Federal Register / Vol. 60, No. 244 / Wednesday, December 20, 1995 / Notices 65705

1See Securities Exchange Act Release No. 33468

(Jan. 13, 1994). These listing standards were

subsequently revised in Securities Exchange Act

Release Nos. 33841 (March 31, 1994) and 34985

(Nov. 18, 1995).

2 17 CFR 200.30–3(a)(12) (1994).

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

2 17 CFR 240.19b–4 (1994).

3The Exchange will accomplish this reduction in

value by doubling the divisor used in calculating

the Index.

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

NYSE 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 NYSE 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

ELDS are non-convertible debt

securities of an issuer where the value

of the debt is based, at least in part, on

the value of another issuer’s common

stock or non-convertible preferred

stock.1 The purpose of the proposed

rule change is to amend the trading

volume criteria for the linked security,

that is, the security on which the value

of the ELDS is based. Currently, under

Section 703.21 of the Listed Company

Manual, in order to list an ELDS

product, the linked security must meet

one of the following criteria:

Market

capitalization

Annual trading

volume

$3 billion .............. and 2.5 million shares.

$1.5 billion ........... and 20 million shares.

$500 million ......... and 80 million shares.

The proposed rule change will lower

the trading volume requirements criteria

such that an ELDS may be listed

provided the linked security meets one

of these revised criteria:

Market

capitalization

Annual trading

volume

$3 billion ............ and 2.5 million

shares.

$1.5 billion ......... and 10 million

shares.

$500 million ....... and 15 million

shares.

The Exchange believes the new

criteria will provide it with greater

flexibility to list these types of

securities. The rule change will also

delete the current provision of the rule

that allows the Exchange to list ELDS

that do not meet these criteria if the

Division of Market Regulation of the

SEC concurs. With the increased

flexibility that the new numerical listing

criteria will supply, it will no longer be

necessary to conduct such a case-bycase review of ELDS listings.

2. Statutory Basis

The basis under the Act for this

proposed rule change is the requirement

under Section 6(b)(5) that an exchange

have rules that are designed to prevent

fraudulent and manipulative acts and

practices, to promote just and equitable

principles of trade, to foster cooperation

and coordination with persons engaged

in regulating, clearing, settling,

processing information with respect to,

and facilitating transactions in

securities, 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.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange believes the proposed

rule change will impose no burden on

competition that is not necessary or

appropriate in furtherance of the

purposes of the Act.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

The Exchange has not solicited, and

does not intend to solicit, comments on

this proposed rule change. The

Exchange has not received any

unsolicited written comments from

members or other interested parties.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the 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 the 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 NYSE. All submissions

should refer to File No. SR–NYSE–95–

39 and should be submitted by January

10, 1996.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.2

Jonathan G. Katz,

Secretary.

[FR Doc. 95–30912 Filed 12–19–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36577; File No. SR-Phlx–

95–61]

Self-Regulatory Organizations; Order

Granting Approval to Proposed Rule

Change by the Philadelphia Stock

Exchange, Inc., Relating to a

Reduction of the Value of the Phlx

National Over-the-Counter Index

December 12, 1995.

I. Introduction

On September 22, 1995, the

Philadelphia Stock Exchange, Inc.

(‘‘Phlx’’ or ‘‘Exchange’’) submitted to the

Securities and Exchange Commission

(‘‘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

reduce the value of the Phlx’s National

Over-the-Counter Index (‘’Index’’)

option (‘‘XOC’’) to one-half of its present

value.3 The Index is a capitalizationweighted market index composed of the

100 largest capitalized stocks trading

over-the-counter. The other contract
65706 Federal Register / Vol. 60, No. 244 / Wednesday, December 20, 1995 / Notices

4See Securities Exchange Act release No. 36460

(November 6, 1995), 60 FR 57256 (November 14,

1995).

5The Commission notes, however, that the Phlx

forwarded to the Commission one comment letter

it received prior to filing this rule proposal. This

letter and the Phlx’s response is discussed below.

See infra note 10 and accompanying discussion.

6See Securities Exchange Act Release Nos. 21576

(January 18, 1985), 50 FR 3445 (January 24, 1985);

and 22044 (May 17, 1985), 50 FR 21532 (May 24,

1985) (File No. SR–Phlx–84–28).

7Separately, the Exchange is proposing to

increase the XOC position and exercise limits to

25,000 contracts. See SR–Phlx–95–38.

8See Securities Exchange Act Release No. 35999

(July 20, 1995), 60 FR 38387 (July 26, 1995) (File

No. SR–Phlx–95–41).

9 In this regard, the Commission notes that in a

memorandum dated November 20, 1995, the Phlx

provided notice to its members and member

organizations of its intention to reduce the value of

the XOC by one-half.

10See letter from Barry J. Weisberg, Vice

President, Smith Barney Shearson, Inc., to Andy

Kolinsky, Vice President, Phlx, dated August 1,

1995. The Commission notes that the commenter

also raised other concerns regarding the trading of

the XOC unrelated to the rule proposal which are

not discussed herein.

11See letter from Gerald D. O’Connell, First Vice

President, Market Regulation and Trading

Operations, Phlx, to Barry J. Weisberg, Vice

President, Smith Barney Shearson, Inc., dated

November 20, 1995.

12See supra note 9.

13 15 U.S.C. 78f(b) (1988).

specifications for the XOC remain

unchanged.

The proposed rule change appeared in

the Federal Register on November 14,

1995.4 No letters were received in

response to the Commission’s

solicitation for comment on the

proposed rule filing.5 This order

approves the Phlx’s proposal.

II. Background and Description

The Phlx began trading the XOC in

1985.6 The Index was created with a

value of 150 on its base date of

September 28, 1984, which rose to 548

in June 1994, and to 700 in June 1995.

On September 14, 1995, the Index value

was 868. Thus, the Index value has

increased significantly, especially

during the last year. Consequently, the

premium for XOC options has also

risen.

As a result, the Phlx proposes to

conduct a ‘‘two-for-one split’’ of the

Index, such that the value will be

reduced by one-half. In order to account

for the split, the number of outstanding

XOC contracts will be doubled, such

that for each XOC contract currently

held, the holder will receive two

contracts at the reduced value, with a

strike price of one-half the original

strike price. For instance, the holder of

an XOC 800 call will receive two XOC

400 calls. In addition, the Phlx will

double to the position and exercise

limits applicable to the XOC, from

17,000 contracts to 34,000 contracts

until the last expiration then trading,

which is the June 1996 expiration.7

According to the Phlx, this procedure is

similar to that employed with equity

options when the underlying security is

subject to a two-for-one stock split, as

well as that used for the recent split of

the Phlx’s Semiconductor Index.8

In conjunction with the split, the

Exchange will list strike prices

surrounding the new, lower Index

value, pursuant to Phlx Rule 1101A.

The Phlx will announce the effective

date by way of an Exchange

memorandum to its membership, which

will also serve as notice of the strike

price and position limit changes.9

According to the Phlx, the purpose of

the proposal is to attract additional

liquidity to the product in those series

that public customers are most

interested in trading. For example,

according to the Phlx, a near-term, atthe-money call option series currently

trades at approximately $1,200 per

contract. After the Index split, the same

option series (once adjusted), with all

else remaining equal, could trade at

approximately $600 per contract. Thus,

while certain investors and traders may

currently be impeded from trading at

such levels, a reduced Index value

should encourage additional investor

interest.

The Phlx believes the XOC options

provide an important opportunity for

investors to hedge and speculate upon

the market risk associated with the

underlying over-the-counter stocks. By

reducing the value of the Index such

investors will be able to utilize this

trading vehicle, while extending a

smaller outlay of capital. According to

the Phlx, this should attract additional

investors, and, in turn, create a more

active and liquid trading environment.

III. Summary of Comments

The Phlx received one comment letter

opposing the proposed rule change from

a financial planner at Smith Barney

Shearson.10 The issues raised therein

and the Phlx’s response thereto 11 are

discussed below.

According to the commenter, one of

the primary inducements to trading the

Index is its volatility. If the Index is split

in half, however, the commenter

believes that investors will be

unnecessarily forced to trade twice as

many contracts in order to maintain

their current degree of leverage. In

response, the Phlx stated that a lower

priced, less volatile Index will better

serve the needs of investors as the

Exchange will be able to more timely

update quotes, particularly during

periods of active market conditions.

The commenter also opposes the

proposed rule change because he

believes that splitting the Index will

reduce its value to an inappropriately

low level. In this regard, the commenter

suggests alternative split levels (e.g., a 4

for 3 split, or a 3 for 2 split) as a less

problematic approach. In this manner,

according to the commenter, the Index

will retain a greater percentage of its

current value. The Phlx responded that

splitting the Index in a manner other

than two-for-one would result in

unnecessary calculations and

adjustments to the divisor, position

limits, and strike prices and would

thereby create investor confusion and

excessive system demands.

Finally, the commenter suggests that

the Exchange postpone the splitting of

the Index to provide investors with a

reasonable amount of time to adjust

their positions as a result of the

proposed rule change. In this regard, the

Commission notes that to avoid investor

confusion the Phlx has stated that it

intends to provide market participants

with adequate notice of the change to

the Index value.12

IV. Discussion

After careful consideration of the

comment letter and the Phlx’s response

thereto, the Commission has decided to

approve the proposed rule change. For

the reasons discussed below, the

Commmission 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, with the requirements of

Section 6(b).13 Specifically, the

Commission believes that the proposal

is consistent with the Section 6(b)(5)

requirement to protect investors and the

public interest and to remove

impediments to a free and open

securities market. By reducing the value

of the Index, the Commission believes

that a broader range of investors will be

provided with a means of hedging their

exposure to the market risk associated

with the underlying over-the-counter

stocks. Similarly, the Commission

believes that reducing the value of the

Index could help attract additional

investors, thus creating a more active

and liquid trading market.

The Commission also believes that the

Phlx’s position and exercise limits and

strike price adjustments are appropriate

and consistent with the Act. In this

regard, the Commission notes that the

position and exercise limits and strike

price adjustments are identical to the
Federal Register / Vol. 60, No. 244 / Wednesday, December 20, 1995 / Notices 65707

14See supra note 9.

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

16 17 CFR 200.30–3(a)(12) (1994).

approach used to adjust outstanding

options on stocks that have undergone

a two-for-one stock split.

The Commission believes that

doubling the Index’s divisor will not

have an adverse market impact or make

trading in XOC options susceptible to

manipulation. After the split, the Index

will continue to be comprised of the

same stocks with the same weightings

and will be calculated in the same

manner (except for the change in the

divisor). The Phlx’s surveillance

procedures will also remain the same.

Lastly, for the reasons discussed

below, the Commission also believes

that the commenter’s criticisms of the

rule proposal have been adequately

addressed by the Phlx’s response. First,

issues regarding the appropriate value of

an index are business decisions

typically left to the discretion of an

exchange, particularly in the absence of

Commission concerns regarding

potential manipulation, investor

confusion, or other regulatory concerns.

Second, the Commission believes that

the Exchange’s proposal to adjust the

Index in a manner similar to a two-forone stock split provides a simple,

orderly, and efficient means to effect the

adjustment. Third, the Commission

believes that the Phlx will be able to

provide adequate notice to market

participants regarding to change to the

Index value prior to its implementation.

As noted above,14 the Phlx has already

indicated its intent, subject to

Commission approval, to adjust the

Index value after the December

expiration.

V. Conclusion

For the foregoing reasons, the

Commission finds that the Phlx’s

proposal to reduce the value of the

Index to one-half of its present value is

consistent with the requirements of the

Act and the rules and regulations

thereunder.

It is therefore ordered, pursuant to

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

proposed rule change (SR–Phlx–95–61)

is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.16

Jonathan G. Katz,

Secretary.

[FR Doc. 95–30855 Filed 12–19–95; 8:45 am]

BILLING CODE 8010–01–M

[Rel. No. IC–21600; File No. 812–9526]

Connecticut General Life Insurance

Company, et al.

December 13, 1995.

AGENCY: Securities and Exchange

Commission (the ‘‘SEC’’ or the

‘‘Commission’’).

ACTION: Notice of Application for

Exemption under the Investment

Company Act of 1940 (the ‘‘1940 Act’’).

APPLICANTS: Connecticut General Life

Insurance Company (‘‘CG Life’’), CG

Variable Life Insurance Separate

Account II (the ‘‘Account’’), and CIGNA

Financial Advisors, Inc. (‘‘CIGNA’’).

RELEVANT 1940 ACT SECTIONS: Order

requested under Section 6(c) of the 1940

Act for exemptions from Section

27(c)(2) of the 1940 Act and Rule 6e–

3(T)(c)(4)(v) thereunder.

SUMMARY OF APPLICATION: Applciants

seek an order to permit them to deduct

a charge that is reasonable in relation to

CG Life’s increased federal income tax

burden resulting from the receipt by CG

Life of premiums in connection with

certain flexible premium variable life

insurance contracts issued by CG Life,

the Account and any other separate

account established in the future by CG

Life (the ‘‘Other Accounts,’’ collectively,

with the Account, the ‘‘Accounts’’).

FILING DATE: The application was filed

on March 13, 1995 and amended and

restated on August 1, 1995 and

December 1, 1995.

HEARING OR NOTIFICATION OF HEARING: An

order granting the application will be

issued unless the Commission orders a

hearing. Interested persons may request

a hearing on this application by writing

to the Secretary of the SEC and serving

Applicants with a copy of the request,

personally or by mail. Hearing requests

must be received by the Commission by

5:30 p.m. on January 8, 1996 and should

be accompanied by proof of service on

Applicants in the form of an affidavit or,

for lawyers, a certificate of service.

Hearing requests should state the nature

of the interest, the reason for the

request, and the issues contested.

Persons may request notification of a

hearing by writing to the Secretary of

the SEC.

ADDRESSES: Secretary, Securities and

Exchange Commission, 450 Fifth Street,

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

Applicants, Robert A. Picarello, Esq.,

Connecticut General Life Insurance

Company, 900 Cottage Grove Road,

Hartford, Connecticut 06152.

FOR FURTHER INFORMATION CONTACT:

Joseph G. Mari, Senior Special Counsel,

or Wendy Friedlander, Deputy Chief,

both at (202) 942–0670, Office of

Insurance Products, Division of

Investment Management.

SUPPLEMENTARY INFORMATION: Following

is a summary of the application. The

complete application is available for a

fee from the Commission’s Public

Reference Branch.

Applicants’ Representations

1. CG Life, a stock life insurance

company domiciled in Connecticut, is a

wholly owned subsidiary of CIGNA

Holdings, Inc., which is, in turn, wholly

owned by CIGNA Corporation. The

Account, established by CG Life on July

6, 1994 pursuant to Connecticut law, is

registered with the Commission as a

unit investment trust. The assets of the

Account are divided among

subaccounts, each of which will invest

in shares of one of five registered

investment companies (the ‘‘Funds’’).

The funds currently offer sixteen

portfolios for investment. Each of the

Funds is an open-end diversified

management investment company

under the 1940 Act. The Other Accounts

will be organized as unit investment

trusts and will file registration

statements under the 1940 Act and the

Securities Act of 1933.

2. CIGNA will serve as the distributor

and the principal underwriter of the

Existing Contracts, described below.

Applicants state that they expect CIGNA

also to serve as the distributor and the

principal underwriter of the Future

Contracts, described below. CIGNA is a

wholly owned subsidiary of Connecticut

General Corporation, CIGNA, which is,

in turn, a wholly owned subsidary of

CIGNA Corporation. CIGNA a member

of the National Association of Securities

Dealers, Inc., is registered with the

Commission as a broker-dealer under

the Securities Exchange Act of 1934,

and as an investment adviser under the

Investment Advisers Act of 1940.

3. The Existing Contracts are flexible

premium variable life insurance

policies, and will be issued on a group

or individual basis. The Future

Contracts will be substantially similar in

all material respects to the Existing

Contracts (the Future Contracts,

collectively, with the Existing Contracts,

the ‘‘Contracts’’). The Contracts will be

issued in reliance on Rule 6e–

3(T)(b)(13)(i)(A) under the 1940 Act.

Applicants state that CG Life will

deduct 1.15% of each premium

payment made under the Contracts to

cover CG Life’s estimated cost for the

federal income tax treatment of deferred

acquisition costs.

4. In the Omnibus Budget

Reconciliation Act of 1990, Congress

amended the Internal Revenue Code of

1986 (the ‘‘Code’’) by, among other

things, enacting Section 848 thereof.