[Federal Register Volume 61, Number 155 (Friday, August 9, 1996)]
[Notices]
[Pages 41673-41675]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20309]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37520; File No. SR-NYSE-96-15]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the New York
Stock Exchange, Inc., Relating to Members' Compliance With Position and
Exercise Limits for Non-NYSE Listed Options
August 2, 1996.
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 June 28,
1996, the New York Stock Exchange, Inc. (``NYSE'' 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\ The NYSE requested accelerated approval of the proposed rule
change. See Letter from James E. Buck, Senior Vice President and
Secretary, NYSE, to Yvonne Fraticelli, Office of Market Supervision
(``OMS''), Division of Market Regulation (``Division''), Commission,
dated July 9, 1996 (``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The NYSE proposes to amend NYSE Rules 704, ``Position Limits,'' and
705, ``Exercise Limits,'' to require NYSE members who trade non-NYSE-
listed option contracts and who are not members of the exchange where
the options are traded to comply with the option position and exercise
limits set by the exchange where the transactions are effected.\2\
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\2\ Position limits impose a ceiling on the number of option
contracts in each class on the same side of the market (i.e.,
aggregating long calls and short puts or long puts and short calls)
that can be held or written by an investor or group of investors
acting in concert. Exercise limits prohibit an investor or group of
investors acting in concert from exercising more than a specified
number of puts or calls in a particular class within five
consecutive business days.
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The text of the proposed rule change is available at the Office of
the Secretary, NYSE, 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
(a) Purpose
Currently, NYSE Rule 704 limits the size of options positions that
opening transactions in NYSE-listed options may create. Exchange Rule
705 prohibits a member or member organization from exercising NYSE-
listed option contracts in amounts that exceed the NYSE's position
limits. The purpose of the proposal is to expand the scope of those
position and exercise limits to include opening transactions and
exercises that are not dealt in on the Exchange, but that are dealt in
on other options exchanges. The proposal applies to both equity options
and index options.
As a result, the NYSE will gain the authority to exercise
jurisdiction over its members and member organizations for activity in
options that are not dealt in on the NYSE. The NYSE could thereby
discipline members and member organizations for violations of position
and exercise limits in option contracts, regardless of the exchange on
which the contracts trade.\3\
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\3\ The Commission notes that, generally, the options exchanges
have adopted uniform options position and exercise limits.
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The Exchange will exercise this authority only when the NYSE member
or member organization is not a member of the other option exchange.
That is, the proposal is intended to provide authority to discipline
violations where no such authority currently exists. That authority
currently is absent because (1) the NYSE's rules currently do not grant
that authority to the NYSE and (2) the NYSE member or member
organization that is in violation of another options exchange's rules
is not a member or member organization of the other options exchange
and therefore is not subject to the rules of that exchange.
[[Page 41674]]
In expanding the scope of the position and exercise limit
authority, the proposal would apply the position and exercise limit
rules of the options exchange on which the NYSE member or member
organization effects the transaction or exercise, including the other
exchange's relevant exemptions, including the other exchange's relevant
exemptions, interpretations, and policies.
(b) Statutory Basis
The NYSE believes that the proposal is consistent with Section 6(b)
of the Act, in general, and with Section 6(b)(5), in particular, in
that it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The NYSE does not believe that the proposed rule change imposes any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received from Members, Participants or Others
The NYSE has not solicited, and does not intend to solicit, comment
on this proposed rule change. The NYSE has not received any unsolicited
written comments from members or other interested parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The NYSE has requested that the proposed rule change be given
accelerated effectiveness pursuant to Section 19(b)(2) of the Act.\4\
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\4\ See Amendment No. 1, 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) thereunder \5\ in that
it is designed to prevent fraudulent and manipulative acts and
practices and to protect investors and the public interest.
Specifically, the NYSE has noted that Exchange rules do not currently
prohibit NYSE members from exceeding the position and exercise limits
set by another exchange for non-NYSE listed option contracts. Thus, if
the NYSE member is not a member of the exchange which lists the
options, then neither the NYSE nor the exchange that limits the options
is able to enforce its position and exercise limits against the NYSE
member. The proposal eliminates this loophole and strengthens the
Exchange's rules by requiring an NYSE member who trades non-NYSE listed
option contracts on another exchange, and who is not a member of that
exchange, to comply with the options position and exercise limits set
by the exchange where the transactions are effected.\6\
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\5\ 15 U.S.C. 78f(b)(5) (1982).
\6\ In applying the position and exercise limits of another
options exchange, the NYSE will also follow any applicable
exemptions, interpretations, and policies of that exchange.
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As the Commission has noted in the past,\7\ options position and
exercise limits are intended to prevent the establishment of large
options positions that can be used or might create incentives to
manipulate or disrupt the underlying market so as to benefit the
options position. In particular, position and exercise limits are
designed to minimize the potential for mini-manipulations\8\ and for
corners or squeezes of the underlying market. In addition, they serve
to reduce the possibility for disruption of the options market itself,
especially in illiquid options classes. The proposal extends the
benefits of the position and exercise limit rules to include all
options transactions entered into by NYSE members.
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\7\ See, e.g., Securities Exchange Act Release No. 33283
(December 3, 1993), 58 FR 65204 (December 13, 1993) (order approving
File No. SR-CBOE-93-43).
\8\ Mini-manipulation is an attempt to influence, over a
relatively small range, the price movement in a stock to benefit a
previously established derivatives position.
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As noted above, the proposed amendments will extend NYSE Rules 704
and 705 to apply to option contracts dealt in on any exchange (rather
than only to option contracts dealt in on the NYSE) by requiring an
NYSE member who effects transactions in non-NYSE-listed option
contracts on another exchange, of which he or she is not a member, to
comply with the position and exercise limits set by the exchange on
which the transaction is effected. Such violations will be subject to
disciplinary action by the Exchange pursuant to the NYSE's rules.
The Commission finds good cause for approving the proposed rule
change and Amendment No. 1 to 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 is identical to approved
proposals submitted by the Chicago Board Options Exchange, Inc.
(``CBOE''), Philadelphia Stock Exchange, Inc. (``PHLX''), the Pacific
Stock Exchange, Inc. (``PSE''), and the American Stock Exchange, Inc.
(``Amex'').\9\ The CBOE and PHLX proposals were subject to the full
notice and comment period and the Commission received no comments on
those proposals. Therefore, the Commission believes it is consistent
with Sections 6(b)(5) and 19(b)(2) of the Act to approve the NYSE's
proposal on an accelerated basis.
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\9\ See Securities Exchange Act Release Nos. 36242 (September
18, 1995), 60 FR 49305 (September 22, 1995) (order approving File
No. SR-CBOE-95-22); 36257 (September 20, 1995), 60 FR 50228
(September 28, 1995) (order approving File No. SR-PHLX-95-31); 36350
(October 6, 1995), 60 FR 53654 (October 16, 1995) (order approving
File No. SR-PSE-95-17); and 36567 (December 8, 1995) 60 FR 64463
(December 15, 1995) (order partially approving File No. SR-Amex-95-
35).
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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. 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 file
number in the caption above and should be submitted August 30, 1996.
It is therefore ordered, pursuant to Section 19( )(2) of the
Act,\10\ that the proposed rule change (File No. SR-NYSE-96-15), as
amended, is approved on an accelerated basis.
\10\ 15 U.S.C. 78s(b)(2) (1982).
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[[Page 41675]]
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12) (1995).
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Jonathan G. Katz,
Secretary.
[FR Doc. 96-20309 Filed 8-8-96; 8:45 am]
BILLING CODE 8010-01-M
