Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Notices 24943

2Hereinafter referred to as Nasdaq National

Market (‘‘NM’’) securities. 3 17 CFR 200.30–3(a)(12) (1994).

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 NYSE proposes to amend its Rule

759A (Reporting Requirements

Applicable to Short Sales in NASDAQ

NMS Securities 2). Rule 759A prohibits

an Exchange options specialist or

Competitive Options Trader (‘‘COT’’)

from relying on the options market

making exemption from the short sale

bid test of the Rules of Fair Practice of

the NASD unless the transaction is an

‘‘exempt hedge transaction.’’ The

proposed rule change would expand the

definition of ‘‘exempt hedge

transaction’’ to include certain short

sales of a company that is involved in

a publicly-announced merger or

acquisition (‘‘M&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, the

self-regulatory organization 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 self-regulatory organization 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

NYSE Rule 759A prohibits each

exchange options specialist and COT

from relying on the options market

maker exemption of the NASD Rules of

Fair Practice to effect short sales in

Nasdaq NM securities at or below the

best bid when the displayed bid is

below the preceding best bid in, unless

the short sale is an ‘‘exempt hedge

transaction.’’ The proposal would

expand the definition of ‘‘exempt hedge

transaction’’ to include certain short

sales in the stock of a company that is

a party (or a prospective party) to an

M&A with the issuer of a Nasdaq NM

security that underlies an Exchangelisted option. Specifically, with respect

to an Exchange options specialist, the

exemption would apply to short sales of

a company that is a party to an M&A

with a company whose Nasdaq NM

security underlies a specialty stock

option; with respect to a COT, the

exemption would apply to short sales of

a company that is a party to an M&A

with a company whose Nasdaq NM

security underlies an Exchange-listed

stock option.

For the exemption to apply, the

options specialist or COT must initiate

the short sale in order to effect a bona

fide hedge of an existing or prospective

position in an Exchange-listed stock

option. A ‘‘prospective position’’ refers

to a position that might be created as the

result of specialist or COT has initiated

prior to the hedge transaction.

The proposed rule change seeks to

address the bona fide hedging needs of

an options specialist or COT where a

company enters into an M&A with a

company whose Nasdaq NM security

underlies an Exchange-listed option.

Under those circumstances, the options

specialist or COT may have no feasible

alternative to hedge an options position

on the Nasdaq NM security, given the

risk arbitrage relationship that is likely

to exist between the stock underlying

the option and the stock of the other

company involved in the merger or

acquisition.

The Exchange believes that the

proposed rule change is consistent with

Section 6(b) under that Act in general,

and furthers the objectives of section

6(b)(5) in particular, in that it is

designed to promote just and equitable

principles of trade and to protect

investors and the public interest. The

proposal seems to enhance the ability of

options specialists and COTs to perform

their market-making functions, thereby

contributing to the depth and liquidity

of the options market.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

The NYSE believes that the proposed

rule change will not impose any burden

on competition.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

Written comments on the proposed

rule change were neither solicited nor

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 of such date if it finds such

longer period to be appropriate and

publishes its reasons 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, 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. 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 File No. SR–NYSE–95–16 and

should be submitted by May 31, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.3

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–11509 Filed 5–9–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35671; File No. SR–PHLX–

94–61]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change and

Notice of Filing and Order Granting

Accelerated Approval of Amendment

No. 1 to the Proposed Rule Change by

the Philadelphia Stock Exchange, Inc.,

Relating to Floor Procedure Advice F–

8, Failure to Comply With an Exchange

Inquiry

May 4, 1995.

On November 21, 1994, the

Philadelphia Stock Exchange, Inc.

(‘‘PHLX’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission
24944 Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Notices

1 15 U.S.C. 78s(b)(1) (1988).

2 17 CFR 240.19v–4 (1994).

3On March 15, 1995, the PHLX amended its

proposal to apply Advice F–8 to equities as well as

options. See Letter from Edith Hallahan, Special

Counsel, PHLX, to Michael Walinskas, Branch

Chief, Office of Market Supervision, Division,

Commission, dated March 14, 1995. (‘‘Amendment

No. 1’’). Under Amendment No. 1, Equity Advice

EM–1 will be renumbered as F–8.

4See Letter from Gerald D. O’Connell, First Vice

President Market Regulation and Trading

Operations, PHLX, to Michael Walinskas, Branch

Chief, Office of Market Supervision (‘‘OMS’’),

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

Commission, dated January 30, 1995 (‘‘January 30

Letter’’).

5See Securities Exchange Act Release No. 35305

(January 31, 1995), 60 FR 7252 (February 7, 1995).

6Advice F–8 also applies to FCO participants and

participant organizations. See January 30 Letter,

supra note 4. See also PHLX Rule 13, ‘‘Foreign

Currency Options Participant,’’ which provides that

FCO participants are subject to the provisions of the

Exchange’s rules that are applicable to a member of

the Exchange and states that each reference to a

member of the Exchange in the PHLX’s rules is

deemed to pertain also to FCO participants.

7The PHLX’s minor plan, codified in PHLX Rule

970, contains floor procedure advices with

accompanying fine schedules. Rule 19d–1(c)(2)

under the Act authorizes national securities

exchanges to adopt minor rule violation plans for

summary discipline and abbreviated reporting; Rule

19d–1(c)(1) requires prompt filing with the

Commission of any final disciplinary action.

However, minor rule violations not exceeding

$2,500 are deemed not final, thereby permitting

periodic, as opposed to immediate, reporting.

8See Securities Exchange Act Release No. 26899

(June 7, 1989), 54 FR 25526 (June 15, 1989) (order

approving File No. SR–PHLX–89–20).

9The two-business day requirement applies, for

example, to requests for books and records. See

Letter from Edith Hallahan, Special Counsel, PHLX,

to Michael Walinskas, Branch Chief, OMS,

Division, Commission, dated November 30, 1994.

10Under the Advice F–8’s fine schedule, as

amended, the Exchange will impose a fine of $200

for the first occurrence, $1,000 for the second

occurrence, $2,500 for the third occurrence, and a

sanction discretionary with the Exchange’s

Business Conduct Committee (‘‘BCC’’) for the fourth

and subsequent occurrences.

11 15 U.S.C. 78f(b)(5) (1988).

12See Securities Exchange Act Release Nos.

27151 (August 18, 1989), 54 FR 35972 (August 30,

1989) (order approving File No. SR–PHLX–89–20);

and 25763 (May 27, 1988), 53 FR 20925 (June 7,

1988) (order approving File No. SR–NYSE–87–10).

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

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’),1 and

Rule 19b–4 thereunder,2 a proposed rule

change to amend Floor Procedure

Advice (‘‘Advice’’) F–8, ‘‘Failure to

Comply with an Exchange Inquiry,’’ to

require PHLX members, member

organizations, and associated persons to

comply promptly with any request for

information made by the Exchange in

connection with any regulatory inquiry

or examination relating to the

Exchange’s regulatory obligations.

Advice F–8, as proposed, will apply to

activities concerning equities,3 equity

options, index options, and foreign

currency options (‘‘FCOs’’).4

The proposed rule change was

published for comment in the Federal

Register on February 7, 1995.5 No

comments were received on the

proposal.

Currently, Advice F–8 requires

Exchange members,6 member

organizations, and associated persons,

to comply promptly with any request for

information made by the Exchange’s

Market Surveillance Department in

connection with any investigation

within the Exchange’s disciplinary

jurisdiction involving activities on the

equity and option (including equity

options, stock index options, and FCOs)

trading floors. The PHLX proposes to

amend Advice F–8 to: (1) Now also

apply to activities on the equity trading

floor, and (2) extend the requirements of

Advice F–8 to include PHLX

Examinations Department requests, as

well as any requests made by the

Exchange in connection with any other

regulatory inquiry, investigation, or

examination relating to the Exchange’s

regulatory obligations.

The PHLX notes that the Advice,

which is administered under the

Exchange’s minor rule violation

enforcement and reporting plan (‘‘minor

rule plan’’),7 was adopted in order to

expedite the Exchange’s investigation

process by enabling the Exchange to

summarily reprimand failures to

respond to such requests for

information.8

Advice F–8 will continue to contain

a prompt compliance requirement

relating to Exchange requests for

information pursuant to the advice.

Under the proposal, information

requested by the Exchange’s

Examinations Department must be

received within two business days from

the date of the original request in order

to satisfy the prompt compliance

requirement of Advice F–8.9 For other

Exchange requests made pursuant to

Advice F–8, information must be

received within 10 business days from

the date of the original request in order

to satisfy the prompt compliance

requirement.

Finally, the PHLX proposes to amend

Advice F–8 to reduce the fine for a first

violation of the Advice from $500 to

$200, and to provide that each

additional request for information not

furnished within the allotted time

period may be considered as a separate

occurrence for purposes of the Advice’s

fine schedule.10

According to the PHLX, the

modification of the fine schedule is

designed to deter delays in compliance

with Exchange requests for information

by counting each repeat request as a

separate occurrence. The proposal to

reduce the fine for a first occurrence

from $500 to $200 is designed to reflect

the potential for increased application

of the fines.

The PHLX believes that extending the

requirements of Advice F–8 to include

Examinations Department and other

regulatory requests should enhance the

Exchange’s ability to meet its regulatory

obligations expeditiously. Accordingly,

the Exchange believes that the proposed

rule change 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, to prevent

fraudulent and manipulative acts and

practices, and to protect investors and

the public interest.

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

requirement of Section 6(b)(5) 11 that the

rules of an exchange be designed to

prevent fraudulent and manipulative

acts and practices and to protect

investors and the public interest. In

addition, the Commission finds that the

proposal is consistent with the

requirement of Section 6(b)(1) of the Act

that an exchange have the capacity to

enforce compliance by its members with

the provisions of the Act, the rules and

regulations thereunder, and the rules of

the exchange.

The Commission believes, as it has

stated in the past,12 that in order to

effect its supervisory and compliance

role over members and members

organizations, it is necessary for an

exchange to have the ability to set

timetables for the receipt of information,

and the disciplinary authority to compel

members to comply with such requests.

By requiring Exchange members to

comply promptly with Exchange

requests for information in connection

with any regulatory inquiry,

investigation, or examination, the

proposal protects investors and the

public interest by facilitating the prompt

resolution of Exchange investigations,

examinations, and disciplinary

proceedings. This, in turn, should

enhance the quality, consistency, and

fairness of the important Exchange

oversight functions and enable the

PHLX to better enforce compliance by

its members with the Exchange’s rules

and the federal securities laws.

The Commission believes that it is

reasonable for the Exchange to apply the
Federal Register / Vol. 60, No. 90 / Wednesday, May 10, 1995 / Notices 24945

13Under the PHLX’s minor rule plan, the

Exchange may impose a fine not to exceed $2,500

for violations of Advices in lieu of commencing a

disciplinary proceeding. In any action taken under

the minor rule plan, the PHLX must serve the

person against whom a fine is imposed with a

written statement setting forth (1) the Advice(s)

alleged to have been violated; (2) the act or

omission constituting each violation; (3) the fine

imposed for each violation; and (4) the date by

which the determination becomes final and the fine

becomes due and payable to the Exchange, or when

the determination must be contested. Any person

against whom a fine is imposed pursuant to the

minor rule plan may contest the Exchange’s

determination by filing an answer with the

Exchange department taking the action, when the

matter will be referred to the Exchange’s BCC for

their consideration.

14For example, the Exchange’s Market

Surveillance Department may request information

in connection with a particular trade or trades or

a customer complaint about the handling of an

order.

15 15 U.S.C. 78s(b)(2) (1982).

16 17 CFR 200.30–3(a)(12) (1994).

revised F–8 prompt compliance

requirement to matters involving

equities, equity options, index options,

and FCOs, and to extend the prompt

compliance requirement to information

requests made by the Exchange in

connection with any regulatory inquiry,

investigation, or examination in order to

expedite the Exchange’s investigations

and to provide consistent treatment for

all Exchange requests for information. In

addition, the Commission believes that

including Advice F–8 in the Exchange’s

minor rule plan will enable the PHLX to

impose immediate sanctions for failures

to respond to Exchange requests for

information, thereby encouraging timely

compliance with the provisions of

Advice F–8.13 Moreover, the

Commission believes that it is

appropriate to include Advice F–8 in

the Exchange’s minor rule plan because

failures to respond to Exchange requests

for information are objective in nature

and are easily verifiable, and thus lend

themselves to the use of expedited

proceedings.

The Commission believes it is

reasonable for the PHLX to require

members to provide information within

two business days for Examinations

Department requests, and within 10

business days for all other Exchange

requests for information. In this regard,

the Commission notes that

Examinations Department requests will

be made in connection with books and

records which members must maintain

on an ongoing basis and which should

be readily available. In contrast, other

information requests made by the

Exchange may involve events which

occurred in the past and for which

information may not be readily

available.14

The Commission believes that it is

reasonable for the PHLX to amend

Advice F–8 to reduce the fine for a first

violation of the Advice from $500 to

$200, and to provide that each

additional request for information not

furnished within the allotted time

period may be considered as a separate

occurrence for purposes of the Advice’s

fine schedule. The Commission believes

that this provision should help to deter

delays in compliance with Exchange

requests for information and result in

appropriate discipline, which should

further ensure the protection of

investors and the public interest.

The Commission finds good cause for

approving Amendment No. 1 to the

proposed rule change prior to the

thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register in order to make

the treatment of equities under Advice

F–8 consistent with the treatment of

equity options, index options, and

FCOs. The Commission notes that the

portion of the proposal applicable to

equity options, index options, and FCOs

was subject to the full notice and

comment period and that no comments

were received on that portion of the

proposal. Since Amendment No. 1

makes the treatment of equities under

Advice F–8 consistent with the

treatment of options, Amendment No. 1

raises no new regulatory issues.

Accordingly, the Commission believes it

is consistent with Sections 6(b)(5) and

19(b)(2) of the Act to approve

Amendment No. 1 on an accelerated

basis.

Interested persons are invited to

submit written data, views and

arguments concerning Amendment No.

1 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

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 May

31, 1995.

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

PHLX–94–61) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.16

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–11510 Filed 5–9–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35678; International Series

Release No. 809; File No. SR–Phlx–95–20]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Philadelphia Stock Exchange, Inc.

Relating to the Trading of Customized

Foreign Currency Options on the

Italian Lira

May 4, 1995.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on April 5, 1995, the

Philadelphia Stock Exchange, Inc.

(‘‘Phlx’’ or ‘‘Exchange’’) 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 by the Phlx. 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 Phlx, pursuant to Rule 19b–4 of

the Act, proposes to trade customized

foreign currency options (‘‘FCOs’’) on

the Italian lira. 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

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.