[Federal Register Volume 61, Number 123 (Tuesday, June 25, 1996)]
[Notices]
[Pages 32881-32882]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16066]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37319; File No. SR-Phlx-96-17]
Self-Regulatory Organization; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc. -To Reduce the Value of
the Super Cap Index
June 18, 1996.
Pursusnat 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 May
24, 1996, 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.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to reduce the value of its Super Cap Index
(``Index'') option (``HFX'') to one-third its present value by tripling
the divisor used in calculating the Index. The Index is comprised of
the top five options-eligible common stocks of U.S. companies traded on
the New York Stock Exchange, as measured by capitalization. The other
contract specifications for the HFX will remain unchanged.
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 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
The Exchange began trading the HFX in November, 1995.\1\ The Index
value was created with a value of 350 on its base date of May 31, 1995
which rose to 430 on April 12, 1996. Thus, the value of the Index has
increased 23% in less than one year. Consequently, the premium for HFX
options has also risen.
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\1\ See Securities Exchange Act Release No. 36369 (October 13,
1995), 60 FR 54274 (October 20, 1995).
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As a result, the Exchange proposed to conduct a ``three-for-one
split'' of the Index, such that the value would be reduced to one-third
of its present value. In order to account for the split, the number of
HFX contracts will be tripled, such that for each HFX contract
currently held, the holder would receive three contracts at the reduced
value, with a strike price one-third of the
[[Page 32882]]
original strike price. For instance, the holder of a HFX 420 call will
receive three HFX 140 calls. In addition to the strike price being
reduced by one-third, the position and exercise limits applicable to
the HFX will be tripled, from 5500 contracts \2\ to 16,500 contracts,
for a six month period after the split is effectuated. The procedure is
similar to the one employed respecting equity options where the
underlying security is subject to a two-for-one stock split, as well as
previous reductions in the value of other Phlx indexes.\3\ The trading
symbol will remain HFX.
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\2\ See Phlx Rule 1001A(c).
\3\ See Securities Exchange Act Release Nos. 36577 (December 12,
1995), 60 FR 65705 (December 20, 1995) (reducing the value of the
Phlx National Over-the-Counter Index); and 35999 (July 20, 1995), 60
FR 38387 (July 26, 1995) (reducing the value of the Phlx
Semiconductor Index).
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In conjunction with the split, the Exchange will list strike prices
surrounding the new, lower index value, pursuant to Phlx Rule 1101A.\4\
The Exchange will announce the effective date by way of an Exchange
memorandum to the membership, also serving as notice of the strike
price and position limit changes.
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\4\ Specifically, because the Index value would be less than
500, the applicable strike price interval would be $5 in the first
four months and $25 in the fifth month and the long-term options.
See Rule 1101A(a).
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The purpose of the proposal is to attract additional liquidity to
the product in those series that public customers are most interested
in trading. For examples, a near-term, at-the-money call option series
currently trades at approximately $1,150 per contract. The Exchange
believes that certain investors and traders currently may be impeded
from trading at such levels. With the Index split, that same option
series (once adjusted), with all else remaining equal, could trade at
approximately $300 per contract. The Phlx believes that a reduced
premium value should encourage additional investor interest.
The Exchange believes that Super Cap Index options provide an
important opportunity for investors to hedge and speculate upon the
market risk associated with the underlying stocks. By reducing the
value of the Index, such investors will be able to utilize this trading
vehicle, while extending a smaller outlay of capital. This, in turn,
should attract additional investors and create a more active and liquid
trading environment.
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act in general, and in particular, with Section
6(b)(5), in that it is designed to promote just and equitable
principles of trade, as well as to protect investors and the public
interest, by establishing a lower index value, which should, in turn,
facilitate trading in Super Cap Index options. The Exchange believes
that reducing the value of the Index does not raise manipulation
concerns and would not cause adverse market impact, because the
Exchange will continue to employ its surveillance procedures and has
proposed an orderly procedure to achieve the index split.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes the proposed rule change will impose no
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
Within 35 days of the 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 the 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, 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 at
the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. 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-96-17 and should be
submitted by July 16, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-16066 Filed 6-24-96; 8:45 am]
BILLING CODE 8010-01-M
