[Federal Register Volume 63, Number 142 (Friday, July 24, 1998)]
[Notices]
[Pages 39916-39918]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19751]
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SECURITIES AND EXCHANGE COMMISSION
(Release No. 34-40226; File Nos. SR-AMEX-98-21; SR-CBOE-98-29; SR-PCX-
98-31; and SR-PHLX-98-26)
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Changes and Amendments by the American Stock Exchange, Inc., the
Chicago Board Options Exchange, Inc., the Pacific Exchange, Inc. and
the Philadelphia Stock Exchange, Inc. Relating to Expansion and
Permanent Approval of the 2\1/2\ Point Strike Price Program and Order
Granting Accelerated Approval of Proposal to Extend the Current Pilot
Program
July 17, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 17, 1998, the American Stock Exchange, Inc. (``AMEX''); on June
30, 1998, the Chicago Board Options Exchange, Inc. (``CBOE''); on June
19, 1998, the Pacific Exchange, Inc. (``PCX''); and on July 1, 1998,
the Philadelphia Stock Exchange, Inc. (``PHLX'') (referred to
individually as ``Exchange'' and collectively as ``Exchanges'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule changes as described in Items I and II below, which
Items have been prepared by the Exchanges. The AMEX submitted to the
Commission Amendment No. 1 to its proposed rule change on July 13,
1998.\3\ The CBOE submitted to the Commission Amendment No. 1 to its
proposal on July 15, 1998.\4\ The PCX submitted to the Commission
Amendment No. 1 to its proposed rule change on July 7, 1998,\5\ and
Amendment No. 2 to its proposal on July 10, 1998.\6\ The PHLX submitted
to the Commission Amendment No. 1 to its proposed rule change on July
2, 1998,\7\ and Amendment No. 2 to its proposal on July 8, 1998.\8\ The
Commission is publishing this notice to solicit comments on the
proposed rule changes from interested persons. As discussed below, the
Commission also is granting accelerated approval to the portion of the
proposal relating to the extension of the 2\1/2\ Point Strike Price
Pilot Program until January 15, 1999.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, the AMEX: 1) requests an extension of
the current pilot program for a period of up to six-months from July
17, 1998; 2) sets forth the allocation of the additional option
issues among the Exchanges; and 3) represents that the AMEX has
sufficient capacity to support the proposed expansion of the
program. See Letter from Scott G. Van Hatten, Legal Counsel, AMEX,
to Richard Strasser, Assistant Director, Division of Market
Regulation (``Division''), SEC, dated July 10, 1998 (``AMEX
Amendment No. 1'').
\4\ In Amendment No. 1, the CBOE requests an extension of the
2\1/2\ Point Strike Price Pilot Program until January 15, 1999, or
until the Commission approves the CBOE's proposal to make the
program permanent, whichever occurs first. In addition, the CBOE
amended its filing to request that the Commission expand the program
and approve it permanently. See Letter from Timothy H. Thompson,
Director--Regulatory Affairs, CBOE, to Deborah Flynn, Attorney,
Division, SEC, dated July 14, 1998 (``CBOE Amendment No. 1'').
\5\ In Amendment No. 1, the PCX proposes to add an additional
100 issues to the 2\1/2\ Point Strike Price Pilot Program and sets
forth the allocation of the additional issues among the Exchanges.
In addition, the PCX represents that it has not suffered capacity
problems in the past and has sufficient capacity to handle an
expansion of the program. See Letter from Robert P. Pacileo, Staff
Attorney, PCX, to Deborah L. Flynn, Attorney, Division, SEC, dated
July 2, 1998 (``PCX Amendment No. 1'').
\6\ In Amendment No. 2, the PCX requests an extension of the
2\1/2\ Point Strike Price Pilot Program until January 15, 1999, or
until the Commission approves the PCX's proposal to make the program
permanent, whichever occurs first. See Letter from Robert P.
Pacileo, Staff Attorney, PCX, to Deborah L. Flynn, Attorney,
Division, SEC, dated July 8, 1998 (``PCX Amendment No. 2'').
\7\ In Amendment No. 1, the PHLX clarifies that the allocation
of the proposed 100 new options classes is to be made in accordance
with an agreement to be reached by the Exchanges. See Letter from
Linda S. Christie, Counsel, PHLX, to Michael Walinsakas, Deputy
Associate Director, Division, SEC, dated July 1, 1998 (``PHLX
Amendment No. 1'').
\8\ In Amendment No. 2, the PHLX requests an extension of the
2\1/2\ Point Strike Price Pilot Program for six-months or until the
Commission approves the PHLX's proposal to make the program
permanent. See Letter from Linda S. Christie, Counsel, PHLX, to
Michael Walinsakas, Deputy Associate Director, Division, SEC, dated
July 7, 1998 (``PHLX Amendment No. 2'').
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I. Self-Regulatory Organizations' Statement of the Terms of
Substance of the Proposed Rule Changes
The Exchanges propose to extend the 2\1/2\ Point Strike Price Pilot
Program for six-months ending on January 15, 1999, or until the
Commission approves the program permanently, whichever occurs first. In
addition, the Exchange propose the expand the 2\1/2\ Point Strike Price
Pilot Program by adding 20 allowable classes to the program each
quarter for the 5 calendar quarters immediately following the
Commission's grant of permanent approval of the pilot program. The
additional options classes will be allocated among the Exchanges
according to an agreement to be entered into by the Exchanges. The text
of the proposed rule changes is available at the Office of the
Secretary, the Exchanges, and at the Commission.
[[Page 39917]]
II. Self-Regulatory Organizations' Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Changes
In their filings with the Commission, the Exchanges included
statements concerning the purpose of, and basis for, the proposed rule
changes. The text of these statements may be examined at the places
specified in Item IV below. The Exchanges have prepared summaries, set
forth in sections A, B, and C below, of the most significant aspects of
such statements.
A. Self-Regulatory Organizations' Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Changes
1. Purpose
The Commission previously approved a pilot program proposed by the
Exchanges and the New York Stock Exchange (``NYSE'') to list selected
options trading at a strike price greater than $25 but less than $50 at
2\1/2\ point intervals (i.e., 27\1/2\, 32\1/2\, 37\1/2\, 42\1/2\ and
47\1/2\). \9\ Since its original adoption in 1995, the pilot program
has been extended twice, once in July of 1996 \10\ and again in July of
1997.\11\ Currently, the program expires July 17, 1998.\12\ Pursuant to
the original pilot program, the Exchanges, including the NYSE, were
permitted to use 2\1/2\ point strike price intervals for a joint total
of up to 100 option issues. Each of the Exchanges received an
allocation of 10 options plus a percentage of the remaining 50 options
equal to each Exchange's pro rata share of the total number of equity
options listed by the Exchanges.\13\ The allocation was subsequently
changed to account for the sale of NYSE's option business to CBOE.\14\
At the time of the sale of NYSE's option business, the NYSE had 11
option classes in the 2\1/2\ Point Strike Price Pilot Program.\15\
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\9\See Securities Exchange Act Release No. 35993 (July 19, 1995)
60 FR 38073 (July 25, 1995) (order approving File Nos. SR-PHLX-95-
08; SR-AMEX-95-12; SR-PSE-95-07; SR-CBOE-95-19; and SR-NYSE-95-12).
\10\ See Securities Exchange Act Release No. 37441 (July 15,
1996) 61 FR 38234 (July 23, 1996) (order approving File Nos. SR-
AMEX-96-24; SR-CBOE-96-41; SR-NYSE-96-19; SR-PSE-96-18; AND SR-PHLX-
96-22).
\11\ See Securities Exchange Act Release No. 38856 (July 21,
1997) 62 FR 40391 (July 28, 1997) (order approving File Nos. SR-
AMEX-97-24; SR-CBOE-97-31; SR-PCX-97-30; and SR-PHLX-97-33) (``2\1/
2\ Point Strike Price Extension Order'').
\12\ Id.
\13\ The original allotment of option issues for each Exchange
was: CBOE (28), AMEX (22), PHLX (18), PSE (18), and NYSE (14).
\14\See Securities Exchange Act Release Nos. 38541 (April 23,
1997) 62 FR 23516 (April 30, 1997) (File No. SR-CBOE-97-14) (order
approving the issuance of trading permits in connection with the
purchase of the NYSE's options business) and 38542 (April 23, 1997)
62 FR 23521 (April 30, 1997) (File No. SR-NYSE-97-05) (order
approving the transfer of the NYSE's options business to the CBOE).
\15\ See 2\1/2\ Point Strike Price Extension Order, supra note
11.
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Currently, each Exchange is allocated a whole number of classes
based on the sum of the following: 1) one quarter of the first 50
issues; and 2) a percentage of the remaining 50 classes determined by
each Exchange's pro rata share of the total number of equity option
listings as of July 1, 1997. \16\ In addition, the options originally
selected by the NYSE, which have not been subsequently decertified or
delisted, continue to be eligible for the pilot program, but are not
counted against any Exchange's allotment.\17\ However, these classes
may not be replaced by another selection in the event a class becomes
ineligible or is decertified.
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\16\ The actual allotment of options issues for each Exchange as
of July 1997 is: CBOE (31), AMEX (25), PHLX (23), and PCX (21).
\17\ See 2\1/2\ point Strike Price Extension Order, supra note
11.
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As has been the case since the inception of the 2\1/2\ Point Strike
Price Pilot Program, when more than one Exchange selects a multiply-
traded option for its allotment, the Options Clearing Corporation
(``OCC'') will determine which will be deemed to have selected the
option according to the procedures agreed upon by the Exchanges. The
Exchanges have agreed that an Exchange (``Selecting Exchange'')
intending to list 2\1/2\ point strikes on an option will inform OCC of
its selection by submitting a notice (``Selection Notice'') to OCC
between 8:30 a.m. and 12:00 Noon (Central Time). If more than one
Exchange submits a Selection Notice to the OCC for the same multiply-
traded option, then the Exchange that first submits a Selection Notice
to the OCC will be deemed to be the Selecting Exchange for that option.
Such option will count toward the allotment of the Selecting Exchange,
but not toward the allotment of any other Exchange submitting a
Selection Notice under the terms of the pilot program.
In addition, each of the Exchanges has submitted a report to the
Commission that includes data and written analysis regarding the
operation of the pilot program during the previous year, as required in
the 2\1/2\ Strike Price Extension Order.\18\ The Exchanges generally
believe that the pilot program has provided customers greater
opportunities and flexibility to tailor their options positions, while
enhancing the depth and liquidity of the markets in the selected
options classes. Generally, the Exchanges believe that permanent
approval of the pilot program is now appropriate given the length of
time the program has been in place and its past success.
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\18\ In the 2\1/2\ Point Strike Price Extension Order, supra
note 11, the Commission required that each Exchange submit a report
in conjunction with any proposal to extend, expand or make permanent
the pilot program.
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In addition, the Exchanges are requesting an expansion of the pilot
program from 100 to 200 eligible classes. Generally, to provide for the
orderly introduction of the new classes and insure that the Exchanges'
systems capacity remains sufficient throughout the expansion, the
Exchanges propose to add only 20 classes each calendar quarter for the
5 quarters following the Commission's grant of permanent approval of
the program. The additional options classes shall be allocated among
the Exchanges in accordance with an agreement to be entered into by the
Exchanges.\19\ The Exchanges \20\ and the Options Price Reporting
Authority (``OPRA'') \21\ represent that sufficient computer processing
capacity is available to accommodate the expansion of the 2\1/2\ Point
Strike Price Pilot Program on a permanent basis. The Exchanges propose
to extend the current pilot program for an additional six-months to
allow the Commission to consider the Exchanges' request seeking
expansion and permanent approval of the 2\1/2\ Point Strike Price Pilot
Program.
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\19\ The Exchanges have agreed to notify the Commission of the
specific allocation of the additional options classes among the
Exchanges prior to the actual allocation. Telephone conversation
between Richard Strasser, Assistant Director, Division, SEC; Michael
D. Pierson, Senior Attorney, PCX; Claire P. McGrath, Managing
Director and Special Counsel, AMEX; Jonathan Kallman, Acting General
Counsel, PHLX; and Timothy H. Thompson, Director-Regulatory Affairs,
CBOE, on July 6, 1998.
\20\ See PCX Amendment No. 1, AMEX Amendment No. 1, and File
Nos. SR-CBOE-98-29 and SR-PHLX-98-26 (collectively ``Exchange
Capacity Representations'').
\21\ See Memorandum from Timothy H. Thompson, Senior Attorney,
CBOE, to Joseph P. Corrigan, Executive Director, OPRA, dated June
12, 1998, and Letter from Joseph P. Corrigan, Executive Director,
OPRA, to Timothy H. Thompson, Director-Regulatory Affairs, CBOE,
dated June 12, 1998 (``OPRA Capacity Statement'').
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2. Statutory Basis
The Exchanges believe the proposed rule change is consistent with
Section 6(b) of the Act \22\ in general and furthers the objectives of
Section 6(b)(5) \23\ in particular in that the joint proposal is
designed to prevent fraudulent and manipulative acts and practices, to
[[Page 39918]]
promote just and equitable principles of trade, and is not designed to
permit unfair discrimination between customers, issuers, brokers or
dealers.
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\22\ 15 U.S.C. 78f.
\23\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organizations' Statement on Burden on Competition
The Exchanges believe that the proposed rule changes will impose no
burden on competition.
C. Self-Regulatory Organizations' Statement on Comments on the Proposed
Rule Changes Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule changes.
III. Date of Effectiveness of the Proposed Rule Changes 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 such proposed rule change, or
B. Institute proceedings to determine whether the proposed rule
change should be disapproved.
The Exchanges have also requested that the Commission find good
cause, pursuant to Section 19(b)(2) of the Act,\24\ for approving the
extension of the 2\1/2\ Point Strike Price Pilot Program for a six-
month period ending on January 15, 1999, or until the Commission
approves the request to expand the program and approve it permanently,
whichever occurs first, on an accelerated basis prior to the thirtieth
day after publication in the Federal Register.
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\24\ 15 U.S.C. 78s(b)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
changes, as amended, are consistent with the Act. 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 submissions, all subsequent amendments, all
written statements with respect to the proposed rule changes that are
filed with the Commission and all written communications relating to
the proposed rule changes 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 Room, 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of such filings will also be
available for inspection and copying at the principal offices of the
Exchanges. All submissions should refer to File Nos. SR-AMEX-98-21, SR-
CBOE-98-29, SR-PCX-98-31, and SR-PHLX-98-26 and should be submitted by
August 14, 1998.
V. Commission Findings and Order Granting Partial Accelerated
Approval of the Proposed Rule Changes
The Commission finds that the proposed rule changes, as amended,
relating to the extension of the 2\1/2\ Point Strike Price Pilot
Program for six-months or until the Commission approves the Exchanges'
proposal to make the program permanent, whichever occurs first, is
consistent with the Act and the rules and regulations thereunder
applicable to a national securities exchange,\25\ and, in particular,
Section 6(b)(5) of the Act.\26\ Specifically, the Commission believes
that the proposed six-month extension of the pilot program providing
for the listing of 2\1/2\ point strike price intervals in selected
equity options will continue to provide investors with more flexibility
in the trading of equity options with a strike price greater than $25
but less than $50, while allowing the Commission adequate time to
consider the Exchanges' proposal seeking expansion and permanent
approval of the program.
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\25\ In granting partial approval of the proposal, the
Commission has considered the proposal's impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
\26\ 15 U.S.C. 78f(b)(5).
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The Commission finds good cause for granting the Exchanges' request
for a six-month extension of the 2\1/2\ Point Strike Price Pilot
Program prior to the thirtieth day after the date of publication of
notice of filing thereof in the Federal Register. As mentioned above,
the Exchanges submitted separate reports to the Commission that include
data and written analysis regarding the operation of the pilot program
as required in the 2\1/2\ Strike Price Extension Order. The Commission
notes that the Exchanges have not reported any significant problems
with the pilot program since its inception and that the Exchanges will
continue to monitor the pilot program to ensure that no problems arise.
In particular, the Exchanges will continue to monitor the impact of the
program on their systems capacity. The Commission believes extending
the pilot program on an accelerated basis will provide the investing
public with the added flexibility provided by 2\1/2\ point strike
prices on an uninterrupted basis. Finally, although the pilot has been
in place since 1995, the Commission has received no adverse comments
concerning the operation of the pilot program. Therefore, the
Commission believes good cause exists to approve the extension of the
pilot program until January 15, 1999, or until the Commission approves
the Exchanges' proposal seeking to expand the program and to have it
approved permanently, on an accelerated basis. Accordingly, the
Commission believes that granting accelerated approval of the requested
extension is appropriate and consistent with Sections 6(b)(5) and
19(b)(2) of the Act.\27\
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\27\ 15 U.S.C. 78f(b)(5) and 78s(b)(2).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\28\ that the extension of the 2\1/2\ Point Strike Price Pilot
Program proposed by the Exchanges (File Nos. SR-AMEX-98-21, SR-CBOE-98-
29, SR-PCX-98-31, and SR-PHLX-98-26), as amended, is approved until
January 15, 1999, or until the Commission approves the proposal seeking
to expand the program and have it approved permanently, whichever
occurs first, on an accelerated basis.
\28\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-19751 Filed 7-23-98; 8:45 am]
BILLING CODE 8010-01-M
