19554 Federal Register / Vol. 63, No. 75 / Monday, April 20, 1998 / Notices

27 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Letter from Michele R. Weisbaum, Vice

President and Associate General Counsel, Phlx, to

Sharon Lawson, Senior Special Counsel, Division of

Market Regulation (‘‘Division’’), Commission, dated

February 19, 1998 (‘‘Letter Amendment’’). In the

Letter Amendment, the Phlx proposes to amend its

proposed rule change to: (1) conduct margin

reviews quarterly rather than semi-annually; (2)

monitor currencies monthly when the confidence

level falls to between 97% and 97.5% until the

confidence level exceeds 97.5% for two consecutive

months, rather than just one month; and (3) revise

Rule 722 to exclude the actual margin level for each

currency and to note that instead, the Phlx will

distribute membership circulars announcing the

margin levels that are derived pursuant to

Commentary .16 of Rule 722.

4See Letter from Nandita Yagnik, Counsel, Phlx,

to Sharon Lawson, Senior Special Counsel,

Division, Commission, dated April 3, 1998

(‘‘Amendment No. 1’’). Amendment No. 1

incorporates the original proposed rule change and

Letter Amendment into a Rule 19b–4 notice.

5This 4% ‘‘add-on’’ percentage is applicable to

the following foreign currencies: Australian dollar,

British pound, Canadian dollar, German mark,

European Currency Unit, French franc, Japanese

yen and Swiss franc. The Spanish peseta and the

Italian lira currently have a 7% add-on percentage

and the Mexican peso has an add-on percentage of

17%.

6See Securities Exchange Act Release No. 22469

(September 26, 1985) 50 FR 40663 (October 4, 1985)

(order approving File Nos. SR–Amex–84–29, SR–

CBOE–84–27, SR–NASD–85–15, SR–PSE–84–20,

SR–Phlx–84–32 and SR–Phlx–85–18 and

establishing a uniform margin system for options

products).

7See Securities Exchange Act Release No. 36255

(September 20, 1995) 60 FR 50229 (September 28,

1995) (order approving File Nos. SR–Phlx–95–20

and SR–Phlx–95–21).

8See Securities Exchange Act Release No. 39460

(December 17, 1997) 62 FR 67425 (December 24,

1997) (order approving File No. SR–Phlx–97–22).

9Although the Phlx initially proposed semiannual margin reviews, in Amendment No. 1, the

Phlx proposes to amend Commentary .16(b) of Rule

722 to require margin reviews to be conducted

quarterly, on the 15th of January, April, July and

October of each year. See Amendment No. 1, supra

note 4.

10As initially proposed, it was unclear whether

monthly margin reviews would be required once

the confidence level equaled 97.5%. Amendment

No. 1 makes clear that the confidence level must

exceed 97.5% for two consecutive months before

the currency will no longer be reviewed monthly.

See Amendment No. 1, supra note 4.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.27

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–10273 Filed 4–17–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39856; File No. SR–Phlx–

97–63]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment No. 1 Thereto by the

Philadelphia Stock Exchange, Inc. to

Amend its Method of Calculating Initial

and Maintenance Margin Requirements

for Foreign Currency Options

April 13, 1998.

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 December

22, 1997, 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. On

February 20, 1998, the Phlx filed a

Letter Amendment to the proposed rule

change.3 The Phlx filed Amendment No.

1 to the proposed rule change on April

6, 1998.4 The Commission is publishing

this notice to solicit comments on the

proposed rule change, as amended, from

interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Phlx proposes to amend Phlx

Rule 722 to codify its method of

calculating initial and maintenance

customer margin requirements for

foreign currency options. Under

proposed new Commentary .16 to Rule

722, the Exchange would calculate the

margin requirements for each foreign

currency separately, rather than

determining one margin level for all

foreign currencies based upon the

historical pricing information for all

foreign currencies together.

The complete text of the proposed

rule change is available at the Office of

the Secretary, Phlx and at the

Commission.

II. Self-Regulatory Organization’s

Statements Regarding 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

Currently, the Exchange calculates the

margin requirement for customers that

assume short foreign currency option

positions by adding 4% of the current

market value of the underlying foreign

currency contract to the option

premium price less an adjustment for

the out-of-the-money amount of the

option contract.5 The 4% add-on

percentage was adopted in 1986 and

provided for initial margin which would

cover the aggregate underlying foreign

currencies’ historical volatility over a

seven day period with a 95%

confidence level over the latest nine

month period.6 This add-on percentage

is now reviewed by the Exchange every

quarter to assure that it provides for a

97.5% confidence level over a five day

period. Recently, the Exchange has

listed new foreign currency options

such as the Spanish peseta and the

Italian lira 7 and has received approval

to trade options on the Mexican peso.8

In determining the appropriate margin

levels for these new currencies, the

Commission has indicated that it

believes that the Exchange should set

margin levels for each foreign currency

option independently and that it should

state its specific procedure for setting

these levels in its rules. The purpose of

this proposal is to address this issue by

adopting new foreign currency options

margin procedures as proposed in

Commentary .16 to Rule 722.

The Exchange is proposing to

determine the applicable add-on

percentage by reviewing, on a quarterly

calendar basis,9 five-day price changes

over the preceding three-year period for

each underlying currency and set the

add-on percentage at a level which

would have covered those price changes

at least 97.5% of the time (‘‘confidence

level’’). If the results of subsequent

reviews show that the current margin

level provides a confidence level below

97%, the Exchange will increase the

margin requirement for that individual

currency up to a 98% confidence level.

If the confidence level is between 97%

and 97.5%, the margin level will remain

the same but will be subject to monthly

follow-up reviews until the confidence

level exceeds 97.5% for two consecutive

months.10 If during the course of the

monthly follow-up reviews, the

confidence level drops below 97%, the

margin level will be increased to a 98%

level and if it exceeds 97.5% for two

consecutive months, the currency will

be taken off monthly reviews and will
Federal Register / Vol. 63, No. 75 / Monday, April 20, 1998 / Notices 19555

11See Phlx Rule 772(i)(8).

12As initially proposed, all changes to the addon percentages for individual currencies set forth in

Phlx Rule 722 would have required a proposed rule

change to be filed with the Commission pursuant

to Section 19(b)(3)(A) of the Act. As changes to the

margin levels for individual currencies will not

require changes to Phlx Rule 722 and instead, will

be announced to the Phlx membership via circular,

such changes will not trigger a requirement to

subject a 19(b)(3)(A) filing to the Commission.

Telephone conversation between Nandita Yagnik,

Counsel, Phlx, and Deborah Flynn, Division,

Commission, on April 13, 1998.

13 15 U.S.C. 78f.

14 15 U.S.C. 78f(b)(5). 15 17 CFR 200.30–3(a)(12).

be put back on the quarterly review

cycle. If the currency exceeds 98.5%,

the margin level will be reduced to a

98% confidence level. Finally, in order

to account for large price movements

outside the margin level, if the review

shows that the currency had a price

movement, either positive or negative,

greater than two times the margin level,

the margin requirement would be set at

a level to meet a 99% confidence level

(‘‘extreme outlier test’’).

The quarterly reviews will be

conducted promptly following the 15th

of January, April, July and October of

each year. In addition to the routine

reviews described above, the Exchange

continues to have authority to impose a

higher margin level at any time in

between reviews if market conditions so

warrant.11 At this time, the margin

levels for Tier I, II, and III customized

cross rate options will remain the same.

Finally, the Phlx proposes to revise

Rule 722 so that while the calculation

methodology will be outlined in

Commentary .16, the actual margin level

for each currency will not be stated.

Instead, the Exchange will distribute

circulars to the membership announcing

the margin levels that are derived

pursuant to the methodology in

Commentary .16 to Rule 722. In

addition, any time that a particular

margin level changes based on a review

or otherwise pursuant to Rule 722, the

new margin requirement will be

announced via circular to the

membership.12

2. Statutory Basis

The Exchange believes that the

proposed rule change is consistent with

Section 6 of the Act 13 in general, and

in particular, with Section 6(b)(5),14 in

that it is designed to promote just and

equitable principles of trade, prevent

fraudulent and manipulative acts and

practices, to foster cooperation and

coordination with persons engaged in

regulating, clearing, settling, processing

information with respect to, and

facilitating transactions in securities, to

remove impediments to and perfect the

mechanism of a free and open market

and a national market system, as well as

to protect investors and the public

interest by establishing margin levels for

foreign currency options which reflect

the specific risks associated with each

individual currency.

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 or 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, as amended, 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

Section, 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–97–63

and should be submitted by May 11,

1998.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.15

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–10340 Filed 4–17–98; 8:45 am]

BILLING CODE 8010–01–M

DEPARTMENT OF STATE

[Public Notice #2789]

Advisory Committee on International

Communications and Information

Policy; Meeting Notice

The Department of State is holding

the next meeting of its Advisory

Committee on International

Communications and Information

Policy. The Committee provides a

formal channel for regular consultation

and coordination on major economic,

social and legal issues and problems in

international communications and

information policy, especially as these

issues and problems involve users of

information and communication

services, providers of such services,

technology research and development,

foreign industrial and regulatory policy,

the activities of international

organizations with regard to

communications and information, and

developing country interests.

The meeting will be devoted to

discussion of issues of interest to

members, particularly as to the work of

the State Department on

telecommunications policy involving

both bilateral and multilateral fora.

In addition, the purpose of this

meeting will be to hear reports from the

working groups on various issues that

chart the future direction and work plan

of the committee. The members will

look at the substantive issues on which

the committee should focus, as well as

specific countries and regions of interest

to the committee.

This meeting will be held on

Thursday, April 30, 1998, from 9:30

a.m.—12:30 p.m. in Room 1107 of the

Main Building of the U.S. Department of

State, located at 2201 ‘‘C’’ Street, NW.,

Washington, DC 20520. Members of the

public may attend these meetings up to

the seating capacity of the room. While

the meeting is open to the public,

admittance to the State Department

Building is only by means of a prearranged clearance list. In order to be

placed on the pre-clearance list, please

provide your name, title, company,