Federal Register / Vol. 62, No. 37 / Tuesday, February 25, 1997 / Notices 8483

1See Letters to Heather Seidel, Attorney, Market

Regulation, SEC, from Nandita Yagnik, Attorney,

PHLX, dated November 18, 1996 (‘‘Amendment No.

1’’), November 25, 1996 (‘‘Amendment No. 2’’), and

December 3, 1996 (‘‘Amendment No. 3’’)

respectively. The substance of these amendments

was incorporated into the notice release and is

discussed below. See Securities Exchange Act

Release No. 38017 (December 4, 1996), 61 FR 65244

(December 12, 1996).

2Amendment No. 4 was filed with the

Commission on February 11, 1997. The amendment

changed the rule language to require that the

appropriate number of interbank foreign exchange

participants be selected at random from a pool of

at least twenty-five (25) active interbank foreign

exchange participants (addition underlined), and

further explained the procedure for calculating a

settlement value for the 3D Options. See letter from

Nandita Yagnik, Attorney, New Product

Development, PHLX to Heather Seidel, Attorney,

Market Regulation, Commission, dated February 7,

1997.

3 15 U.S.C. 78s(b)(1).

4 17 CFR 240.19b–4.

5See Securities Exchange Act Release No. 33732

(March 8, 1994), 59 FR 12023 (order approving the

listing and trading of cash/spot dollar denominated

delivery foreign currency option contracts).

6See Securities Exchange Act Release No. 36505,

(November 22, 1995), 60 FR 61277 (order approving

listing and trading of 3D foreign currency options

on the Japanese yen).

7PHLX rules currently require such list to be

selected from a group of twenty-five (25) interbank

foreign exchange participants. Amendment No. 4

amends the rule to reflect current practice to use ‘‘at

least’’ twenty-five (25) interbank participants. See

Amendment No. 4.

8Telephone conversation between Nandita

Yagnik, Attorney, PHLX, and Heather Seidel,

Attorney, Market Regulation, Commission, on

February 11, 1997.

9Active interbank participants are defined by

PHLX to be ‘‘those which provide quotations with

the greatest frequency from 2:30 a.m. (the start of

the trading day) until 9:30 a.m.’’ See Amendment

No. 4.

10See Exchange Rule 1057. The Commission

approved PHLX filing SR–PHLX–96–11, which

allows PHLX to elect to calculate the settlement

value in house instead of requiring an agent/vendor

to do it. In addition, the new rule limits the liability

of the Exchange regarding the accuracy of the

settlement value except for intentional misconduct

and/or any violations of the federal securities laws.

See Securities Exchange Act Release Nos. 37323

(June 18, 1996), 61 FR 32880 (June 25, 1996)

(notice) and 38041 (December 11, 1996), 61 FR

66721 (December 18, 1996) (approval order).

11As noted above, the rule is being amended to

indicate such pool must be at least twenty-five.

Currently the PHLX selects from a pool of forty

interbank participants for the 3D option on the

German Mark and intends to use forty for the 3D

option on the Japanese Yen.

12See Amendment No. 4.

[Release No. 34–38295; International Series

Release No. 1052; File No. SR–PHLX–96–

44]

Self-Regulatory Organizations; Order

Granting Approval to Proposed Rule

Change and Notice of Filing and Order

Granting Accelerated Approval to

Amendment No. 4 to the Proposed

Rule Change by the Philadelphia Stock

Exchange, Inc. Modifying the Formula

Which Calculates the Settlement Value

for Dollar Denominated Deliver

Options

February 14, 1997.

I. Introduction

On October 30, 1996, as subsequently

amended on November 19, 1996,

December 2, 1996, December 3, 1996,1

and February 11, 1997,2 the

Philadelphia Stock Exchange, Inc.

(‘‘PHLX’’ or ‘‘Exchange’’) submitted to

the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’),

pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’) 3 and Rule 19b–4 thereunder,4 a

proposed rule change to modify the

formula which calculates the settlement

value for Dollar Denominated Deliver

foreign currency options (‘‘3D

Options’’).

Notice of the proposed rule change,

including Amendment Nos. 1, 2 and 3,

together with the substance of the

proposal, was published for comment in

Securities Exchange Act Release No.

38017 (December 3, 1996), 61 FR 65244

(December 12, 1996). No comments

were received on the proposal. This

order approves the proposed rule

change, as amended, including

Amendment No. 4 on an accelerated

basis.

II. Description

The Exchange proposes to amend

PHLX Rule 1057, in order to modify the

formula which calculates the settlement

value for 3D Options. The Commission

approved trading for 3D Foreign

Currency Options on the Deutsche Mark

(‘‘3D Mark’’) on March 8, 1994.5 In

November 1995, the Commission

approved trading for 3D Foreign

Currency Options on the Japanese Yen

(‘‘3D Yen’’).6 3D Yen options, however,

have not begun trading on the Exchange

to date. Presently, for the 3D Mark, bid

and offer quotations for the current

foreign exchange spot price are

collected from fifteen interbank foreign

exchange participants randomly

selected from a list of forty active

interbank foreign exchange

participants.7 This group of forty is

selected from a larger list of interbank

foreign exchange participants who

provide continuous quotations for each

currency and consists of the most active

interbank participants out of the larger

list.8 According to the PHLX, the actual

number of interbank foreign exchange

participants used for a particular

currency will depend on the current

number of interbank participants

making active quotes, which is

measured by frequency.9 After

discarding the five highest offers and

the five lowest bids of the randomly

selected fifteen, the remaining ten bids

and offers are arithmetically averaged to

arrive at a closing settlement value.10

The algorithm for calculating the

settlement value has a feature that scans

the group of fifteen randomly selected

quotations and automatically identifies

those that are updated every five or

more minutes and replaces them with

quotations from the original pool of

interbank participants 11 that are

updated more frequently than every five

minutes. PHLX’s goal is to use

quotations that are updated every one to

two minutes for settlement value

purposes, but the algorithm will not

replace quotations until they are being

updated every five or more minutes.12

The Exchange found that the number

of banks that are able to provide active

bid and offer quotations for different

currencies varies according to the

currency. For some of the more widely

traded currencies, such as the Deutsche

mark, there are many more interbank

foreign exchange participants that

update the bids and offers more

frequently than every five minutes than

for the less popular currencies, where

the pool of potential contributors of the

spot value for the individual currency is

much smaller and quotations may be

updated less often, although still on a

continual basis.

To reflect the fact that there may be

variation in the appropriate number of

bids and offers that are available for

each currency, the Exchange is

proposing to make the current

settlement value formula more flexible

by permitting the Exchange, within

certain guidelines, to determine the

appropriate number of bids and offers to

collect and average on a currency-bycurrency basis. The Exchange would

randomly select at least five interbank

participants from a pool of at least

twenty-five active interbank foreign

participants. Additionally, as the

number of bids and offers may vary

across currencies, the existing rule

language that requires the five highest

offers and the five lowest bids to be

discarded would also be modified.

Instead, the Exchange proposes to

discard one third of the highest offers

and one third of the lowest bids and

average the remaining bids and offers to

arrive at the closing settlement value.

The Exchange would set the number for

each individual currency prior to

commencing trading 3D Options on that
8484 Federal Register / Vol. 62, No. 37 / Tuesday, February 25, 1997 / Notices

13The Exchange would have the ability to obtain

bids and offers from more than five interbank

foreign exchange participants as determined by the

Foreign Currency Option Committee.

14See Securities Exchange Act Release Nos.

33732 (March 8, 1994), 59 FR 12023 (March 15,

1994) (3D Mark approval order) and 36505

(November 22, 1995), 60 FR 61277 (November 29,

1995) (3D Yen approval order).

15See Amendment No. 4.

16See Amendment No. 4. 17 15 U.S.C. 78f(b)(5).

18The Commission has previously found that the

interbank foreign currency spot market, in general,

is an extremely large, diverse market comprised of

banks and other financial institutions worldwide.

The foreign currency spot market is supplemented

by equally deep and liquid markets for standardized

options and futures on foreign currencies and

options on those futures. There is also an active

over-the-counter market for foreign currency

options. See Securities Exchange Act Release No.

31627 (December 21, 1992), 57 FR 62399.

19See Amendment No. 4.

currency.13 In addition, the Exchange

will employ the same back up

procedures that are outlined for the 3D

Mark and the 3D Yen that guard against

unreliable or manipulated quotes.14

The Exchange’s Foreign Currency

Option Committee (‘‘the Committee’’)

will determine what the appropriate

number of bid and offer quotations

should be for determining settlement

values on each currency within the

minimum requirements of the PHLX

rule. For example, the Committee will

not have the discretion to select less

than five interbank foreign exchange

participants from which to obtain these

bid and offer quotations. In addition,

under the rule, the minimum number of

bids and offers must still be randomly

selected from a pool of at least twentyfive active interbank foreign participants

and the Committee will not have the

discretion to reduce the pool of

participants below this number.

Although the Committee will have the

ability to increase or decrease the

number of bids and offers randomly

selected from the larger pool of at least

twenty-five bids and offers, to determine

the settlement value for 3D options, the

Exchange has stated it does not

anticipate this occurring very

frequently. The Exchange will

periodically review the contributing

interbanks to assure that the number has

not materially increased or decreased.

The Committee will then have the

discretion to act upon this information

within the rule’s requirements. Notice of

any change, however, to the number of

contributor bank quotations used must

be provided to the membership and

public at least one week prior to

settlement of the 3D currency option.

The Committee has determined to

continue to collect fifteen bid and offer

quotations from a pool of forty for the

3D Mark.15 For the 3D Yen, however,

there are fewer banks that diligently

provide quotes that are updated more

frequently than every five minutes. This

results in the algorithm not being able

to replace quotes updated every five

minutes or more with more frequently

updated quotes because there are not

enough quotes that are less than five

minutes old.16 Therefore, the Committee

has determined that a more accurate

representation of the Japanese Yen

Market would be derived from

collecting ten bid and ask quotations

from a group of forty active interbank

participants and discarding the three

highest offers and the three lowest bids

prior to averaging them.

The Exchange maintains that in

proposing any new 3D Foreign Currency

Option contracts for listing and trading

on the Exchange, the Exchange will

identify the appropriate number of bank

quotations that will be collected to

arrive at the settlement value in the rule

filing submitted pursuant to Section

19(b) and Rule 19b–4 of the Act. As

noted above, the number of interbank

participants from which the quotations

are collected cannot be less than five.

Further, the Exchange will provide at

least one week notice of the number of

contributor bank quotations used to

derive the settlement value prior to

listing and trading the 3D options on the

new currency.

III. Discussion

The Commission believes 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).17 The

Commission finds that the proposed

rule change promotes just and equitable

principles of trade, prevents fraudulent

and manipulative acts and practices,

and protects investors and the public

interest because it will provide the

Exchange with greater flexibility to

ensure that settlement values for 3D

foreign currency options are an accurate

reflection of the most current and active

contributor interbank participants. This

should benefit investors trading these

products, thereby facilitating

transactions in foreign currency options

in accordance with Section 6(b)(5) of the

Act.

The Commission believes that the

proposed rule change will more

accurately reflect the foreign currency

spot price for each individual currency

because it allows the Exchange to tailor

the number of interbank foreign

exchange participants to the active spot

market in each individual currency. The

Commission finds that PHLX’s amended

procedures for calculating the

settlement value for the 3D Options, and

the competitive nature of the spot

market for foreign currencies, should

help to ensure that the settlement values

accurately reflect the spot price for each

foreign currency.18 In addition, the

Commission believes that PHLX’s

amended procedure will continue to

guard against unreliable or manipulated

quotes because the designated agent(s)

will continue to randomly choose

interbank foreign exchange participants

for the purpose of collecting quotes, and

those randomly chosen quotes will then

be averaged to arrive at the final

settlement value. In addition, as

described above, although the change

does give PHLX some flexibility in the

number of bids and offers randomly

selected, the current methodology for

eliminating less frequent quotes will

remain the same. This should continue

to ensure settlement values are on an

accurate reflection of the most current

quotes.

The Commission also believes that the

inability of the Exchange to decrease the

number of bid and offer quotations for

each currency that will be randomly

selected from the larger pool of at least

twenty-five to less than five interbank

foreign exchange participants guards

against potential manipulation by

ensuring that the final settlement value

is an average of a minimum number of

interbank quotations and is not

determined by one or two banks. By

requiring bid and offer quotations from

at least five interbank participants and

allowing only one third of the highest

and one third of the lowest bids and

offers to be discarded, the amended rule

requires that, at a minimum, the final

settlement value for any 3D Option must

be calculated from at least three bid and

offer quotations.19 Additionally, the

Commission finds that the requirement

that the Exchange provide notice (at

least one week in advance of settlement

of the 3D Option) to its membership and

public of any change in the number of

contributor bank quotations used to

calculate the final settlement value for

that 3D Option helps to ensure that the

investors are aware of the terms of the

3D Option and how the settlement value

will be calculated before the expiration

of that option.

The Commission finds good cause for

approving Amendment No. 4 prior to

the thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register. Among other
Federal Register / Vol. 62, No. 37 / Tuesday, February 25, 1997 / Notices 8485

20 15 U.S.C. 78s(b)(2).

21 17 CFR 200.30–3(a)(12).

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

2The Commission has modified the text of the

summaries prepared by SCCP.

3This is not a graduated rate schedule. Once a

volume threshold is reached, all trades receive such

volume discount rate.

4 15 U.S.C. 78q–1

5 15 U.S.C. 78s(b)(3)(A)(ii).

6 17 CFR 240.19b–4(e)(2).

things, Amendment No. 4 amends

PHLX’s rules to allow the number of

interbank exchange participants to be

chosen from a pool of twenty-five

participants or more, rather than a pool

of only twenty-five, by adding the words

‘‘at least.’’ The Commission believes

good cause exists to accelerate approval

of Amendment No. 4 because this

amendment may provide a more

accurate final settlement value, by

providing more quotes for the

calculation. The algorithm will still

replace any quotes that are updated five

minutes or more with more frequently

updated quotes if they are available. In

addition, in approving the 3D Japanese

Yen options, the Commission

understood that PHLX may use more

than twenty-five interbank foreign

exchange participants. Also, the

amendment further explains the process

for calculating the settlement value for

3D Options and clarifies the Exchange’s

purpose for the proposed rule change.

Further, the proposal to change the

formula for calculating the settlement

value for 3D options was noticed

previously in the Federal Register for

the full statutory period and the

Commission did not receive any

comments. Accordingly, the

Commission believes that it is

consistent with Sections 6 and 19(b)(2)

of the Act to approve Amendment No.

4 to the proposal on an accelerated

basis.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning Amendment No.

4 to the proposed rule change. 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

rules change that are filed with the

Commission, and all written

communications relating to the

Amendment No. 4 between the

Commission and any persons, 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 at the principal office of the

Exchange. All submissions should refer

to File No. SR–PHLX–96–44 and should

be submitted by March 18, 1997.

V. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act 20 that the

proposed rule change (SR–PHLX–96–

44), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.21

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–4528 Filed 2–24–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38306; File No. SR–SCCP–

96–13]

Self-Regulatory Organizations; Stock

Clearing Corporation of Philadelphia;

Notice of Filing and Immediate

Effectiveness of a Proposed Rule

Change to Consolidate and Restate its

Fee Schedule

February 19, 1997.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

December 23, 1996, the Stock Clearing

Corporation of Philadelphia (‘‘SCCP’’)

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 primarily by SCCP.

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 purpose of the proposed rule

change is to consolidate and restate

SCCP’s schedule of fees and charges

(Exhibit A).

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

SCCP included statements concerning

the purpose of and basis for the

proposed rule change and discussed any

comments it received on the proposed

rule changes. The text of these

statements may be examined at the

places specified in Item IV below. SCCP

has prepared summaries, set forth in

sections (A), (B), and (C) below, of the

most significant aspects of such

statements.2

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

The purpose of the proposed rule

change is to consolidate and restate

SCCP’s schedule of fees and charges.

SCCP proposes to revise its volume

discounts applicable to trade recording

fees and value charges for PACE CNS

trades settling at SCCP. SCCP currently

provides a flat $0.77 per side discount

for 4,000 or more trades per month.

SCCP’s discounts have been revised into

the following schedule: $0.77 per side

for 4,000 to 6,000 trades per month;

$0.55 per side for 6,001 to 8,000 trades

per month; and $0.35 per side for over

8,000 trades per month.3

Additionally, SCCP proposes to

consolidate and restate existing fees and

charges. This filing is being made in

accordance with SCCP’s policy to

annually file a comprehensive schedule

of all existing fees and charges.

SCCP believes the proposed rule

change is consistent with Section 17A of

the Act 4 and the rules and regulations

thereunder because it will provide for

the equitable allocation of dues, fees,

and other charges among participants.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

SCCP does not believe the proposed

rule change will impose a burden on

competition.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

Written comments were neither

solicited nor received with respect to

the proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The foregoing rule change has become

effective pursuant to Sections

19(b)(3)(A)(ii) 5 of the Act and pursuant

to Rule 19b–4(e)(2) 6 promulgated

thereunder because the proposal

establishes a due, fee, or other charge.

At any time within sixty days of the

filing of such 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,