[Federal Register Volume 59, Number 136 (Monday, July 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17317]
[[Page Unknown]]
[Federal Register: July 18, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34349; File No. SR-PHLX-93-38]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change and Amendment
Nos. 1 and 2 by the Philadelphia Stock Exchange, Inc., Relating to the
Intra-Day Addition of Strike Prices
July 11, 1994.
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 November
16, 1993, 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 and II below, which Items have been prepared by the self-
regulatory organization.\1\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\On March 30, 1994, the PHLX submitted a letter deleting a
provision which would have allowed the Exchange to add new strike
prices under extraordinary circumstances. See Letter from Gerald D.
O'Connell, Vice President, Market Surveillance, PHLX, to Sharon
Lawson, Assistant Director, Division of Market Regulation
(``Division''), Commission, dated March 30, 1994 (``Amendment No.
1''). Amendment No. 1 also clarified that new strikes may be added
in response to bona fide off-floor customer interest, and defined
customer interest to ``include institutional (firm), corporate or
customer interest expressed directly to the PHLX or through the
customer's floor brokerage unit, but not interest expressed by a
registered options trader (``ROT'') with respect to trading in the
ROT's own account. On June 23, 1994, the PHLX submitted a letter
deleting a provision which would have allowed the Exchange to list
additional strike prices when there is significant volatility in the
price of the underlying instrument. See Letter from Gerald D.
O'Connell, First Vice President, PHLX, to Sharon Lawson, Assistant
Director, Division, Commission, dated June 23, 1994 (``Amendment No.
2''). Amendment No. 2 also states that strike prices added under the
proposal must be consistent with PHLX Rules 1101A, ``Terms of Option
Contracts,'' and 1012, ``Series of Options Open for Trading.'' In
addition, the PHLX clarified its proposal by noting that the purpose
of the proposal is to allow the Exchange to add strike prices intra-
day in order to respond to market changes. The PHLX states that the
proposal will not affect the number of strike prices which the
Exchange will list, and that the determination of which strike
prices will be added will continue to be governed by Exchange Rules
1012 and 1101A. See Letter from Gerald D. O'Connell, Vice President,
Market Surveillance, PHLX, to Sharon Lawson, Assistant Director,
Division, Commission, dated March 1, 1994 (``March 1 Letter''). On
July 7, 1994, the PHLX submitted a letter requesting accelerated
approval of the proposal. See Letter from Gerald D. O'Connell, First
Vice President, PHLX, to Michael Walinskas, Branch Chief, Options
Regulation, Division, dated July 7, 1994 (``July 7 Letter'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The PHLX proposes to amend its rules to adopt Floor Procedure
Advice (``Advice'') F-22, ``Intra-Day Addition of Strike Prices,'' to
establish a procedure for the listing of new option series on an intra-
day basis, with the approval of the appropriate floor committee
chairperson or his designee. Specifically, under proposed Advice F-22,
the PHLX may list new strikes under the following circumstances: (1)
There is bona fide off-floor customer interest in effecting a sizable
transaction at a strike price at or within five points of the price of
the underlying instrument; or (2) there has been an operational error
in not adding a requested exercise strike price.
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
Currently, the addition of strike prices, which is governed by PHLX
Rules 1012, ``Series of Options Open for Trading,'' and 1101A, ``Terms
of Option Contracts,'' is determined by the movement of the underlying
stock, index, or foreign currency, such that strike prices reasonably
close to the value of the underlying security are listed for trading.
When the Exchange plans to add a new strike price, a memorandum is
distributed to the trading floor as well as over electronic systems
notifying the membership and their customers of the new strike.
Generally, the new strike price is available for trading on the day
following such notification. The PHLX states that, increasingly, it has
become necessary, due to market conditions as well as customer and
specialist requests, to add new strike prices within the same day with
the approval of a floor official and Exchange staff. In such instances,
notification is given and the strike can often become available for
trading the same day. The PHLX's proposal is intended to codify a
written procedure for these instances to facilitate compliance as well
as to help to ensure that notification is properly given.
The Exchange proposes to incorporate the proposed procedure into
the form of an advice to make it available to the trading floor in the
Exchange's Floor Procedure Handbook. Proposed Advice F-22 would apply
to the equity option, index option and foreign currency option trading
floors.
In order to provide the guidance necessary to determine when and
how the same-day addition of a new strike price is effected, the PHLX
has incorporated certain standards into proposed Advice F-22. For
example, the proposed Advice provides that where the Exchange has
erroneously failed to list a strike price, an intra-day addition would
be appropriate. In addition, the proposed Advice provides that an off-
floor customer request to list a strike at or within five points of the
price of the underlying stock, or within a comparable amount of
``ticks,'' in the case of a foreign currency option, in order to effect
a sizeable transaction, would warrant an intra-day addition. Moreover,
the approval of the chairperson of the appropriate floor committee, or
his designee, would be required to list an intra-day strike under the
proposed Advice. Proposed Advice F-22 also requires that prior notice
of any such intra-day addition be disseminated for the benefit of off-
floor firms and customers.
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, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, as well as to protect investors and the public interest.
Specifically, the Exchange believes that the adoption of proposed
Advice F-22 should codify the procedure for adding new strike prices
intra-day so that the procedure may be referred to by PHLX member
organizations and implemented uniformly.
(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 received or requested.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The PHLX has requested that the proposed rule change be given
accelerated effectiveness pursuant to Section 19(b)(2) of the Act
because the proposal codifies the Exchange's existing procedures for
adding intra-day strikes.\2\
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\2\See July 7 Letter, supra note 1.
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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, the requirements of Section 6(b)(5).\3\ Specifically, the
Commission believes that the proposal will protect investors and
further the public interest by clarifying the Exchange's procedures for
adding intra-day strike prices and by ensuring that notice of a new
intra-day strike price is disseminated to the Exchange's options
members before the new strike is listed.
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\3\15 U.S.C. 78f(6)(5) (1982)
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The Commission also believes that the PHLX's proposal strikes a
reasonable balance between the Exchange's need to accommodate the needs
of investors and the need to avoid the excessive proliferation of
options series. In this regard the Commission notes that the proposal
allows the PHLX to list only intra-day strikes at or within five points
of the underlying instrument, (strikes that normally would be added the
next day), only if there is bona fide customer interest\4\ in the
additional strikes or to correct an operational error, in addition to
requiring the approval of the appropriate floor committee chairman or
his designee. Moreover, the PHLX proposes to list only those additional
intra-day strikes which are ``reasonably close'' to the price of the
underlying instrument, consistent with PHLX Rules 1012 and 1101A.\5\
The Commission believes that these requirements provide the Exchange
with the flexibility to list additional intra-day strike prices in
response to genuine customer interest or to correct an operational
error while, at the same time, appropriately limiting the number of
options series that may be outstanding at any one time. The Commission
notes that the proposal, which is a codification of the Exchange's
current practice, is designed to affect only the timing of the listing
of additional strikes without affecting the number of strike prices the
Exchange lists.\6\
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\4\The proposal defines customer interest to include
``institutional (firm), corporate or customer interest expressed
directly to the Exchange or through the customer's floor brokerage
unit, but not interest expressed by an ROT with respect to trading
for the ROT's own account.'' See Amendment No. 1, supra note 1.
\5\See Amendment No. 2, supra note 1.
\6\See March 1 Letter, supra note 1.
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The Commission expects the PHLX to monitor the additional intra-day
strikes listed under the proposal to ensure that the strikes are added
in response to a bona fide customer request or to correct an
operational error, and are consistent with Exchange Rules 1012 and
1101A.
The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication of
notice of filing thereof in the Federal Register because the proposal
codifies the Exchange's existing policy for the addition of intra-day
strike prices and is a clarification of the PHLX's current rule for
adding strikes. The Commission finds good cause for approving Amendment
Nos. 1 and 2 because they make the proposal consistent with the
Exchange's current policy for listing intra-day strike prices and
clarify that intra-day strikes listed under the proposal must be
consistent with PHLX Rules 1012 and 1101A. Accordingly, the Commission
believes that granting accelerated approval of the proposed rule change
is appropriate and consistent with Section 6 of the Act.
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, NW.,
Washington, DC. Copies of such filing will also be available for
inspection and copying at the principal office of the above-mentioned
self-regulatory organization. All submissions should refer to the file
number in the caption above and should be submitted by August 8, 1994.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\7\ that the proposed rule change (File No. SR-PHLX-93-38) is
approved.
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\7\15 U.S.C. 78s(b)(2) (1982).
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) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-17317 Filed 7-15-94; 8:45 am]
BILLING CODE 8010-01-M
