20544 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Notices

15 15 U.S.C. 78s(b)(2) (1988).

16 17 CFR 200.30–3(a)(12) (1994).

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 35420

(February 27, 1995), 60 FR 11999 (March 3, 1995).

4Currently, the addition of strike prices, which is

governed by Phlx Rules 1012 and 1101A, is

determined by the movement of the underlying

stock, index, or foreign currency, such that strike

prices reasonably close to the value of the

underlying security are listed for trading. When the

Exchange plans to add a new strike price, a

memorandum is distributed to the trading floor as

well as over electronic systems notifying the

membership and their customers of the new strike.

See Securities Exchange Act Release No. 34349

(July 11, 1994), 59 FR 36469 (July 18, 1994).

5The Commission has previously approved

certain Phlx proposals that shortened foreign

currency option strike price intervals. See e.g.,

Securities Exchange Act Release Nos. 25685 (May

10, 1988), 53 FR 17524 (May 17, 1988) (French

franc from $.05 to $.025 strike price intervals) (File

No. SR–Phlx–86–14), and 24103 (February 13,

1987), 52 FR 5605 (February 25, 1987) (British

Pound from $.05 to $.025 strike price intervals)

(File No. SR–Phlx–86–14).

6The total number of new strikes includes both

puts and calls for American and European style

options on the British pound. See Letter from

Gerald O’Connell, First Vice President, Phlx, to

Michael Walinskas, Office of Market Supervision

(‘‘OMS’’), Division of Market Regulation

(‘‘Division’’), Commission, dated April 10, 1995

(‘‘O’Connell Letter No. 1’’).

7See Letter from William H. Morgan, Vice

President, Phlx, to Michael Walinskas, OMS,

Division, Commission, dated April 12, 1995

(‘‘Morgan Letter’’). See also Letter from Joseph P.

Corrigan, Executive Director, OPRA, to William

Terrell, Vice President, Phlx, dated April 6, 1995

(‘‘OPRA Letter’’).

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning Amendments

Nos. 1, 2, and 3. 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 in

the Commission’s Public Reference

Section, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the CBOE. All submissions

should refer to File No. SR–CBOE–94–

44 and should be submitted by May 17,

1995.

V. Conclusion

For the reasons discussed above, the

Commission finds that the proposal is

consistent with the Act, and, in

particular, Section 6 of the Act.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,15 that the

proposed rule change (File No. SR–

CBOE–94–44), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.16

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–10222 Filed 4–25–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35631; International Series

Release No. 805; File No. SR–Phlx–95–06]

Self-Regulatory Organizations; Order

Approving a Proposed Rule Change by

the Philadelphia Stock Exchange, Inc.,

Relating to British Pound Strike Price

Intervals

April 20, 1995.

I. Introduction

On January 30, 1995, the Philadelphia

Stock Exchange, Inc. (‘‘Phlx’’ or

‘‘Exchange’’) pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 1 and Rule 19b–4

thereunder,2 filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’) a proposed rule change

to revise its strike price policy

respecting foreign currency options on

the British pound by changing from: a

$.025 interval to a $.01 interval in the

nearest three expiration months; a $.025

interval to a $.02 interval in the next

three nearest expiration months; and a

$.05 interval to a $.04 interval for longterm British pound options, which have

12 to 36 months until expiration.

Notice of the proposal was published

for comment and appeared in the

Federal Register on March 3, 1995.3 No

comment letters were received on the

proposed rule change. This order

approves the Exchange’s proposal.

II. Description of the Proposal

The Phlx has proposed to revise its

strike price policy respecting foreign

currency options on the British pound

pursuant to Phlx Rule 1012—Series of

Options Open for Trading by adopting

shorter strike price intervals than

currently used. Currently, British pound

options are listed at 21⁄2 cent intervals;

long-term options are listed at 5 cent

intervals. Pursuant to Phlx Rule 1012,

six expiration months are currently

listed in regular foreign currency

options, with one, two, three, six, nine,

and twelve months until expiration.

Additionally, two long-term options are

currently listed (in June and December)

with 18 and 24 months until expiration.

Fluctuations in the spot price of the

British pound currently result in

additional listings at 21⁄2 cent intervals.4

The Exchange proposes to revise its

strike price policy respecting foreign

currency options on the British pound

by changing from a $.025 interval to a

$.01 interval in the nearest three

expiration months and from a $.025

interval to a $.02 in the next three

nearest expiration months. In addition

to reducing the strike price interval from

21⁄2 cents to 1 and 2 cents, respectively,

the Exchange also proposes to reduce

the strike price interval for long-term

British pound options, which have 12 to

36 months until expiration, from $.05 to

$.04.

The Exchange states that the purpose

of the proposed rule change is to

address certain market needs that have

arisen as a result of recent lower

volatility respecting the British pound

(in relation to the U.S. dollar), which

has created a customer need for

narrower strike price intervals.5 The

Exchange represents that the lower

volatility of the British pound has

resulted in a narrower trading range for

the currency option, sometimes limiting

the availability of sufficient near- or atthe-money series.

Additionally, the Exchange believes

the proposal is necessary to ensure that

the British pound foreign currency

option contract remains competitive and

consistent with the contract terms

applicable to British pound foreign

currency futures (and futures options)

traded on the Chicago Mercantile

Exchange (‘‘CME’’). Recently, the CME

determined to list certain options on

British pound futures (the three near

months) as $.01 intervals.

The Phlx asserts that the proposed

rule change will initially create 496 new

strike prices.6 Additionally, both the

Phlx and the Options Price Reporting

Authority (‘‘OPRA’’) represent that the

predicted increase in the number of

British pound options series will not

adversely affect their respective

computer processing capacities to

accommodate the additional strike

prices.7

The Exchange further states that its

general policy with respect to the

delisting of inactive options series,

subject to the assigned option

specialist’s approval, is to delist series

in which there is no open interest

beginning with the highest or lowest

strike for that month. The Exchange,

however, may not delist a series if such
Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Notices 20545

8See Letter from Gerald O’Connell, First Vice

President, Phlx, to Michael Walinskas, Branch

Chief, OMS, Division, Commission, dated April 12,

1995 (‘‘O’Connell Letter No. 2’’).

9 15 U.S.C. 78f(b)(5).

10See O’Connell Letter No. 2, supra note 8.

11See Morgan Letter, supra note 7. See also

O’Connell Letter No. 1, supra note 6.

12See OPRA Letter, supra note 7.

13 15 U.S.C. 78s(b)(2).

14 17 CFR 200.30–3(a)(12).

delisting would create a gap in

consecutive strikes.8

The Exchange believes that the

proposed reduction in the strike price

interval should provide investors and

traders of British pound foreign

currency options with the ability to

more closely tailor investment and

hedging strategies to British pound

trading levels and movement. The

Exchange further believes that the

proposed rule change is designed to

promote just and equitable principles of

trade by enabling more effective

management of foreign currency risk

respecting the British pound.

III. Commission Finding and

Conclusions

The Commission finds 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) of the

Act.9 Specifically the Commission finds

that the Exchange’s proposal to revise

its strike price policy respecting foreign

currency options on the British pound

by changing from a $.025 interval to a

$.01 interval in the nearest three

months; from $.025 interval to $.02

interval in the next three nearest

expiration months; and from $.05 to

$.04 interval for long-term British

pound options, which have 12 to 36

months until expiration, is a reasonable

attempt to perfect the mechanism of a

free and open market and a national

market system.

The Commission recognizes that any

narrowing of strike price intervals

increases the flexibility accorded market

participants and allows options

positions to be more finely tailored to

achieve intended investment objectives.

At the same time, however, narrower

strike price intervals create the

possibility of dispersing trading interest

to the degree that there is an excessive

dilution of liquidity in open options

series.

Accordingly, an evaluation of the

appropriate strike price interval for an

option contract requires a balancing of

the need to accommodate market

participants by providing a wide array

of investment opportunities and the

need to avoid causing excessive

proliferation of illiquid options series.

The Commission believes that the Phlx

proposal strikes such a reasonable

balance. Although the proposal makes

available a significant number of new

options series, the Commission notes

that Phlx generally seeks to delist

options series (including British pound

foreign currency options) with no open

interest.10 Therefore, the Phlx should be

able to eliminate any illiquid series that

might result from the implementation of

the new strike price proposal.

Accordingly, the Commission expects

the Phlx to monitor British pound

foreign currency options activity closely

in order to detect any proliferation of

illiquid series possibly resulting from

the narrower strike price intervals and

to act promptly to remedy this situation

should it occur.

In addition, based on representations

from the Phlx 11 and OPRA,12 the

Commission believes that the predicted

increase in the number of British pound

options series should not adversely

affect the computer processing capacity

to accommodate the additional strike

prices. More specifically, both the Phlx

and OPRA have represented that their

respective systems can adequately

handle the additional options

transaction-related traffic generated by

the projected new series. Nevertheless,

the Commission requests that the

Exchange monitor the volume of

additional options series listed as a

result of this rule change and continue

to ensure that these additional series

will not adversely impact processing

system capacity.

It is therefore ordered, pursuant to

section 19(b)(2) of the Act,13 that the

proposed rule change (File No. SR–

Phlx–95–06) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–10182 Filed 4–25–95; 8:45 am]

BILLING CODE 8010–01–M

[Rel. No. IC–21024; 812–9524]

Equity Income Fund, Select Ten

Portfolio

April 20, 1995.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of application for

exemption under the Investment

Company Act of 1940 (the ‘‘Act’’).

APPLICANT: Equity Income Fund, Select

Ten Portfolio.

RELEVANT ACT SECTIONS: Order requested

under section 6(c) of the Act that would

exempt applicant from section 12(d)(3)

of the Act.

SUMMARY OF APPLICATION: Applicant

requests an order on behalf of its series

(the ‘‘Series’’) and the Series’

component trusts (the ‘‘Trusts’’) to

permit each Trust to invest up to ten

percent of its total assets in securities of

issuers that derived more than fifteen

percent of their gross revenues in their

most recent fiscal year from securities

related activities.

FILING DATE: The application was filed

on March 14, 1995 and amended on

April 20, 1995.

HEARING OR NOTIFICATION OF HEARING: An

order granting the application will be

issued unless the SEC orders a hearing.

Interested persons may request a

hearing by writing to the SEC’s

Secretary and serving applicant with a

copy of the request, personally or by

mail. Hearing requests should be

received by the SEC by 5:30 p.m. on

May 15, 1995 and should be

accompanied by proof of service on the

applicant, in the form of an affidavit or,

for lawyers, a certificate of service.

Hearing requests should state the nature

of the writer’s interest, the reason for the

request, and the issues contested.

Persons may request notification of a

hearing by writing to the SEC’s

Secretary.

ADDRESSES: Secretary, SEC, 450 5th

Street, N.W., Washington, D.C. 20549.

Applicant, c/o Merrill Lynch, Pierce

Fenner & Smith Incorporated, P.O. Box

9051, Princeton, N.J. 08543–9051.

FOR FURTHER INFORMATION CONTACT:

Marianne H. Khawly, Staff Attorney, at

(202) 942–0562, or C. David Messman,

Branch Chief, at (202) 942–0564

(Division of Investment Management,

Office of Investment Company

Regulation).

SUPPLEMENTARY INFORMATION: The

following is a summary of the

application. The complete application

may be obtained for a fee from the SEC’s

Public Reference Branch.

Applicant’s Representations

1. Each Series will be a series of

Equity Income Fund, Select Ten

Portfolio, a unit investment trust

registered under the Act, composed of

one or more separate Trusts. Merrill

Lynch, Pierce, Fenner & Smith

Incorporated (‘‘Merrill Lynch’’),

Prudential Securities Incorporated,

PaineWebber Incorporated, Smith

Barney Inc., and Dean Witter Reynolds