Federal Register / Vol. 60, No. 5 / Monday, January 9, 1995 / Notices 2413

3A paper copy of each transaction report will be

made available in the Board’s Public Access

Facility, located at 1640 King Street, Suite 300,

Alexandria, Virginia. There will be no charge for

viewing the report. Documents in the Public Access

Facility can be copied at a cost of 20 cents per page

plus sales tax.

4 15 U.S.C. 78O–4(b)(2)(C) (1988).

5 15 U.S.C. 78s(b)(3)(A) (1988).

6 15 CFR 240.19b-4(e) (1994). 1 15 U.S.C. 78s(b)(1) (1988).

subscribers for public use by

approximately 6:00 a.m. on the first

business day after the trade. The reports

will be electronically disseminated to

subscribers by computer modem.3

The Service will be made available to

all interested persons on equal terms. In

particular, the Board will ensure that

interested persons are provided access

to the reports on a non-discriminatory

basis and in a manner that would not

confer special or unfair economic

benefit to any person. The Board also

will encourage and facilitate the redissemination of the reports by private

information vendors so that the widest

possible spectrum of market

participants can be reached.

Cost and Fees. Total system

development costs, hardware and

software acquisition, and other start-up

expenses for the Pilot Program are

estimated to be $500,000 to $600,000.

These costs include the common

computer system that will be used for

generating and managing the daily

transaction reports as well as operation

of the surveillance database. Yearly

operating costs, including the costs of

producing and disseminating the

transaction reports and the costs of

operating the surveillance database are

expected to approximate $500,000 to

$600,000. The Board estimates that it

may have 20 subscribers to the Service,

which would generate $300,000 a year

in revenue at the annual subscription

rate of $15,000. These revenues are

expected to be sufficient to pay the

entire marginal costs of operating the

Service, including the cost of producing

the transaction reports, and should also

cover a portion of the basic data

processing costs for the Pilot Program,

i.e., the common computer hardware

and software that is needed to operate

both the Service and the surveillance

database. The Board believes that this

Plan will produce a fair allocation of

Pilot Program costs.

2. Statutory Basis

The Board believes the proposed rule

change is consistent with Section

15B(b)(2)(C) of the Act, which requires,

in pertinent part, that the Board’s rules

shall:

Be 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 municipal

securities, to remove impediments to and

perfect the mechanism of a free and open

market in municipal securities, and, in

general, to protect investors and the public

interest. * * *4

The Pilot Program is designed to

increase the integrity and efficiency of

the municipal securities market by,

among other things, helping to ensure

that the price charged for an issue in the

secondary market reflects all available

price information about that issue.

Moreover, the availability of aggregate

data about market activity and certain

volume and price information about

municipal securities will promote

investor confidence in the market and

its pricing mechanisms. The Board

believes that the fee for the Service is

fair and reasonable in light of costs

associated with compiling and

disseminating the information, and that

the Service is available on reasonable

and non-discriminatory terms to any

interested person.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Board does not believe that the

proposed rule change will impose any

burden on competition not necessary or

appropriate in furtherance of the

purposes of the Act, since the Service

will be made available to all interested

persons on an equal basis and the fee

will be applied equally to all persons

who wish to subscribe to the Service.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

Written comments were neither

solicited nor received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The foregoing rule change establishes

or changes a due, fee, or other charge

imposed by the MSRB and therefore has

become effective pursuant to Section

19(b)(3)(A) of the Act,5 and

subparagraph (e) of Rule 19b–4

thereunder.6 At any time within 60 days

of the filing of such proposed rule

change, the Commission may summarily

abrogate such rule change if it appears

to the Commission that such action is

necessary or appropriate in the public

interest, for the protection of investors,

or otherwise in furtherance of the

purposes of the Act.

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

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the MSRB. All

submissions should refer to File No.

SR–MSRB–94–18 and should be

submitted by January 30, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority, 17 CFR 200.30–3(a)(12).

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–426 Filed 1–6–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35180; File No. SR–NASD–

94–54]

Self-Regulatory Organizations; Notice

of Proposed Rule Change by the

National Association of Securities

Dealers, Inc. Relating to Position and

Exercise Limits for Equity Options

Overlying Securities Not Subject to

Standardized Options Trading

December 30, 1994.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

October 12, 1994, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’) filed with

the Securities and Exchange

Commission (‘‘Commission’’ or ‘‘SEC’’)

the proposed rule change as described

in Items I, II, and III below, which Items

have been prepared by the NASD. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.
2414 Federal Register / Vol. 60, No. 5 / Monday, January 9, 1995 / Notices

2Position limits impose a ceiling on the number

of option contracts in each class on the same side

of the market (i.e., aggregating long calls and short

puts and long puts and short calls) that can be held

or written by an investor or group of investors

acting in concert. Exercise limits restrict the

number of options contracts which an investor or

group of investors acting in concert can exercise

within five consecutive business days. Under NASD

Rules, exercise limits correspond to position limits,

such that investors in options classes on the same

side of the market are allowed to exercise, during

any five consecutive business days, only the

number of options contracts set fourth as the

applicable position limit for those options classes.

See Sections 33(b)(3) and (4) of the NASD Rules of

Fair Practice.

3See infra note 4 for a description of how the

position limit for a particular equity security is

determined.

4 ‘‘Access’’ firms are NASD members which

conduct a business in exchange-listed options but

which are not members of any of the options

exchanges upon which the options are listed and

traded.

5 In this connection, the NASD’s rules do not

specifically govern how a specific equity option

falls within one of the three position limit tiers.

Rather, the NASD’s position limit rule provides that

the position limit established by an options

exchange(s) for a particular equity option is the

applicable position limit for purposes of the

NASD’s rule. Under the rules of each of the options

exchanges, if the security underlying a standardized

option has trading volume of 40,000,000 shares over

the most recent six-month period or trading volume

of 30,000,000 shares over the most recent six-month

period and float of 120,000,000, it is subject to a

position limit of 10,500 contracts; if the security

underlying a standardized option has trading

volume of 20,000,000 shares over the most recent

six-month period or trading volume of 15,000,000

shares over the most recent six-month period and

float 40,000,000, it is subject to a position limit of

7,500 contracts; and, if the underlying security is

ineligible for a 10,500 or 7,500 contract position

limit, it is subject to a 4,500-contract position limit.

The rules of each options exchange are uniform in

regard to the above. See e.g., Commentary .07 to

American Stock Exchange Rule 904 and

Interpretation and Policy .02 to Chicago Board

Options Exchange Rule 4.11.

6Conventional equity options are defined in

Section 33(b)(2)(GG) of the NASD Rules of Fair

Practice to mean ‘‘any option contract not issued,

or subject to issuance, by The Options Clearing

Corporation.’’

7To ensure that the higher position limits for

conventional options overlying securities not

subject to standardized options trading are only

available for securities qualifying for a position

limit of 7,500 or 10,500 contracts, a member must

demonstrate to the NASD’s Market Surveillance

Department that the security satisfies the standards

for such higher options position limit prior to

establishing an unhedged options position on that

security in excess of 4,500 contracts.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Propose Rule Change

The NASD proposes to amend Section

33 of the NASD’s Rules of Fair Practice,

the NASD’s position limit rule for

standardized and conventional options,

to increase the position and exercise

limits for certain equity securities that

are not subject to standardized options

trading.2 In particular, under the

proposal, if a security qualifies for a

position limit of 7,500 contracts or

10,500 contracts,3 it will be subject to

that higher position limit, regardless of

whether it has standardized options

traded on it or not.

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

NASD 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 NASD 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

Currently, under NASD rules,

position and exercise limits for

exchange-listed options traded by access

firms 4 or their customers are

determined according to a ‘‘threetiered’’ system, where, depending upon

the float and trading volume of the

underlying security, the position limit

for options on that security is 4,500,

7,500, or 10,500 contracts.5 For

conventional equity options trading by

any NASD member,6 if the underlying

security is subject to standardized

options trading, the NASD’s position

limit for conventional options on that

security is the same position limit

imposed by the options exchange(s)

trading the option. However, if the

security underlying the option is not

subject to standardized options trading,

the applicable position limit for

conventional options on the security is

the lowest tier, i.e., 4,500 contracts.

In some instances, however, a security

may qualify for an options position limit

of 7,500 or 10,500 contracts but it is

subject to a position and exercise limit

of 4,500 contracts because it does not

underlie a standardized option. Given

that these securities qualify for higher

position limits but are not eligible for

them solely because there is no

standardized option traded on them in

the U.S., the NASD believes its option

position limit rule may be unduly

restrictive for these securities and

unnecessarily constrain members’

legitimate hedging activity.

Accordingly, the NASD proposes to

amend Section 33 to provide that the

position limit for options on a security

shall be determined by the position

limit tier the security falls under,

regardless of whether the security is

subject to standardized options trading.7

The NASD believes its proposal is

warranted for the following reasons.

First, if a security has sufficient trading

volume and public float to satisfy the

standards for a position limit of 7,500

contracts or 10,500 contracts, the NASD

does not believe that raising the position

and exercise limits for conventional

options on the security will adversely

affect the cash market for the security.

In the NASD’s view, if the cash market

for a security is large enough to qualify

for an options position limit of 7,500

contracts or 10,500 contracts, it is

irrelevant whether that security is only

subject to conventional options trading

and not standardized options trading.

The NASD believes the primary

consideration governing the appropriate

position limit level for options on a

security should be the characteristics

and size of the underlying cash market

for that security, not whether the

options overlying the security are

standardized or conventional. Second,

the NASD does not believe its members’

activities in the conventional options

market should be linked to or

constrained by decisions of the options

exchanges concerning whether or not to

trade options on particular securities.

Moreover, the NASD believes that its

proposal will not compromise the

stability of the securities markets

underlying the conventional options

eligible for the higher position limits. In

this regard, for those securities that will

be eligible for higher position limits

under the proposal, there will only be

a slight increase in the percentage of

their capitalization that an investor or

group of investors acting in concert can

control under the new position limits.

Therefore, the NASD believes the

proposed rule change is consistent with

Section 15A(b)(6) of the Act. Section

15A(b)(6) requires that the rules of a

national securities association be

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. Specifically, the NASD

believes the proposal will promote the

maintenance of fair and orderly markets

because it will serve to facilitate the use
Federal Register / Vol. 60, No. 5 / Monday, January 9, 1995 / Notices 2415

8 17 CFR 200.30–3(a)(12)(1993).

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

2Securities Exchange Act Release No. 35097,

(December 13, 1994) [File No. SR–PHLX–94–54]

(order granting accelerated approval of proposed

rule change filed by the Philadelphia Stock

Exchange, Inc., relating to the holiday expiration

date for cash/spot foreign currency options).

3For example, Monday, December 26, 1994 is a

PHLX holiday (Christmas); therefore, under the

proposed change, expiration will occur on Tuesday.

However, Tuesday, December 27, 1994, is a

designated bank holiday (Boxing Day), so expiration

will occur on Wednesday, December 28, 1994.

of conventional equity options by

investors seeking to satisfy their

legitimate hedging needs, without

compromising the integrity of the

underlying securities markets. In

addition, to the extent that investors

have greater assurance that they can

hedge larger stock positions through the

use of conventional options, liquidity in

the underlying cash market may be

enhanced by the proposal.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The NASD believes that the proposed

rule change will not result in any

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

Comments 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 NASD 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 in

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the NASD. All

submissions should refer to File

Number SR–NASD–94–54 and should

be submitted by January 30, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–430 Filed 1–6–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35185; File No. SR–OCC–

94–12]

Self-Regulatory Organizations; The

Options Clearing Corporation; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change Amending By-Laws

Relating to the Holiday Expiration Date

for Cash-Settled Foreign Currency

Options

December 30, 1994.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

December 12, 1994, The Options

Clearing Corporation (‘‘OCC’’) 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 primarily by OCC.

The Commission is publishing this

notice and order to solicit comments on

the proposed rule change from

interested persons and to grant

accelerated approval of the proposed

rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change will amend

OCC’s by-laws to change the holiday

expiration date for cash-settled foreign

currency options.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

OCC 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. OCC 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

OCC proposes to amend its by-laws to

change the holiday expiration date for

cash-settled foreign currency options.

On December 13, 1994, the Commission

approved a Philadelphia Stock

Exchange (‘‘PHLX’’) rule change

proposing to change the holiday

expiration date for cash-settled foreign

currency options.2 Currently, cashsettled foreign currency options expire

on Mondays. However, if Monday is a

PHLX holiday or a designated bank

holiday, the expiration date reverts to

the preceding business day, which is

usually Friday, but on some occasions

may be Thursday.

Under PHLX’s rule change, if the

regular Monday expiration occurs on a

PHLX holiday or a designated bank

holiday, the cash-settled foreign

currency options expire on the

following business day rather than the

preceding business day. Accordingly,

when the regular Monday expiration

occurs on a holiday, the expiration will

usually occur on Tuesday, but on some

occasions will occur on Wednesday.3

The proposed change will allow cashsettled foreign currency option users to

capture weekend risk.

To accommodate the change proposed

by PHLX, OCC is proposing to modify

the definition of ‘‘Expiration Date’’

contained in OCC by-laws, Article XXII,

Section 1E. Under OCC’s proposed

change, if the regular Monday

expiration occurs on an exchange

designated bank holiday or a day that is

not a business day, expiration will occur

on the following business day rather

than the preceding business day.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

OCC 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

Written comments were not and are

not intended to be solicited with respect