[Federal Register Volume 60, Number 143 (Wednesday, July 26, 1995)]
[Notices]
[Pages 38387-38388]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18340]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35999; File No. SR-Phlx-95-41]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of a Proposed Rule Change by Philadelphia
Stock Exchange, Inc. Relating to Reducing the Value of the
Semiconductor Index
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on
June 5, 1995, 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 and
II 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 proposes to reduce the value of its Semiconductor Index
(``Index'') option (``SOX'') to one-half its present value.\1\ The
Index is a price-weighted industry index designed by the Exchange,
composed of 16 highly capitalized and widely held stocks representing
the semiconductor industry. The other contract specifications for the
SOX remain unchanged.
\1\ The Exchange will accomplish this reduction in value by
doubling the divisor used in calculating the Index. Telephone
conversation between Edith Hallahan, Special Counsel, Regulatory
Services, Phlx, and James T. McHale, Attorney, Office of Market
Supervision (``OMS''), Division of Market Regulation (``Division''),
Commission, on July 12, 1995.
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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 SOX in September , 1994.\2\ The
Index value was created with a value of 200 on its base date of
December 1, 1993, which rose to 237 in July, 1994, shortly before the
time it began trading on the Phlx. Currently, the index value is 427
(on May 31, 1995). Thus, the value has doubled over the course of less
than two years. Consequently, the premium for SOX options has also
risen.
\2\ Securities Exchange Act Release No. 34546 (August 18, 1994),
59 FR 43881 (August 25, 1994).
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As a result, the Exchange proposes to conduct a ``two-for-one
split'' of the Index, such that the value would be reduced by one-half.
The number of SOX contracts will be doubled, such that for each SOX
contract currently held, the holder would receive two contracts at the
reduced value, with a strike price one-half of the original strike
price. For instance, the holder of a 290 SOX call will receive two 145
SOX calls. In addition to the strike price being reduced by one-half,
the position and exercise limits applicable to the SOX will be doubled,
from 7,500 contracts to 15,000 contracts until the last expiration then
trading.\3\ This procedure is similar to the one employed respecting
equity options where the underlying security is subject to a two-for-
one stock split. The trading symbol will remain as SOX.
\3\ According to the Exchange, this will be in March, 1996.
Telephone conversation between Edith Hallahan, Special Counsel,
Regulatory Services, Phlx, and James T. McHale, Attorney, MOS,
Division, Commission, on July 19, 1995.
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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.
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.
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 example, a near-term, at-the-money call option series
currently trades at approximately $1,200 per contract. The Exchange
believes that certain investors and traders may currently 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 $600 per contract. The Exchange believes that this
reduced premium value should encourage additional investor interest.
The Exchange believes that SOX options provide an important
opportunity for investors to hedge and speculate upon the market risk
associated with the underlying semiconductor 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.
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
[[Page 38388]]
to protect investors and the public interest, by establishing a lower
index value, which should, in turn, facilitate trading in SOX 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
The Phlx has requested that the proposed rule change be given
accelerated effectiveness pursuant to Section 19(b)(2) of the Act in
order to implement the change for the July expiration.
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) of the Act.\4\
Specifically, the Commission believes that reducing the value of the
Index will serve to promote the public interest and help to remove
impediments to a free and open securities market, by providing a
broader range of investors with a means of hedging exposure to market
risk associated with securities representing the semiconductor
industry. Further, the Commission notes that reducing the value of SOX
contracts should help attract additional investors, thus creating a
more active and liquid trading market. The Commission also notes that
the Phlx proposes to provide market participants with adequate prior
notice of the Index level change in order to avoid investor confusion.
Moreover, the Commission believes that the Phlx's position and exercise
limits and strike price adjustments are appropriate and consistent with
the Act. In this regard, the Commission notes that the position and
exercise limits and strike price adjustments are identical to the
approach used to adjust outstanding options on stocks that have
undergone a two-for-one stock split.
\4\ 15 U.S.C. 78f(b)(5).
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The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication of the
notice thereof in the Federal Register to allow the Phlx to reduce the
value of the Index without further delay. The Commission notes that the
Index has increased in value dramatically over the last two years,
which has caused a resulting increase in the SOX contract premium. The
high contract premium could adversely affect liquidity in the SOX. The
Commission believes that because the only change to be made to the
actual Index is the adjustment in its value, it is appropriate to allow
the Phlx to quickly address its SOX liquidity concerns, and accordingly
finds that it is consistent with Section 19(b)(2) of the Act \5\ to
approve the proposed rule change on an accelerated basis.
\5\ 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. 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. 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-95-41 and should be
submitted by August 16, 1995.
It Is Therefore Ordered, pursuant to Section 19(b)(2) of the
Act,\6\ that the proposed rule change (SR-Phlx-95-41), is approved.
\6\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
\7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-18340 Filed 7-25-95; 8:45 am]
BILLING CODE 8010-01-M
