[Federal Register Volume 63, Number 159 (Tuesday, August 18, 1998)]
[Notices]
[Pages 44298-44299]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-22207]
[[Page 44298]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40318; File No. SR-Phlx-98-32]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Philadelphia Stock
Exchange, Inc. Relating to an Extension of the Permissible Maturity for
FLEX Equity Options
August 11, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on July 24, 1998, the
Philadelphia Stock Exchange (``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 Exchange has
designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (e)(6) of Rule 19b-4 under
the Act \2\ which renders the proposal effective upon receipt of this
filing by the Commission.\3\ The Commission is publishing this notice
to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4(e)(6).
\3\ The Exchange has represented that the proposed rule change:
(i) will not significantly affect the protection of investors or the
public interest; (ii) will not impose any significant burden on
competition; and (iii) will not become operative for 30 days after
the date of this filing, unless otherwise accelerated by the
Commission. The Exchange also have provided at least five business
days notice to the Commission of its intent to file this proposed
rule change, as required by Rule 19b-4(e)(6) under the Act. Id.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to amend Exchange Rule 1079(a)(6)(B), FLEX
Index and Equity Options, to permit flexible (``FLEX'') equity options
\4\ to have a term of up to five years when requested by a Requesting
Member, if the Regulatory Services Post personnel determines that
sufficient liquidity exists among FLEX equity participants.
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\4\ FLEX equity options are flexible exchange-traded options
contracts which overlie equity securities. In addition, FLEX equity
options provide investors with the ability to customize basic option
features including size, expiration date, exercise style, and
certain exercise prices.
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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 Exchange is proposing to allow FLEX equity options traded on
the Exchange to have a maturity beyond three years and up to five years
in certain circumstances. Currently, FLEX equity options, by operation
of Rule 1079(a)(6)(B), are limited to a maturity of three years.
When the Exchange filed to list and trade FLEX equity options \5\
it determined to limit the maturity of these options to three years
because, unlike FLEX Index options which could have a maturity of up to
five years, there was concern that there would not be sufficient
liquidity in many equity options to support series with a longer term
to expiration. Since it has traded FLEX equity options, however, the
Exchange has had numerous requests to extend the maturity of FLEX
equity options to five years. Among the reasons in seeking an extension
in the allowable maturity is that these longer expiration FLEX equity
options might be used to hedge the longer term issuances of structured
products linked to the returns of an individual stock. Thus, the
proposed rule change would permit the longer term FLEX equity options
to be listed when requested by the Requesting Member if the Regulatory
Services Post personnel determined that sufficient liquidity existed
among FLEX equity participants.\6\ By allowing for the extension of the
maturity of FLEX equity options to five years in situations where there
is demand for a longer term expiration and where there is sufficient
liquidity to support the request, the proposed rule change will better
serve the needs of Phlx's customers and the Exchange members who make a
market for such options.\7\
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\5\ See Exchange Act Release No. 39549 (January 14, 1998), 63 FR
3601 (January 23, 1998) (SR-Phlx-96-38).
\6\ The Exchange has represented that Regulatory Services Post
personnel refer to the two Regulatory Services employees who work at
the Surveillance Post on the options floor. The Exchange has also
provided that, if the Regulatory Services Post personnel are
unavailable, the Exchange may designate other qualified Exchange
employees as substitutes. These ``other qualified Exchange
employees'' include persons from the Market Surveillance group, such
as the Vice President of Market Surveillance or his or her designee,
or persons from the Regulatory Services group, such as the Vice
President of Regulatory Services or his or her designee. The
Exchange has also represented that it will seek approval from the
Commission prior to any deviation from the above method of selecting
Regulatory Services Post personnel. Telephone Call between Linda
Christie, Phlx, and Christine Richardson, Commission, August 10,
1998.
\7\ The Commission has previously approved substantially similar
proposals by the American Stock Exchange (``Amex'') and Chicago
Board Options Exchange (``CBOE''). See Exchange Act Release Nos.
39706 (March 2, 1998), 63 FR 11469 (March 9, 1998) (SR-Amex-98-07);
and 39524 (January 8, 1998), 63 FR 3009 (January 20, 1998) (SR-CBOE-
97-57).
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2. Statutory Basis
The Exchange represents that the proposed rule change is consistent
with Section 6(b) \8\ of the Act in general and further the objectives
of Section 6(b)(5) \9\ in particular in that it is designed to promote
just and equitable principles of trade by providing longer expiration
FLEX equity options that may be used by investors to hedge the longer
term issuance of structured products linked to returns of an individual
stock.\10\
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ In approving this rule, the Commission has considered the
proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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
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
This proposed rule filing has been filed by the Exchange as a
``non-controversial'' rule change pursuant to Section 19(b)(3)(A)(i) of
the Act \11\ and subparagraph (e)(6) of Rule 19b-4
[[Page 44299]]
thereunder.\12\ Consequently, because the foregoing proposed rule
change: (1) does not significantly affect the protection of investors
or the public interest; (2) does not impose any significant burden on
competition; and (3) does not become operative until August 24, 1998,
more than 30 days from July 24, 1998, the date on which it was filed,
and the Exchange provided the Commission with written notice of its
intent to file the proposed rule change at least five days prior to the
filing date, it has become effective pursuant to Section 19(b)(3)(A) of
the Act and Rule 19b-4(e)(6) thereunder.
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\11\ 15 U.S.C. 78s(b)(3)(A)(i).
\12\ 17 CFR 240.19b-4(e)(6).
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Persons making written submission
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 Room. Copies of such filing also will be
available for inspection and copying at the principal office of the
Phlx. All submissions should refer to File No. SR-Phlx-98-32 and should
be submitted by September 8, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-22207 Filed 8-17-98; 8:45 am]
BILLING CODE 8010-01-M
