Federal Register / Vol. 60, No. 94 / Tuesday, May 16, 1995 / Notices 26065

17 17 CFR 200.30–3(a)(12) (1994).

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

2 17 CFR 240.19b–4.

3European-style options can be exercised only

during a specific time period prior to expiration of

the options.

4New York Stock Exchange’s Fact Book 1994.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.17

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–11946 Filed 5–15–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35699; File No. SR–PHLx–

95–22]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Philadelphia Stock Exchange, Inc.

Relating to the Listing and Trading of

Options on the PHLX Super Cap Index

May 10, 1995.

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 10,

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 Exchange.

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 Exchange proposes to list and

trade options on the Phlx Super Cap

Index (‘‘Super Cap Index’’ or ‘‘Index’’),

a capitalization weighted index

developed by the Phlx composed of the

five largest stocks, by capitalization,

traded on the New York Stock Exchange

(‘‘NYSE’’). Exchange Rules 1000A,

Applicability and Definitions; 1001A,

Position Limits; 1006A, Other

Restrictions on Options Transactions

and Exercises; 1047A, Trading

Rotations, Halts or Reopenings; 1101A,

Terms of Option Contracts; and 722,

Margin Accounts will be amended to

include reference to this proposed

Index. The text of the proposed rule

changes is available at the Office of the

Secretary, the Exchange, 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

Exchange included statements

concerning the purpose of and basis for

the proposed rule change. The text of

these statements may be examined at

the places specified in Item IV below.

The Exchange has prepared summaries,

set forth in Section (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

The Phlx proposes to list for trading

an European-style option 3 on the Phlx

Super Cap Index which is composed of

the five largest capitalized common

stock issues traded on the New York

Stock Exchange.

The Phlx believes there are numerous

benefits to listing the Super Cap Index

options. First, the Exchange believes

that the Super Cap will appeal to

individual investors as well as program

and basket traders because the Index

reflects the direction and pricing of

some of the nation’s largest and most

important companies. These stocks are

frequently found in investor and trader

portfolios alike and currently account

for 10% of the capitalization on the

NYSE.4 Second, because the Super Cap

Index is based on a relatively small

number of actively traded stocks,

replication of the Index for hedging

purposes with underlying stocks can be

readily accomplished with complete

accuracy. Thus, the Phlx believes that

the proposed Super Cap Index is unique

and will fill a current market void.

Third, the Exchange does not believe

that the Super Cap Index will be

susceptible to manipulation as the

stocks comprising the Super Cap Index

are some of the largest and most widely

held common stocks in the country.

The Phlx represents that as of April 5,

1995, the market capitalization of the

individual stocks in the Index ranged

from a high of $93.8 billion to a low of

$59.7 billion. The market capitalization

of all five of the stocks in the Index was

approximately $394 trillion. As of that

same date, no one stock accounted for

more than 23.81%, or less than 15.17%,

of the Index’s total value.

The formula for calculating the Super

Cap Index ‘‘Current Index Value’’ is as

follows:

Current Index Value = total capitalization

divisor

total capitalization = the sum of the market values (price times shares outstanding) for all of the component issues

divisor = total capitalization

old index value

The index value was set at a starting

value of 200 as of January 12, 1995. In

order to maintain continuity in the

value of the Index, the Index divisor

will be adjusted for changes in

capitalization of any of the component

issues resulting from, among other

things, mergers, acquisitions, delistings,

and substitutions. Adjustments in the

value of the Index which are

necessitated by the addition and/or the

deletion of an issue from the Index are

made by adding and/or subtracting the

market value (price times shares

outstanding) of the relevant issues. The

value of the index as of the close of

trading on Wednesday, April 5, 1995

was 214.42.

The Super Cap Index value will be

updated dynamically at least once every

15 seconds during the trading day. The

Phlx has retained Bridge Data, Inc. to

compute and do all necessary

maintenance of the Index. Pursuant to

Phlx Rule 1100A, updated Index values

will be disseminated and displayed by

means of primary market prints reported

by the Consolidated Tape Association

and over the facilities of the Options

Price Reporting Authority. The Index

value will also be available on broker/

dealer interrogation devices to

subscribers of the option information.
26066 Federal Register / Vol. 60, No. 94 / Tuesday, May 16, 1995 / Notices

5The Phlx’s options listing standards, which are

uniform among the options exchanges, provide that

a security underlying an option must, among other

things, meet the following requirements: (1) the

public float must be at least 7,000,000 shares; (2)

there must be a minimum of 2,000 stockholders; (3)

trading volume in the U.S. must have been at least

2.4 million over the preceding twelve months; and

(4) the U.S. market price must have been at least

$7.50 for a majority of the business days during the

preceding three calendar months. See Phlx Rule

1009, Commentary .01.

6See Phlx Rule 1001, Commentary .07, AMEX

Rule 904, Commentary .09, PSE Rule 6.8,

Commentary .07, CBOE Rule 4.11, Interpretation

.04, and NYSE Rule 704(b)(ii).

7See Securities Exchange Act Release No. 34157

(June 3, 1994), 59 FR 30062 (June 10, 1994).

8See Phlx Rules 1000A through 1103A, and 1000

through 1070.

9 15 U.S.C. 78f(b)(5) (1988).

In accordance with Phlx Rule 1009A,

if any change in the nature of any stock

in the Index occurs as a result of

delisting, merger, acquisition or

otherwise, the Exchange will take

appropriate steps to delete that stock

from the Index and replace it with

another stock which is in the top five,

as measured by capitalization, of issue

traded on the NYSE at the time the Phlx

makes the substitution.

The Phlx shall evaluate the index

annually to ensure that the index is an

accurate representation of the five

largest stocks, measured by

capitalization, traded on the NYSE.

Public notice of any changes will be

made immediately and the Phlx will

then make any substitutions, if

necessary, of the component issues of

the Index on the first business day after

the January expirations for the Super

Cap Index options.

The Exchange represents that all of

the stocks comprising the Index are

options eligible 5 and have overlying

options currently trading. If at any time,

any of the component issues are not

options eligible, the Exchange will

submit a Rule 19b–4 filing to the

Commission before opening any new

series of options on the Index for

trading. Additionally, if at any time, the

Exchange determines to increase or

decrease the number of component

issues, the Exchange will submit a new

Rule 19b–4 filing.

The settlement value for the Index

options will be based on the opening

values of the component securities on

the date prior to expiration. Index

options will expire on the Saturday

following the third Friday of the

expiration month, and the last day for

trading in an expiring series will be the

second business day (ordinarily a

Thursday) preceding the expiration

date.

The Phlx proposes to employ the

same position limit applicable to the

Exchange’s other narrow-based indexes

pursuant to Phlx Rule 1001A(b)(i).

Specifically, the Phlx proposes to codify

in Rule 1001A(c) that for Super Cap

Index options, the position limit will be

5,500 contracts on the same side of the

market. The Super Cap Index option

will not be subject to a hedge

exemption.

The Super Cap Index is an index

which does not neatly meet the

traditional criteria of either a broadbased or narrow-based index. Unlike a

typical broad-based index, the Super

Cap Index consists of a relatively small

number of stocks. Unlike a traditional

narrow-based index, the stocks

comprising the Super Cap are

diversified and not industry specific.

The Exchange understands that a

concern may arise that investors could

use the Index to circumvent the option

position limits on the 5 individual

component issues. The Exchange

believes that by imposing a small

position limit it will discourage

investors from using the product for that

purpose.

The Super Cap Index is comprised of

the top 5 capitalized issues on the

NYSE, thus the overlying issues are all

likely to be in the category of options

which have the highest position limit

(10,500 contracts on the same side of the

market). Further, all of the U.S. options

exchanges currently have pilot programs

wherein their position limit rules allow

an investor to double the applicable

limit by hedging their position with

stock.6 Given the minimal position limit

that the Phlx proposes to invoke for the

Super Cap Index, it is unlikely that

someone would buy Super Cap Index

options in order to control more

contracts on one component issue. For

example, if an investor held the

maximum amount of options on all 5

underlying issues and was hedged on all

of them, he could control 105,000

contracts (21,000 X 5). Buying 5,500

Super Cap Index options could only

increase his position by 5%. This is no

different from the situation with any

other index where someone buys the

options on underlying components and

then buys the index options. By

definition, the investor has increased

his control over the individual

component issues. Specifically, the

Commission’s Generic Narrow-Based

Index approval order 7 allows exchanges

to list options on indexes with a

minimum of 10 component stocks.

Assuming as a best case, that all the

component issues have overlying

options traded on them, and the options

on the index are subject to a 10,500

contract position limit, the same 5%

incremental control of position could be

achieved. The Exchange therefore,

believes that it has proposed a

reasonable approach to deal with the

issue.

Exercise price intervals will be set at

five point intervals in terms of the

current value of the Index. Additional

exercise prices will be added in

accordance with Phlx Rule 1011A(a).

As with the Exchange’s other indexes,

the multiplier for options on the Super

Cap Index will be 100. The Super Cap

Index options will trade from 9:30 a.m.

to 4:15 p.m. eastern time.

The Phlx will trade consecutive and

cycle month series pursuant to Phlx

Rule 1101A. Specifically, there will be

three expiration months from the

March, June, September, December

cycle plus two additional near-term

months so that the three nearest term

months will always be available.

Super Cap Index options will be

traded pursuant to current Phlx rules

governing the trading of index options.8

The Exchange notes that procedures

currently used to monitor trading in

each of the Exchange’s other index

options will also be used to monitor the

trading of options on the Super Cap

Index. These procedures included

having complete access to trading

activity in the underlying securities

which are all traded on the NYSE via

the Intermarket Surveillance Group

Agreement (‘‘ISG Agreement’’) dated

July 14, 1983, as amended on January

29, 1990.

The Exchange believes that the

proposed rule change is consistent with

Section 6 of the Act, in general, and

furthers the objectives of Section

6(b)(5),9 in particular, in that it is

designed to prevent fraudulent and

manipulative acts and practices, to

facilities transactions in securities, and

to remove impediments to and perfect

the mechanism of a free and open

market.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any 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 with respect to the proposed

rule change.
Federal Register / Vol. 60, No. 94 / Tuesday, May 16, 1995 / Notices 26067

10 17 CFR 200.30–3(a)(12).

1Position limits impose a ceiling on the number

of option contracts which an investor or group of

investors acting in concert may hold or write in

each class of options on the same side of the market

(i.e., aggregating long calls and short puts or long

puts and short calls).

2Exercise limits prohibit an investor or group of

investors acting in concert from exercising more

than a specified number of puts or calls in a

particular class within five consecutive business

days. 3See PHLX Rule 1001A.

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, 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. 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 SR-Phlx–95–22 and

should be submitted by June 6, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.10

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–12004 Filed 5–15–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35694; File No. SR–PHLX–

95–16]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Philadelphia Stock Exchange, Inc.,

Relating to Modifications of the

Position and Exercise Limits for

Narrow-Based Index Options

May 9, 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 March 6, 1995, 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 self-regulatory

organization. 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

Currently, PHLX Rule 1001A,

‘‘Position Limits,’’ 1 establishes the

following position limits for industry (or

narrow-based) index options (i) 5,500

contracts for an index where a single

component stock accounted, on average,

for 30% or more of the index value

during the 30-day period immediately

preceding the review; (ii) 7,500

contracts for an index where a single

component stock accounted, on average,

for 20% or more of the index value or

any five component stocks together

accounted, on average, for more than

50% of the index value but no single

component stock accounted, on average,

for 30% or more of the index value

during the 30-day period immediately

preceding the review; or (iii) 10,500

contracts where the conditions requiring

a limit of 5,500 contracts or 7,500

contracts have not occurred. The PHLX

proposes to amend Exchange Rule

1001A(b)(1) and Exchange Rule 1002A,

‘‘Exercise Limits,’’ 2 to increase the

position and exercise limits for industry

index options from 5,500, 7,500, or

10,500 contracts to 6,000, 9,000, or

12,000 contracts.

The text of the proposed rule change

is available at the Office of the

Secretary, 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

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

The PHLX proposes to amend PHLX

Rule 1001A to raise the position limits

for its narrow-based index options.

Specifically, the PHLX proposes to

amend PHLX Rule 1001A(b)(1) to

establish narrow-based index option

position limits of 6,000, 9,000, or 12,000

contracts. In addition, the PHLX

proposes to amend PHLX Rule 1002A to

establish a corresponding increase in

exercise limits for industry index

options.

Currently, the PHLX trades options on

the following narrow-based indexes:

(1) Gold/Silver Index (‘‘XAU’’): 5,500

contracts

(2) Utility Index (‘‘UTY’’): 10,500

contracts

(3) PHLX/KBW Bank Index (‘‘KBX’’):

10,500 contracts

(4) Phone Index (‘‘PNX’’): 5,500

contracts

(5) Semiconductor Index (‘‘SOX’’): 7,500

contracts

(6) Airline Sector Index (‘‘PLN’’): 10,500

contracts

These position limits, which are

standard among all of the options

exchanges for narrow-based index

options, are based on the degree of

concentration of a component stock of

the index.3 Currently, under PHLX Rule

1001A, the three-tiered levels of

position and exercise limits are 5,500,

7,500, or 10,500 contracts. For the

reasons stated below, the PHLX

proposes to increase these limits to

6,000, 9,000, or 12,000 contracts.

First, the Exchange notes that the

current levels have been in place since