[Federal Register Volume 63, Number 168 (Monday, August 31, 1998)]
[Notices]
[Pages 46270-46271]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23312]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40355; File No. SR-Phlx-98-30]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc. To Reduce the Value of
the National Over-the-Counter Index (``XOC'')
August 24, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on July 16, 1998, 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, II, and III below, which
Items have been prepared by the Exchange. 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).
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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 National Over-the-
Counter Index (``Index'') option (``XOC'') to one-fourth its present
value by quadrupling the divisor used in calculating the Index. In
addition, the position and exercise limits applicable to the XOC will
be quadrupled until the last expiration date then trading. The Index is
a capitalization-weighted market index composed of the 100 largest
capitalized stocks traded over-the-counter. The other contract
specifications for the XOC remain unchanged.
II. Self-Regulatory Organization's Statements of the Purpose of,
and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange 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
[[Page 46271]]
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 XOC in 1985.\2\ The Index was
created with a value of 150 on its base date of September 28, 1984,
which rose to 548 in June 1994, 700 in June 1995 and 868 in September
1995. In December 1995, the Exchange split the Index to one-half its
value.\3\ As of June 10, 1998, the index value was 869.22. Thus, the
value has increased significantly, especially during the last eighteen
months. Consequently, the premium for XOC options has also risen.
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\2\ Securities Exchange Act Release No. 22044 (May 17, 1985) 50
FR 21532 (May 24, 1985) (File No. SR-Phlx-84-28).
\3\ Securities Exchange Act Release No. 36577 (December 12,
1995) 60 FR 65705 (December 20, 1995) (SR-Phlx-95-61).
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As a result, the Exchange proposes to conduct a ``four-for-one
split'' of the Index, such that the value would be reduced to one-
quarter of its present value. The number of XOC contracts will be
quadrupled, such that for each XOC contract currently held, the holder
would receive four contracts at the reduced value, with a strike price
one quarter of the original strike price. For instance, the holder of
an XOC 800 call will receive four XOC 200 calls. In addition to the
strike price being reduced by one quarter, the position and exercise
limits applicable to the XOC will be quadrupled, from 25,000 contracts
to 100,000 contracts until the last expiration then trading, which is
the March 1999 expiration.\4\ This procedure is similar to the one
employed respecting equity options where the underlying security is
subject to a four-for-one stock split. The trading symbol will remain
as XOC (plus any necessary wrap symbols).
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\4\ At this time, the position and exercise limits will return
to the current level of 25,000 contracts.
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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.\5\
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.
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\5\ Specifically, because the Index value would be less than
500, the applicable strike price interval would be $5 in the first
four months and $25 in the fifth month. Phlx Rule 1101A(a).
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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, the September 870 calls on June 11 were quoted
at 51-52 while the puts were quoted at 40-41. A four-for-one split
would serve to reduce the price of the aforementioned options to
approximately 12\3/4\-13 for the calls and 10-10\1/4\ for the puts,
thus making them more accessible to the retail investor. The Exchange
believes that certain investors and traders may be impeded from trading
XOC options at their current levels. A reduced value should, in the
Phlx's view, encourage additional investor interest.
The Exchange believes that XOC options provide an important
opportunity for investors to hedge and speculate upon the market risk
associated with the underlying over-the-counter 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. This should
attract additional investors, and, in turn, create a more active and
liquid trading environment.
The Exchange believes 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 to protect investors and the public
interest, by establishing a lower index value, which should, in turn,
facilitate trading in XOC 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, including adequate prior notice
to market participants.
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 date of 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 Phlx 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.
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 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 in the
Commission's Public Reference Room, 450 Fifth Street, NW, Washington,
DC 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-98-30 and should be submitted by September
21, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-23312 Filed 8-25-98; 8:45 am]
BILLING CODE 8010-01-M
