FCOs as a
percentage of the underlying currency, in addition to quoting in
terms of the base currency per unit of the underlying currency. See
Securities Exchange Act Release No. 34925 (November 1, 1994), 59 FR
55720 (November 8, 1995) (``Exchange Act Release No. 34925).
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The Exchange represents that the Spanish peseta accounts for a
significant portion of the inter-bank foreign exchange market turnover.
According to the Bank for International Settlements (``BIS''), the
Spanish peseta represents the twelfth most active inter-bank currency
traded against the U.S. dollar, accounting for 1.7% or more of inter-
[[Page 24942]] bank trading.\2\ Moreover, over 91% of the activity in
the Spanish peseta is against either the U.S. dollar (64%) or the
German mark (27%).\3\ The Spanish peseta is not pegged to a rate of
exchange vis a vis the U.S. dollar. Further, the United States has
substantial trade relations with Spain.
\2\See BIS Central Bank Survey of Foreign Exchange Market
Activity in April 1992 (March 1993).
\3\Id.
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The Exchange represents that the initial and maintenance customer
margin levels for the Spanish peseta will initially be set at 4%, which
would cover 96.54% of all seven day price movements over the last two
years.\4\ Pursuant to Rule 1069(a)(1)(B), users would be able to trade
customized FCO's between the Spanish peseta and any other approved
foreign currency. Currency pairs between the Spanish peseta and the
Australian dollar and between the Spanish peseta and the Canadian
dollar have exhibited a correlation of less than .25 over the preceding
two year period and will be placed in Tier II under Exchange Rule 722,
thereby requiring 6% margin.\5\ All other currency pairs involving the
peseta would be placed in Tier I (4% margin required) because their
correlations have exceeded .25.\6\
\4\The Commission notes that the margin level review currently
applicable to customized FCOs on the Exchange's existing approved
foreign currencies will also apply to customized FCOs involving the
Spanish peseta. See Exchange Act Release No. 34925, Supra note 1.
\5\Id.
\6\Id.
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The contract size for the Spanish peseta would be 5,000,000
pesetas.\7\ The premiums will be quoted in thousandths of a cent per
unit for U.S. dollar/Spanish peseta contracts and the minimum premium
would be $0. (0000) 01 per unit which equals $5.00. Exchange Rule
1069(j)(1)(A) will be added to provide that, because the Exchange does
to have continuously quoted FCOs on the Spanish peseta, there will be
no quote spread parameters applicable to customized FCOs on the Spanish
peseta.\8\
\7\Based on an exchange rate of 126.6 Spanish pesetas/U.S.
dollars on April 5, 1995, as published in the Wall Street Journal,
this would correspond to an opening position for a Spanish peseta
customized FCO transaction (i.e., 200 contracts) valued at
approximately $7,900,000.
\8\Pursuant to Exchange Rule 1069(j)(1), quote spread parameters
for customized strike FCOs on approved foreign currencies are twice
those provided in Rule 1014(c). Because the Phlx does not list
regular FCOs on the Spanish peseta (and will not be able to list
regular FCOs on the peseta pursuant to this proposal), no quote
spread parameters for the peseta are specified in Rule 1014(c).
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Consistent with the Phlx's other approved foreign currencies,
Exchange Rule 1033 will be amended to specify the bid and offer rules
for customized FCOs based on the Spanish peseta. Similarly, Rule 1034
will be amended to provide that the Exchange will determine the minimum
fractional change applicable to Spanish peseta customized FCOs.\9\
\9\Specifically, the Exchange is proposing a minimum fractional
change of $0. (0000) 01 for Spanish peseta customized FCO's.
Telephone conversation between Michele Weisbaum, Associate General
Counsel, Phlx, and Brad Ritter, Senior Counsel, Office of Market
Supervision, Division of Market Regulation, Commission, on May 4,
1995. The Commission notes that the Exchange may be required to
submit a rule filing pursuant to Section 19(b) of the Act prior to
altering this minimum fractional change level.
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The Exchange believes that the foregoing rule change proposal is
consistent with Section 6 of the Act, in general, and with Section
6(b)(5), in particular, in that it is designed to promote just and
equitable principles of trade, foster cooperation and coordination with
persons engaged in regulating, clearing, settling, and processing
information, and facilitate transactions in securities, 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 by offering investors the ability to trade options on a
major international currency in an auction market environment with all
of the attendant protections as an alternative to trading it in the
over-the-counter market.
(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 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 NW.,
Washington, DC. 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-95-21 and should be
submitted by May 31, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
\10\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-11508 Filed 5-9-95; 8:45 am]
BILLING CODE 8010-01-M
