[Federal Register Volume 63, Number 102 (Thursday, May 28, 1998)]
[Notices]
[Pages 29287-29288]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14023]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40007; File No. SR-PHLX-98-12]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Philadelphia Stock
Exchange, Inc. to Trade Options in Narrower Increments
May 19, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on April 22, 1998, the
Philadelphia Stock Exchange, Inc. (``Phlx'' or ``Exchange'') filed with
the Securities and Exchange Commission (``SEC'' or ``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
Exchange has designated the proposed rule change as constituting a
``non-controversial'' rule change under paragraph (e)(6) of Rule 19b-4
under the Act \2\ which renders the proposal effective upon receipt of
this filing by the Commission.\3\ The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 17 15 U.S.C. 78s(b)(1).
\2\ CFR 240.19b-4(e)(6).
\3\ The Exchange has represented that the proposed rule change:
(i) Will not significantly affect the protection of investors or the
public interest; (ii) will not impose any significant burden on
competition; and (iii) will not become operative for 30 days after
the date of this filing, unless otherwise accelerated by the
Commission. The Exchange also has provided at least five business
days notice to the Commission of its intent to file this proposed
rule change, as required by Rule 19b-4(e)(6) under the Act. Id.
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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 permit
Phlx index and equity options to be traded in narrower increments.
Specifically, Rule 1034 is proposed to be amended to give the Board of
Governors the authority to establish the minimum trading increments for
index and equity options contracts.
The text of the proposed rule change is available at the Office of
the Secretary, 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 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
Currently, Rule 1034 provides that the minimum fractional change
for options trading under $3.00 is one-sixteenth and for options
trading at $3.00 or higher, one-eighth. In the case of LEAPS \4\ on the
Value Line Composite Index, Rule 1034 provides that the minimum
fractional change is one-eighth point in option contracts trading at
$5.00 per index option or higher, and one-sixteenth point in option
contracts trading below $5.00 per index option. In response to recent
industry events,\5\ the Exchange has determined that Rule 1034 be
changed to permit Phlx index and equity options to be traded in
narrower increments. Specifically, Rule 1034 is proposed to be amended
to give the Board of Governors the authority to establish the minimum
trading increments for index and equity option contracts. Until such
time as the Board of Governors determines to use its authority to
establish the minimum fractional shares, current standards will apply.
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\4\ See Phlx Rule 1101A(b)(iii).
\5\ See Securities Exchange Act Release Nos. 38571 (May 5,
1997), 62 FR 25682 (May 9, 1997) (Order approving SR-Amex-97-14,
relating to trading equity securities in sixteenths); 38678 (May 27,
1997), 62 FR 30363 (June 3, 1997) (Order approving SR-NASD-97-27,
relating to trading certain equity securities in sixteenths); 38897
(August 1, 1997), 62 FR 42847 (August 8, 1997) (Order approving SR-
NYSE-97-21, relating to trading equity securities in sixteenths);
and 38779 (June 26, 1997), 62 FR 36328 (July 7, 1997) (Order
approving SR-Phylx-97-27, relating to trading equity securities in
sixteenths).
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The proposal is intended to achieve uniformity with the rules of
other options exchanges.\6\ The amendments should also improve the
Exchange's ability to promptly response to market changes in trading
increments. The proposal will allow the Exchange to revise its minimum
fractional changes quickly in response to changes adopted in the
minimum trading increments in the markets for securities underlying
Phlx options or to changes in the minimum trading increments for one of
the other options exchanges. When the Board of Governors determines to
change the trading increments, the Exchange will designate such change
as a stated policy, practice, or interpretation with respect to the
administration of Rule 1034 within the meaning of subparagraph (3)(A)
of subsection 19(b) of the Act and will file a rule change for
immediate effectiveness upon filing with the Commission.
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\6\ See Securities Exchange Act Release Nos. 39734 (March 9,
1998), 63 FR 12846 (March 16, 1998) (Order approving SR-Amex-97-41,
relating to trading options in narrower increments); 39736 (March 9,
1998), 63 FR 12851 (March 16, 1998) (Order approving SR-CBOE-97-49,
relating to trading options in narrower increments); and 39735
(March 9, 1998), 63 FR 12852 (March 16, 1998) (Order approving SR-
PCX-97-39, relating to trading options in narrower increments).
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The Exchange notes that there has been a movement within the
securities
[[Page 29288]]
industry to reduce the minimum trading and quotation increments for
equity securities imposed by the various self-regulatory
organizations.\7\ As derivative securities, the price of options are
determined in reference to the underlying securities. Consequently, the
Exchange believes that where practicable, the Exchange should have
minimum increments comparable to those applicable to the securities
underlying the Phlx options.
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\7\Supra, note 2.
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The Exchange also believes that the proposed rule change would give
the Exchange the flexibility to follow the suit of the principal
exchanges for the underlying securities without having to update its
rules continually, but at the same time would give the Exchange the
flexibility it needs to deviate from the minimum increments established
by the principal markets for the underlying securities in the event
that the Phlx's systems were not immediately able to handle such
increments. The Exchange, therefore, believes the quality of the market
for Phlx options will be enhanced by allowing more accurate pricing of
Phlx options.
Further, the Exchange is proposing to retitle Rule 1034 ``Minimum
Trading Increments'' for consistency with other exchange's rules. The
Exchange is also proposing to add express reference to index options
for clarity, noting that Rule 1034 currently applies to index options
pursuant to Rule 1000A(a). Lastly, the Exchange is proposing to delete
Commentary .01 regarding the minimum trading increment for Value Line
LEAPs. If needed, any such new product-specific trading increment could
be adopted pursuant to the paragraph proposed to be renumbered as Rule
1034 (iii), which provides that different increments may be fixed by
the Exchange. The proposal should extend the benefits of trading in a
narrower increment to Phlx options, which should, in turn, promote more
accurate pricing of options and tighter quotations.
2. Statutory Basis
The Exchange represents that the proposed rule change is consistent
with Section 6 of the Act \8\ in general, and in particular, with
Section 6(b)(5),\9\ in that it is designed to promote just and
equitable principles of trade, prevent fraudulent and manipulative acts
and practices, to 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 by permitting narrower minimum trading
increments in Phlx options. The proposal is also consistent with
Section 11A of the Act,\10\ in that it promotes competition among the
exchanges and market makers.\11\
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ 15 U.S.C. 78k-1.
\11\ In approving these rules, 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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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
This proposed rule filing has been filed by the Exchange as a
``non-controversial'' rule change pursuant to Section 19(b)(3)(A)(i) of
the Act \12\ and subparagraph (e)(6) of Rule 19b-4 thereunder.\13\
Consequently, because the foregoing proposed rule change: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) does not become operative until May 23, 1998, more than 30 days
from April 22, 1998, the date on which it was filed, and the Exchange
provided the commission with written notice of its intent to file the
proposed rule change at least five days prior to the filing date, it
has become effective pursuant to Section 19(b)(3)(A) of the act and
Rule 19b-4(6) thereunder.
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\12\ 15 U.S.C. 78s(b)(3)(A)(i).
\13\17 CFR 240.19b-4(e)(6).
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
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, 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 U.S.C. 552, will be available for inspection and copying at the
Commission's Public Reference Room. Copies of such filing also will be
available for inspection and copying at the principal office of the
Phlx.
All submissions should refer to File No. SR-PHLX-98-12 and should
be submitted by June 18, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-14023 Filed 5-27-98; 8:45 am]
BILLING CODE 8010-01-M
