[Federal Register Volume 63, Number 88 (Thursday, May 7, 1998)]
[Notices]
[Pages 25258-25260]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-12146]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39940; International Series Release No. 1131; File No. 
SR-PHLX-98-17]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the 
Philadelphia Stock Exchange, Inc., Relating to Listing and Trading 
Options on the European Currency Unit

April 30, 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 April 6, 1998, the Philadelphia Stock Exchange (``PHLX'' 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 PHLX. On 
April 27, 1998, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ The

[[Page 25259]]

Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons and is granting 
accelerated approval to the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the PHLX proposes to amend its filing so 
that the position limits for the European Currency Unit will be 
200,000 contracts on the same side of the market, rather than 
100,000 contracts, as originally proposed. In addition, in Amendment 
No. 1, the PHLX agrees that it will consult with the Commission, 
prior to the conversion to the Euro on January 1, 1999, to determine 
whether a Rule 19b-4 filing is necessary. See Letter from Nandita 
Yagnik, Counsel, PHLX, to Sharon Lawson, Senior Special Counsel, 
Division of Market Regulation (``Division''), Commission, dated 
April 23, 1998.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change.

    The Exchange proposes to relist for trading options on the European 
Currency Unit (``ECU''). The Exchange seeks to trade this product prior 
to the European Summit scheduled for May 2 and 3, 1998, in order to 
attract order flow based on a renewed interest in the ECU as well as 
growing interest in the events surrounding the eventual introduction of 
a single European currency, the Euro. The text of the proposed rule 
change is available at the Office of the Secretary, the PHLX, and at 
the Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
the 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 its received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III 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
    In July 1997, the Exchange delisted options on the ECU from the 
non-customized environment.\4\ Specifically, Rule 1009 provides that 
options on the ECU are only available as customized options traded 
pursuant to Rule 1069. However, with the advent of the Euro, customers 
as well as the membership have expressed interest in reintroducing 
options on the ECU in the non-customized environment. In January of 
1999, the ECU is scheduled to convert to the Euro on a one-to-one 
basis. During the Summit planned for early May 1998, the European 
Council Heads of State should determine which member states fulfill the 
necessary conditions outlined in the Maastrict Treaty and will 
participate in the European Monetary Union (``EMU'') in January of 
1999. On January 1, 1999, the conversion rate will be set for all 
European currencies which are participating in the EMU. The ECU should 
thus convert to the ``Euro'' at that time.\5\ In order to provide a 
trading opportunity for investors, the Exchange proposes to list for 
trading European \6\ and relist American \7\ style options on the 
ECU.\8\
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    \4\ See Securities Exchange Act Release No. 38764 (June 24, 
1997) 62 FR 35535 (July 1, 1997) (SR-PHLX-97-26).
    \5\ The Exchange agrees that before trading in Euro options, it 
will consult with the Commission to determine whether a Rule 19b-4 
filing pursuant to Section 19(b) of the Act is necessary. See 
Amendment No. 1, supra note 3.
    \6\ See PHLX Rule 1000(b)35, which defines European style as an 
option contract that may be exercised only on the day that it 
expires.
    \7\ See Rule 1000(b)34, which defines American style as an 
option contract that may be exercised at any time until its 
expiration.
    \8\ According to the Exchange, although the PHLX had been 
granted approval to list and trade both European and American style 
non-customized options on the ECU, only American style non-
customized options had been listed and traded by the Exchange. 
Telephone conversation between Nandita Yagnik, Counsel, PHLX, and 
Deborah Flynn, Attorney, Division, Commission, on April 28, 1998.
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    With respect to the ECU option proposed at this time, the contract 
size for the ECU will be 62,500 ECUs.\9\ The premium will be $.0044 per 
unit or $275 for an option contract having a unit of trading of 62,500, 
pursuant to Rule 1033. Pursuant to Rule 1014, the bid-ask differential 
for the ECU options will be .$0005 between the bid and the offer for 
each option contract for which the bid is $.0050 or less; no more than 
$.0010 where the bid is more than $.0050 but does not exceed $.0200; 
and no more than $.0015 where the bid is more than $.0200. The initial 
margin for the ECU would be 4%,\10\ as it was prior to delisting and is 
currently in the customized environment.
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    \9\ The specifications for the proposed ECU options are 
identical to those applied to the ECU options previously traded on 
the PHLX. In addition, we note that the same option trading rules 
that applied to trading the former ECU contract will apply to the 
new contract.
    \10\ Currently, the consumer margin requirement, composed of an 
add-on percentage for all PHLX currency options, is 4% of the 
underlying contract value (with the exception of the Italian lira 
and the Spanish peseta, which is 7%, and the Mexican peso, which is 
17%). A proposed rule change has been filed with the Commission to 
calculate the add-on percentage based on the three-year historical 
volatility of the respective currency. In the case of the ECU, the 
anticipated customer margin levels using the proposed methodology 
would be 3% at this time. See Securities Exchange Act Release No. 
39856 (April 13, 1998) 63 FR 19554 (April 20, 1998) (SR-PHLX-97-63).
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2. Statutory Basis
    The Exchange believes that re-listing the ECU option allows 
investors to take advantage of the planned conversion to the Euro at a 
time when the European markets are the most volatile. In addition, the 
advent of the Euro should promote trading and investment in the global 
currency markets. For the reasons above, the Exchange believes that the 
proposed rule change is consistent with Section 6 of the Act \11\ in 
general, and in particular with Section 6(b)(5),\12\ in that it is 
designed to promote just and equitable principles of trade, prevent 
fraudulent and manipulative acts and practices, and facilitate 
transactions in securities and remove impediments to and perfect the 
mechanism of a free and open market and a national market system.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on the 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 solicited or received at the time of the 
filing.

III. 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, N.W., Washington, 
DC 20549. Copies of the submissions, 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 Room, 450 Fifth Street, 
N.W., 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-98-17, and 
should be submitted by May 28, 1998.

[[Page 25260]]

IV. Commission's Findings and Order Granting Accelerated Approval 
of the Proposed Rule Change

    The Commission finds the proposed rule change is consistent with 
the requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\13\ Specifically, the 
Commission believes the proposal is consistent with Section 6(b)(5) of 
the Act,\14\ which requires that the rules of an exchange be designed 
to promote just and equitable principles of trade, 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.
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    \13\ In approving this rule, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that relisting and trading non-customized 
ECU options should benefit investors, as it will provide investors with 
greater opportunity to take advantage of the planned conversion to the 
Euro at a time interest in the ECU may be high. The Commission believes 
that trading options on the ECU should provide investors with an 
efficient and effective means of hedging the risks associated with the 
ECU. In addition, in approving the reintroduction of the non-customized 
ECU options, we note that they will be trading under the same terms and 
conditions and the previously traded ECU options. Thus, the 
reintroduction of ECU options has not raised any new regulatory issues.
    The Commission notes, however, that this approval order does not 
grant the Exchange approval to trade options on the Euro. Instead, the 
PHLX has agreed that before trading in options on the Euro, it will 
consult with the Commission to determine whether a Rule 19b-4 filing 
under Section 19(b) of the Act is necessary.\15\ In addition, the 
Commission notes that, assuming the terms and conditions of the Euro 
remain the same as those of the ECU, the Exchange still would need to 
address the manner in which the ECU would be converted to the Euro.
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    \15\ See Amendment No. 1, supra note 3.
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    The Commission finds good cause for approving the proposed rule 
change prior to the 30th day after its publication in the Federal 
Register. The Commission notes that accelerated approval will enable 
the Exchange to trade in non-customized ECU options prior to the 
European Summit scheduled for May 2 and 3, 1998. As noted above, 
relisting options on the ECU under the same terms, conditions, and 
subject to the same trading rules as the previous ECU options contracts 
raises no new issues of regulatory concern. For the foregoing reasons, 
the Commission believes that good cause exists pursuant to Section 
19(b)(2) of the Act \16\ to approve the proposed rule change, as 
amended, on an accelerated basis.
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    \16\ 15 U.S.C. 78s(b)(2).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the amended proposed rule change (SR-PHLX-98-17) is 
hereby approved on an accelerated basis.

    \17\ Id.
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-12146 Filed 5-6-98; 8:45 am]
BILLING CODE 8010-01-M