[Federal Register Volume 60, Number 7 (Wednesday, January 11, 1995)]
[Notices]
[Pages 2800-2801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-658]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35194; File No. SR-NYSE-94-47]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the New York 
Stock Exchange, Inc., Relating to an Extension of the Hedge Exemption 
Pilot Program

January 5, 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 December 
9, 1994, the New York Stock Exchange, Inc. (``NYSE'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I and II 
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

    The NYSE proposes to amend NYSE Rule 704, ``Position Limits,'' to 
extend until May 17, 1995, the Exchange's pilot program for position 
limit exemptions for certain hedged (1) equity option positions; and 
(2) broad-based index option positions.\1\
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    \1\ Position limits impose a ceiling on the aggregate number of 
options contracts on the same side of the market that can be held or 
written by an investor or group of investors acting in concert.
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    The text of the proposals are available at the Office of the 
Secretary, NYSE, 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

(a) Purpose
    On March 14, 1990, the Commission approved, on a pilot basis, 
amendments to NYSE Rule 704 providing (1) an exemption from equity 
option position limits for certain equity option positions that are 
fully hedged and (2) an exemption from the broad-based index option 
position limits for certain hedged broad-based index option 
positions.\2\
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    \2\ See Securities Exchange Act Release No. 27786 (March 8, 
1990), 55 FR 9523 (March 14, 1990) (order approving File No. SR-
NYSE-89-09).
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    On July 12, 1991, the Commission approved both (1) an expansion of 
the scope of the exemptions to include short positions in the 
underlying hedged portfolio and to allow the underlying hedged 
portfolio to include securities that are readily convertible into 
common stock, and (2) an extension of the termination date of the pilot 
program.\3\
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    \3\ See Securities Exchange Act Release No. 29436 (July 12, 
1991), 56 FR 33317 (July 19, 1991) (order approving File No. SR-
NYSE-91-19).
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    On September 14, 1993, the Commission approved both (1) an 
expansion of the equity option position limit hedge exemption to 
include ``securities readily converted into or economically equivalent 
to that number of shares of such stock'' as the basis for the exemption 
and (2) an extension of the termination date of the pilot program.\4\
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    \4\ See Securities Exchange Act Release No. 32901 (September 14, 
1993), 58 FR 49073 (September 21, 1993) (order approving File No. 
SR-NYSE-92-23).
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    On November 17, 1993, the Commission approved an extension of the 
termination date of the pilot program until November 17, 1994.\5\ The 
Exchange now proposes to extend the pilot program for six months to May 
17, 1995.
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    \5\ See Securities Exchange Act Release No. 33212 (November 17, 
1993), 58 FR 62173 (November 24, 1993) (order approving File Nos. 
SR-Amex-93-38, SR-CBOE-93-52, SR-NYSE-93-42, SR-PSE-93-30, and SR-
PHLX-93-46).
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    Early in 1995, the Exchange plans to submit to the Commission a 
report on the pilot program covering the period ending December 31, 
1994. In addition, for the duration of the pilot program, the NYSE will 
continue to monitor on a daily basis (1) the use of the exemptions to 
determine if the positions are being maintained in accordance with all 
conditions and requirements and (2) the effects of the exemptions on 
the market.
(b) Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the 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, to remove impediments to and 
perfect the mechanism of a free and open market and a national system, 
and, in general, to protect investors and the public interest.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change imposes 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

(C) Self-Regulatory Organization's Statements 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 the proposed rule change. The Exchange has nor 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

    The Exchange has requested that the proposed rule change be given 
accelerated effectiveness pursuant to Section 19(b)(2) of the Act.
    The Commission finds that the proposed rule change to extend the 
pilot program until May 17, 1995, 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) thereunder.\6\ The Commission concludes, as it did when 
originally approving the pilot program, that providing for increased 
position and exercise limits for equity options and stock index options 
in circumstances where those excess positions are fully hedged with 
offsetting stock positions will provide greater depth and liquidity to 
the market and allow investors to hedge their stock portfolios more 
effectively, without significantly increasing concerns regarding 
intermarket manipulations or disruptions of either the options market 
or the underlying stock market.
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    \6\ 15 U.S.C. 78f(b)(5) (1982).

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[[Page 2801]]

    The Commission also notes that before the NYSE's pilot program can 
be extended or approved on a permanent basis, the Exchange must provide 
the Commission with a report on the operation of its pilot program 
since its inception by January 31, 1995. Specifically, the Exchange 
must provide the Commission details on (1) the frequency with which the 
exemptions have been used; (2) the types of investors using the 
exemptions; (3) the size of the positions established pursuant to the 
pilot program; (4) what types of convertible securities are being used 
to hedge positions and how frequently the convertible securities have 
been used to hedge; (5) whether the Exchange has received any 
compliants on the operation of the pilot program; (6) whether the 
Exchange has taken any disciplinary action against, or commenced any 
violation of any term or condition of the pilot program; (7) the market 
impact, if any of the pilot program; and (8) how the Exchange has 
implemented surveillance procedures to ensure compliance with the terms 
and conditions of the pilot program. In addition, the Commission 
expects the Exchange to inform the Commission of the results of any 
surveillance investigations undertaken for apparent violations of the 
provisions of its position limit hedge exemption rules.
    The Commission finds good cause for approving the extension of the 
pilot programs prior to the thirtieth day after the date of publication 
of notice of filing thereof in the Federal Register in order to permit 
the continuation of the pilot program. The Commission notes that the 
Exchange has not experienced any significant problems with the pilot 
program since its inception and that the Exchange will continue to 
monitor the pilot program to ensure that no problems arise. Finally, no 
adverse comments have been received by the Exchange or the Commission 
concerning the pilot program. Based on the above, the Commission 
believes good cause exists to approve the extension of the pilot 
program through May 17, 1995, on an accelerated basis. Therefore, the 
Commission believes that granting accelerated approval of the proposal 
is appropriate and consistent with Sections 6 and 19(b)(2) 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. 522, 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 February 1, 
1995.
    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\7\ that the proposed rule change (SR-NYSE-94-47) relating to an 
extension of the hedge exemption pilot program until May 17, 1995, is 
approved.
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    \7\ 15 U.S.C. 78s(b)(2) (1982).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-658 Filed 1-10-95; 8:45 am]
BILLING CODE 8010-01-M