[Federal Register Volume 62, Number 99 (Thursday, May 22, 1997)]
[Notices]
[Pages 28092-28093]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13457]
[[Page 28092]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38641; File No. SR-NYSE-97-02]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of the Proposed Rule Change by the New
York Stock Exchange, Inc. Relating to the Establishment of a 4:02 p.m.
Closing Time for Equity and Narrow-Based Index Options Trading
May 14, 1997.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on January 29, 1997, the New York Stock Exchange, Inc. (``NYSE''
or ``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II 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
and to grant accelerated approval of the proposed rule change.
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\1\ 15 U.S.C. Sec. 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 Exchange is proposing: (1) to change the time pursuant to which
a member organization may tender an index stock group option exercise
notice to five minutes after the close of trading; and (2) to change
the closing time for the trading of equity options and industry index
stock group options on the Exchange from 4:10 p.m. to 4:02 p.m. The
text of the proposed rule change is available at the Office of the
Secretary, NYSE 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 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
1. Purpose
(a) Exercise Notice Cut-Off Time
Supplementary Material .10 of Exchange Rule 780 (Exercise of Option
Contracts) provides that in connection with the exercise of industry
index stock group options:
(i) A member organization may not tender an exercise notice unless
a memorandum has been prepared by no later than 4:15 p.m.;
(ii) In the case of exercise of 25 or more contracts, an exercise
advice must be delivered to the Exchange by 4:15 p.m.; and
(iii) Member organizations must accept exercise instructions until
4:15 p.m.
Because the changes to Exchange Rule 792 (Days and Hours for Options
Trading) that the Exchange proposes would change the closing time for
trading in industry index stock group options from 4:10 p.m. to 4:02
p.m., the Exchange proposes to reduce the three 4:15 deadlines set
forth above by a commensurate amount (that is, from 4:15 p.m. to 4:07
p.m.). The Exchange feels that it is appropriate to make generic the
three deadlines (that is, the Exchange prefers ``five minutes after the
close of trading'' to ``4:07 p.m.'') in light of the fact that trading
in the underlying equities need not always close at 4:00 p.m., and
similarly, trading in industry index stock group options need not
always close at 4:02 p.m. For instance, a day's trading may trigger a
``circuit breaker'' that ends the trading day early or the Exchange may
exercise its discretion to close trading early (as it sometimes does on
the eve of holidays).
(b) Equity Option and Industry Index Options Closing Time
Paragraph (a) of Exchange Rule 792 specifies that members may
effect equity options transactions on the Exchange Floor on each
trading day until ten minutes after the close of equities trading on
the Floor and may effect transactions on the Exchange Floor in options
on industry or broad index stock groups until fifteen minutes after
that close of equities trading. (Equities trading currently closes at
4:00 p.m.)
The Exchange proposes to amend the closing time for both equities
option trading and trading in industry index stock group options to two
minutes after the close of equities trading. (The Exchange does not
propose to amend the closing time for broad index stock group options
at this time.)
The original purpose for the ten-minute differential for equities
options and the fifteen minute differential for industry index stock
group options was to allow options traders an appropriate opportunity
in which to respond to equity trading that might take place just before
the close. That opportunity to respond is important because pre-closing
equity trades may result in post-closing reports of trades in an equity
security. Ten minutes (in the case of equities options) and fifteen
minutes (in the case of industry index stock group options) were
thought to be necessary because it sometimes took several minutes after
the close of equity trading for the tape to display some of those latet
trades. However, technological improvements in the time it takes to
process transactions and to report them over the tape make it no longer
necessary to maintain the 10-minute differential for equity options and
the 15-minute differential for industry index stock group options.
Shortening the differential to two minutes moves the closing time
for options trading much closer to the closing time for equity trading,
while maintaining an appropriate opportunity for options traders to
respond to last-minute trading on the equity floor.
2. Statutory Basis
The proposed rule changes further the objectives of section 6(b)(5)
of the Act, in that they are designed to promote just and equitable
principles of trade, and to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange states that the proposed rule change does not impose
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has not solicited, and does not intend to solicit,
comments on the proposed rule change. The Exchange has not received any
unsolicited written comments from members or other interested parties.
[[Page 28093]]
III. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange, and in
particular, Section 6(b)(5).\3\ Section 6(b)(5) requires, among other
things, that the rules of an exchange be designed to promote just and
equitable principles of trade, perfect the mechanism of a free and open
national market, and in general, to further investor protection and the
public interest.
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\3\ 15 U.S.C. 78f(b)(5).
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The Commission believes that it is reasonable for the Exchange to
amend its rules to close trading in equity and narrow-based index
options at 4:02 p.m., versus the existing 4:10 p.m. close. Changing the
closing time for these options to 4:02 p.m. preserves the Exchange's
\4\ stated need to continue trading options for some period of time
after the close of trading in the underlying securities. The Exchange
has stated that this two minute extension from the close of the stock
markets will allow options traders to respond to late reports of
closing prices over the consolidated tape, thereby bringing options
quotes into line with the closing price of the underlying security. Due
to improvements in the processing and reporting of transactions, the
Exchange believes that two minutes of options trading after the
underlying equities close is sufficient to bring options quotes into
line with the closing prices of the underlying securities.
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\4\ The Commission notes that the NYSE has recently ceased all
equity and index options trading on its floor, transferring its
options business to the Chicago Board Options Exchange, Inc.
(``CBOE''). Release No. 34-38542 (April 23, 1997) (Order approving
NYSE-97-05). Nevertheless, the Commission believes it is appropriate
to approve the current rule change, particularly since NYSE may
reenter the options business at a later date.
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As discussed in similar rule filings submitted to the Commission,
the CBOE and the American Stock Exchange, Inc. (``Amex'') state that a
number of issuers have adopted the practice of disseminating important
corporate news after the close of trading on the primary equity
exchange in order to minimize the short-term disruptive effect of the
news on the market price of the stock by allowing investors the
opportunity to digest the significance of the news after the markets
have closed.\5\ These announcements, if made while options markets are
still trading, impact narrow-based index options, as well as equity
options, because a significant news announcement on one component of a
narrow-based index may have substantial impact on that index. As a
result, the exchanges are often deluged with option orders as a result
of such significant news announcements after 4:00 p.m. The exchanges
state that these orders may have a disruptive effect on the options
market at a time when the exchanges are attempting to close in a fair
and orderly fashion.
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\5\ See SR-CBOE-96-71 and SR-AMEX-96-45.
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Accordingly, the Commission finds that a closing time of 4:02 p.m.
for equity and narrow-based index options is a reasonable means to
address the Exchange's desire to balance the need for some extended
trading period with the need to prevent negative impact from issuers'
major news announcements made while only the options markets remain
open.
The Commission also finds that it is reasonable for the Exchange to
amend its rules to remove the reference to the closing time and instead
to specify that index stock group option exercise notices must be given
five minutes after the close of trading.
The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication of
notice thereof in the Federal Register. The Commission notes that it is
approving this proposal on the same date that it is approving nearly
identical rule change proposals submitted by the Amex, CBOE, and
Pacific Exchange, Inc. (``PCX''). These rule filings have been
published in the Federal Register \6\ and were subject to a full notice
and comment period. No comments were received on the proposals.
Accordingly, the Commission believes, consistent with Section 6(b)(5)
of the Act, that good cause exists to approve the proposed rule change
on an accelerated basis.
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\6\ See SR-AMEX-96-45, Release No. 34-38123 (January 6, 1997),
62 FR 1786 (January 13, 1997); SR-CBOE-96-71, Release No. 34-37988
(November 26, 1996), 61 FR 64405 (December 4, 1996); and SR-PSE-96-
41, Release No. 34-37920 (November 4, 1996), 61 FR 58434 (November
14, 1996).
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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 in
the Commission's Public Reference Room. Copies of such filing will also
be available for inspection and copying at the principal office of the
Exchange. All submissions should refer to File No. SR-NYSE-97-02, and
should be submitted by June 12, 1997.
V. Conclusion
For the reasons discussed above, the Commission finds that the
proposal is consistent with the Act, and, in particular, Section 6 of
the Act.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\7\ that the proposed rule change (SR-NYSE-97-02) is approved.
\7\ 15 U.S.C. 78s(b)(2).
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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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Jonathan G. Katz,
Secretary.
[FR Doc. 97-13457 Filed 5-21-97; 8:45 am]
BILLING CODE 8010-01-M
