26068 Federal Register / Vol. 60, No. 94 / Tuesday, May 16, 1995 / Notices

4See Securities Exchange Act Release No. 33288

(Dec. 3, 1993), 58 FR 65221 (Dec. 13, 1993) (order

approving File No. SR–PHLX–93–07).

5The PHLX states that index options volume

increased 450% (from 354,614 contracts to

1,957,171 contracts) in 1994 as compared to 1993.

6According to the PHLX, the most recent position

limit changes in 1993 represented changes of 38%

(from 4,000 to 5,500 contracts); 25% (from 6,000 to

7,500 contracts); and 31% (from 8,000 to 10,500

contracts). 7 17 CFR 200.30–3(a)(12) (1994).

1993.4 However, there have been no

further increases in position limits since

1993, despite substantial changes in the

marketplace. Most notable among these

changes, according to the PHLX, is an

appreciable growth in index options

trading. This marked increase in index

options volume has significantly

increased liquidity in PHLX-traded

index options, as open interest has

similarly increased.5

Second, the Exchange believes that

the proposed increases are reasonable.

The PHLX states that in prior releases

approving increased position limits, the

Commission acknowledged that a

gradual, evlutionary approach has been

adopted by the Commission and the

various options exchanges in increasing

position and exercise limits.

Accordingly, the PHLX proposes a 33%

increase in the lowest tier (from 5,000

to 6,000 contracts); a 31% increase for

options currently at the 7,500 contract

limit; and a 20% increase in the highest

tier, which is currently at 10,500

contracts. The Exchange believes that

these proposed increases are consistent

with the gradual evolution cited by the

Commission, because the proposed

levels represent reasonable increases

which are in line with prior changes.6

Third, the Exchange believes that the

proposed increases are needed by

traders and investors. According to the

PHLX, Exchange members and

customers have asked the Exchange to

propose an increase in position limits.

The PHLX states that the requests have

focused on the inability of interested

trading participants to meet their

investment needs at current position

limit levels and the deleterious effect

this inability is having on these

products. Based on such member and

customer requests, the Exchange has

realized that the current position limit

levels discourage market participation

by large investors and the institutions

that compete to facilitate the trading

interests of large investors.

Accordingly, the PHLX proposes to

raise position limits to accommodate the

liquidity and hedging needs of large

investors and the facilitators of those

investors. Specifically, certain

institutional traders handling industry

funds deal in securities valued many

times higher than the maximum

permissible position under PHLX rules.

In addition, the Exchange believes

that the proposed limit of 6,000, 9,000,

and 12,000 contracts should increase

the depth and liquidity of the markets

for index options. The PHLX also

believes that higher position limits

would further accommodate the hedging

needs of Exchange market makers and

specialists, who are also restricted by

current levels.

The Exchange has considered the

effects of increased position limits on

the marketplace, recognizing the

purposes of these limits in preventing

manipulation and protecting against

disruption of the markets for both the

option as well as the underlying

security. The PHLX notes that it

nevertheless continues to monitor the

markets for evidence of manipulation or

disruption caused by investors with

positions at or near current position or

exercise limits and that the new limits

will not diminish the surveillance

function in this regard. Additionally,

surveillance procedures have become

increasingly sophisticated and

automated.

For these reasons, the Exchange

believes that the proposal to increase

narrow-based index option position

limits is consistent with Section 6 of the

Act, in general, and, in particular, with

Section 6(b)(5), in that it is designed to

promote just and equitable principles of

trade and to prevent fraudulent and

manipulative acts and practices, as well

as to protect investors and the public

interest. The Exchange believes that the

proposal should remove impediments to

and perfect the mechanism of a free and

open market by providing market

opportunity to investors constricted by

current position limit levels. The PHLX

also believes that by stimulating market

participation and thereby increasing

option market depth and liquidity, the

proposed rule change should promote

just and equitable principles of trade. At

the same time, the PHLX believes that

the proposed position limits should

continue to prevent fraudulent and

manipulative acts and practices as well

as protect investors and the public

interest by limiting the ability to disrupt

and manipulate the markets for options

as well as the underlying securities.

(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

received or requested.

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 of such date if it finds such

longer period to be appropriate and

publishes its reason for so finding or (ii)

as to which the self-regulatory

organization 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.

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 the file number in the caption

above and should be submitted by June

6, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–11945 Filed 5–15–95; 8:45 am]

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