[Federal Register Volume 61, Number 126 (Friday, June 28, 1996)]
[Notices]
[Pages 33789-33791]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16575]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37355; File No. SR-Phlx-96-18]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc. to Trade a European-
style National Over-the-Counter Index Option
June 24, 1996.
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 May 28,
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 Phlx, pursuant to Rule 19b-4 under the Act,\1\ proposes to
change the exercise style of the National Over-the-Counter Index
(``Index'') option, currently trading with the symbol XOC, from
American-style \2\ to European-style. A European-style option, pursuant
to Phlx Rule 1000(b)(35), means an option contract that can be
exercised only on the day it expires. The new European-style option
will trade with the current symbol XOC. The Exchange also will convert
the existing American-style XOC options to the symbol XOV.\3\ American-
style options will continue to trade until expiration or until no open
interest remains, at which time the series will be delisted. No new
American-style series will be opened after the European-style index
option begins trading.
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\1\ 17 CFR 240.19b-4.
\2\ An American-style option, pursuant to Phlx Rule 1000(b)(34),
means an option contract that may be exercised at any time from the
opening of the position until its expiration.
\3\ The Exchange notes that certain wrap-around symbols are
utilized respecting the Index, such that XOC and XOV will not be the
only symbols in use. A wrap-around situation occurs when the strike
price codes A-T indicating the strike price of an option (from 5 to
100) have been used and additional strike prices require listing the
option with a different root symbol. For example, XOX and XOW are
currently used for wrap-around situations respecting the Index.
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In order to effectuate this change, an amendment to Floor Procedure
Advice G-1, Exercise Requirements, is required. Advice G-1 governs the
exercise of index options, requiring that a memorandum to exercise any
American-style index option must be received or prepared by the Phlx
member organization no later than 4:30 p.m. Because the Index is
presently an American-style index option, this Advice must be amended
to delete reference to the Index. The corresponding Exchange rule, Rule
1042(a), will also apply, but does not require an amendment.
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
The Phlx began trading the Index in 1985.\4\ The Index is a
capitalization-weighted market (broad-based) index composed of the 100
largest capitalized stocks trading over-the-counter. The Index has
traded on the Phlx for over ten years, generally garnering steady
volume and open interest. At this time, the Exchange seeks to improve
upon the success of the Index by changing one contract specification,
relating to the ability to exercise the Index option.
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\4\ See Securities Exchange Act Release No. 22044 (May 17,
1985), 50 FR 21532 (May 24, 1985) (File Nos. SR-Phlx-84-28 and SR-
Phlx-85-110.
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The purpose of this proposal is to allow the Exchange to offer a
European-style option based on the Index. The Exchange has received
requests to change the expiration style, indicating that many investors
prefer to trade index options that cannot be exercised except on the
day they expire. European-style index options have certain advantages,
including the elimination of the risk of early exercise. For instance,
investors holding spread positions would not have to be concerned that
one leg of a short position can be exercised prior to expiration. In
general, sellers will benefit from the European exercise feature,
because absent concern about early exercise, they can engage in long-
range planning and strategies.
However, the Exchange has proposed to continue trading the
American-style option until the listed series expire or no longer have
open interest. Thus, the contract terms of existing American-style XOC
options will not suddenly be changed, keeping intact their ability to
exercise early. The Exchange also proposes to provide adequate notice
of the new European-style option by way of memoranda to the Exchange
membership. Except during the wind-down period explained above, the
Exchange does not intend to continue trading American-style options
side-by-side with European-style options on the Index. In order to
prevent a proliferation of strike prices respecting a similar product,
it has determined instead to trade only the European-style option.
In order to preserve the investment community's familiarity with
the symbol XOC, the Exchange proposes to retain the use of this symbol
for the new European-style options on the Index and convert the
existing American-style options on the Index from the symbol XOC to
XOV. The Exchange intends to effectuate this conversion as soon as is
practicable in order to allow a period of time for Index traders and
investors to become accustomed to the new symbol. Upon approval of the
proposed rule change, the Exchange will list European-style options on
the Index utilizing the symbol XOC.
2. Statutory Basis
The proposed rule change is consistent with Section 6 of the
Act,\5\ and, in particular, with Section 6(b)(5) of the Act, in that it
is designed to promote just and equitable principals of trade and
facilitate transactions in securities, while protecting investors and
the public interest, by providing a European-style index option on the
Index, which will permit exercise only on the day it expires.
Specifically, the Exchange believes that the benefits of the European-
style exercise feature combined with the interest in the Index during
the past ten years of trading on the Exchange should foster a deep and
liquid market for the Index option, thus facilitating transactions. At
the same time, the Exchange believes that Index investors should not be
disadvantaged by the proposal, because the Exchange will provide
adequate notice and an orderly procedure, as American-style options are
phased out and the new European-style options are introduced.
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\5\ 15 U.S.C. 78f(b)(5).
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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 either solicited or received.
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, 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 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 Exchange. All
submissions should refer to File No. SR-Phlx-96-18 and should be
submitted by July 19, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland
Deputy Secretary.
[FR Doc. 96-16575 Filed 6-27-96; 8:45 am]
BILLING CODE 8010-01-M
