Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices 34765

15 15 U.S.C. 78f(b)(5).

16 15 U.S.C. 78s(b)(2).

17 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3On March 30, 2000 and April 13, 2000, the

Exchange submitted Amendment Nos. 1 and 2 to

the proposed rule change, respectively, the

substance of which has been incorporated into this

notice. See letters from John Kenney, Jr., Counsel,

Phlx, to John Roeser, Attorney, Commission, dated

March 29, 2000 (‘‘Amendment No. 1’’) and April 13,

2000 (‘‘Amendment No. 2’’).

and other violations of Exchange rules

and the Act.

The Commission believes that the

proposal may expedite and make more

efficient the process by which customer

orders can be received and executed on

the floor of the Exchange. The

Commission also believes that the

proposed rule change should increase

the efficiency of transmitting orders

from a member firm booth to Floor

Brokers in the trading crowd by

reducing the amount of time required

before these orders may be represented

in the crowd.

In determining to approve this

proposal, the Commission notes that the

Exchange represents the proposal is

necessary to ensure that, as the number

of option orders transmitted and

represented electronically on the

Exchange increases, manual orders

represented by Floor Brokers are not

placed at a competitive disadvantage.

The Commission believes that the

proposal should foster coordination

with persons engaged in facilitating

transactions in securities, remove

impediments to and perfect the

mechanism of a free and open market,

and protect investors and the public

interest by expediting and making more

efficient the process by which orders

can be received and executed on the

floor of the Exchange. Accordingly, the

Commission finds that the proposal is

consistent with Section 6(b)(5) 15 of the

Act.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,16 that the

proposed rule change (SR–PCX–99–17)

is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.17

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–13532 Filed 5–30–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42811; File No. SR–PHLX–

00–14]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Philadelphia Stock Exchange, Inc.

Regarding Listing and Trading Options

on the Wireless Telecom Sector Index

May 23, 2000.

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 February

24, 2000,3 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 Phlx. 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 Exchange, pursuant to Rule 19b–

4 of the Act, proposes to list and trade

European style, cash-settled options, on

the Wireless Telecom Sector Index

(‘‘Index’’), an equal dollar-weighted,

A.M.-settled, narrow-based, index of

twenty companies, involved in various

aspects of wireless telecommunications

services and equipment. A list of the

specific companies comprising the

Index, their capitalizations, six-month

share volumes and the percentage

weightings of these companies, as of

April 10, 2000, is available from the

Exchange.

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

1. Purpose

The purpose of the proposal is to list

for trading European style, cash-settled

options on the Index, a new index

developed pursuant to Exchange Rule

1009A(b). Options on the Index will

provide an important hedging vehicle

for basket traders who engage in trading

securities that comprise this subsector

of the telecommunications industry.

The following is a more detailed

description of the proposed Index

option:

Ticker Symbol: YLS.

Settlement Value Symbol: YSO.

Underlying Index: The Index is an

equal dollar-weighted index composed

of twenty stocks involved in wireless

telecommunications services and

equipment all of which are traded on

the New York Stock Exchange (‘‘NYSE’’)

or Nasdaq Stock Market (‘‘Nasdaq’’), and

are, therefore, reported securities as

defined in Rule 11Aa3–1 under the Act.

Further, all of the stocks presently meet

the Exchange’s listing criteria for equity

options contained in Exchange Rule

1009 and are currently the subject of

listed options on U.S. options

exchanges.

The Exchange notes that most of the

companies represented in the Index are

U.S. companies. However, to the extent

that non-U.S. companies are part of or

are added to the Index (such as

American Depository Receipts) and

therefore are not subject to

comprehensive surveillance sharing

agreements, those components do not

and will not account for more than 20%

of the weight of the Index.

As of April 10, 2000, the market

capitalization of all the stocks in the

Index exceeded $1 trillion and such

individual capitalizations ranged from

approximately $1 billion to $176 billion.

All twenty component issues in the

Index had monthly trading volumes in

excess of one million shares over each

of the past six months.

Index Calculation: The methodology

used to calculate the Index is an equal

dollar-weighted method, meaning that

each of the component stocks is

represented in the Index in

approximately equal dollar amounts.

The Exchange believes that this method

of calculation is appropriate because it

will provide each component issue with

equivalent influence on the movement

of the Index value instead of allowing

34766 Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices

4 17 CFR 240.11Aa3–1.

5See Phlx Rule 1009A.

6See Phlx Rule 1010.

7See, e.g., OCC Article XVII, Section 4 and

Securities Exchange Act Release No. 37315 (June

17, 1996), 61 FR 32471 (June 24,1996) (SR–OCC–

95–19).

one highly capitalized stock to dominate

the movement of the Index. To

determine the initial dollar weighting of

the stocks, the Exchange calculated the

number of shares of each that would

represent an investment of

approximately $10,000 in each of those

stocks comprising the Index based on

closing prices on July 16, 1999. The

value of the Index equals the current

market value of the sum of the assigned

number of shares of all of the stocks in

the Index divided by the current Index

divisor. The Index divisor was set to

yield an initial Index value of 150 at the

opening on July 19, 1999.

Index Maintenance: To maintain the

continuity of the Index, the divisor will

be adjusted to reflect non-market

changes in the price of the component

securities as well as changes in the

composition of the Index. Changes

which may result in divisor adjustments

include but are not limited to stock

splits, dividends, spin-offs, mergers and

acquisitions. In accordance with

Exchange Rule 1009A, if any change in

the nature of any component (e.g.,

delisting, merger, acquisition or

otherwise) in the Index will change the

overall market character of the Index,

the Exchange will take appropriate steps

to remove the stock or replace it with

another stock that the Exchange believes

would be compatible with the intended

market character of the Index. Any

replacement components will be

reported securities as defined in Rule

11Aa3–1 of the Act.4

Currently, the Index is composed of

twenty component stocks. Absent

Commission approval, the Exchange

will not change the number of

components to more than twenty-six or

fewer than fourteen. The Exchange

notes that the component stocks

comprising the top 90% of the Index, by

weight, will each maintain a minimum

market capitalization of $75 million.

The remaining 10% by weight, will each

maintain a minimum market

capitalization of $50 million. The

component stocks comprising the top

90% of the Index, by weight, will

maintain a trading volume of at least

500,000 shares per month. The trading

volume for each of the component

stocks constituting the bottom 10% of

the Index, by weight, will maintain at

least 400,000 shares per month. No

fewer than 90% of the component issues

by weight or fewer than 80% of the total

number of the components qualify as

stocks eligible for options trading.

If the Index fails at any time to satisfy

one or more of the required

maintenance criteria, the Exchange will

notify the Commission staff

immediately and will not open for

trading any additional series of options

on the Index, unless the above is

determined by the Exchange not to be

significant and the Commission concurs

in that determination, or unless the

continued listing of options on the

Index has been approved by the

Commission under Section 19(b)(2) of

the Act.5 In addition to not opening for

trading any additional series, the

Exchange may, in consultation with the

Commission, prohibit opening purchase

transactions in series of options

previously opened for trading to the

extent that the Exchange deems such

action necessary or appropriate.6

In addition to the maintenance

criteria above, no single component of

the index shall account for more than

25% of the Index and the five highest

weighted component securities shall not

account for more than 60% of the Index.

If the Index fails to satisfy the

maintenance listing standards set forth

above, the Exchange shall not open for

trading any additional series of options

of that class unless such failure is

determined by the Exchange not to be

significant and the Commission concurs

in that determination, or unless the

continued listing of that class of Index

options has been approved by the

Commission under Section 19(b)(2) of

the Act.

Rebalancing: Following the close of

trading on the third Friday of January,

April, July and October the Index

portfolio will be adjusted by changing

the number of whole shares of each

component so that each company is

again represented in ‘‘equal’’ dollar

amounts. If necessary, a divisor

adjustment will be made at the

rebalancing to ensure continuity of the

Index’s value. The newly adjusted

portfolio will then become the basis for

the Index’s value on the first trading day

following the adjustment.

The number of shares of each

component stock in the Index portfolio

will remain fixed between quarterly

rebalances except in the event of certain

types of corporate actions such as the

payment of a dividend other than an

ordinary cash dividend, stock dividend,

stock split, reverse stock split, rights

offering, distribution, reorganization,

recapitalization, or similar event with

respect to the component stocks. In the

case of a merger or consolidation of an

issuer of a component stock, if the stock

remains in the Index, the number of

shares of that security in the portfolio

may be adjusted to the nearest whole

share to maintain the component’s

relative weight in the Index at the level

immediately prior to the corporate

action. In the even of a stock addition

or replacement, the average dollar value

of the remaining portfolio components

will be calculated and that amount

invested in the stock of the new

component, to the nearest whole share.

In all cases, the divisor will be adjusted,

if necessary, to ensure Index continuity.

All stock replacements and the handling

of non-routine corporate action will be

announced at least ten business days in

advance of such effective change,

whenever possible. The Exchange will

make this information available to the

public through dissemination of an

information circular.

Unit of Trading: Each options contract

will represent $100, the Index

multiplier, times the Index value. For

example, an Index value of 200 will

result in an option contract value of

$20,000 ($100 x $200).

Exercise Price: The exercise prices

will be set in accordance with Phlx Rule

1101A(a).

Settlement: A.M.-settled index

options

Settlement Value: The Index value for

purposes of settling outstanding Index

option contracts upon expiration will be

calculated based upon the regular way

opening sale prices for each of the

Index’s component stocks in their

primary market on the last trading day

prior to expiration. In the case of

National Market System securities

traded through Nasdaq, the first

reported sale price will be used for the

final settlement value for expiring Index

option contracts. In the event that a

component security does not open for

trading on the last day before the

expiration of a series of Index options,

the last sale price for that security will

be used in calculating the Index value.

However, in the event that The Options

Clearing Corporation (‘‘OCC’’)

determines that the current Index value

is unreported or otherwise unavailable

(including instances where the primary

market for securities representing a

substantial part of the value of the Index

is not open for trading at the time when

the current Index value used for

exercise settlement purposes would be

determined), the OCC shall determine

an exercise settlement amount for the

Index in accordance with Article XVII,

Section 4 of the OCC By-Laws.7

Last Trading Day: Last business day

prior to the third Friday of the month

Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices 34767

8As a back-up to Bridge Data Inc., the Phlx will

utilize its own internal index calculation system

called the Index Calculation Engine System.

9See Amendment No. 1, supra note 3. The

Options Price Reporting Authority (‘‘OPRA’’)

represents that it has the capacity to handle the

additional traffic generated by the Index. See letter

from Joe Corrigan, Executive Director, OPRA, to

Mathew Holm, Director, New Product

Development, Phlx, dated March 23, 2000.

10See particularly, Phlx Rule 722, Phlx Rules

1000A through 1102A, and generally, Phlx Rules

1000 to 1080.

11 In amendment No. 1, the Exchange designated

the proposal as filed pursuant to subparagraph (f)

of Rule 19b–4. See supra note 3.

12See Securities Exchange Act Release No. 34157

(June 3, 1994), 59 FR 30062 (June 10, 1994).

13 17 CFR 200.30–3(a)(12).

for options which expire on the

Saturday following the third Friday of

that month.

Trading Hours: 9:30 a.m. to 4:02 p.m.,

E. T.

Position and Exercise Limits: The

Index is an industry or narrow-based

index; therefore, the Exchange will

employ position and exercise limits

pursuant to Phlx Rules 1001A(b) and

1002A, respectively. The position and

exercise limits will be 31, 500 contracts.

Expiration Cycles: Three months from

the March, June, September, December

cycle, plus two additional near-term

months.

Exercise Style: European.

Premium Quotations: Premiums will

be expressed in terms of dollars and

fractions of dollars pursuant to Phlx

Rule 1033A. For example, a bid or offer

of 11⁄2 will represent a premium per

options contract of $150 (11⁄2×100).

The Index value will be disseminated

every 15 seconds during the trading day.

The Phlx has contracted with Bridge

Data Inc. to compute and do all the

necessary maintenance of the Index.8

Pursuant to Phlx Rule 1100A, updated

Index values will be disseminated and

displayed by means of primary market

prints reported by the Consolidated

Tape Association and over the facilities

of the Options Price Reporting

Authority. The Index value will also be

available on broker-dealer interrogation

devices to subscribers of options

information. The Exchange represents

that it will not list or trade this Index

unless and until it has sufficient

capacity to process the additional

message traffic generated by the Index.9

The options will be traded pursuant

to current Phlx rules governing the

trading of index options including

provisions addressing sales practices,

floor trading procedures, position and

exercise limits, margin requirements

and trading halts and suspensions.10

The Exchange also represents that

surveillance procedures currently used

to monitor trading in index options will

be applicable to this Index option.

These procedures include having

complete access to trading activity in

the underlying securities which are all

traded on the NYSE or Nasdaq. In

addition, the Intermarket Surveillance

Group Agreement dated July 14, 1983,

as amended on January 29, 1990 and

June 20, 1994 will be applicable to the

trading of options on the Index.

2. Statutory Basis

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 designated to

promote just and equitable principles of

trade, foster cooperation and

coordination with persons engaged in

facilitating transactions in securities, to

remove impediments to and perfect the

mechanism of a free and open market

and a national market system, and to

protect investors and the public interest.

Specifically, the Exchange believes that

the introduction of the proposed the

Index will serve to promote the public

interest and help to remove

impediments to a free and open

securities market by providing investors

with a means of hedging exposure to

market risks associated with the

securities issued by companies that

comprise this subsector of the

telecommunications industry. The

trading of options on the Index will

permit investors to participate in the

price movements of the twenty

securities on which the Index is based.

The trading of options on the Index will

allow investors holding positions in

some or all of the securities underlying

the Index to hedge the risks associated

with these securities. Accordingly, the

Exchange believes that options on the

Index will provide investors with an

additional trading and hedging

mechanism that outweighs any potential

for manipulation that would diminish

public confidence. Further, the

Exchange believes that the proposed

Index will have a specific impact on

efficiency, competition and capital

formation consistent with Section 3(f) of

the Act.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any 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 solicited

or received with respect to the proposed

rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The Exchange is filing this rule

change as constituting a stated policy,

practice or interpretation with respect to

the administration of Phlx Rule 1009A

within the meaning of Section

19(b)(3)(A) of the Act and subparagraph

(f) of Rule 19b–4 thereunder.11

Accordingly, pursuant to the

Commission’s Generic Index Option

Approval Order (‘‘Approval Order’’),12

the Exchange is requesting immediate

effectiveness so that options on the Phlx

Wireless Telecom Index may begin

trading 30 days after the date of this

filing. The Phlx believes that this

product complies with the Approval

Order, as described above.

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 20549–0609. 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. 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–00–14 and should be

submitted by June 21, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–13533 Filed 5–30–00; 8:45 am]

BILLING CODE 8010–01–M