15316 Federal Register / Vol. 60, No. 56 / Thursday, March 23, 1995 / Notices

7Supra note 3.

8 15 U.S.C. § 78f (1988).

9The Commission release adopting Rule 15c6–1

stated that ‘‘the value of securities positions can

change suddenly causing a market participant to

default on unsettled positions. Because the markets

are interwoven through common members, default

at one clearing corporation or by a major market

participant or end-user could trigger additional

failures resulting in risk to the national clearance

and settlement system.’’ Securities Exchange Act

Release No. 33023 (October 6, 1993), 58 FR 52891.

10Securities Exchange Act Release No. 35332

(February 3, 1995), 60 FR 8102 (notice of proposed

rule filing).

11 15 U.S.C. § 78f (1988).

12 15 U.S.C. § 78s(b)(2) (1988)

13 17 CFR 200.30(a) (12) (1994).

1 15 U.S.C. 78s(b)(1) (1982).

2Amendment No. 1 provides additional

information regarding the Index components, and

states that the Exchange will file with the

Commission pursuant to Section 19(b)(1) of the Act

should the number of component securities in the

Index exceed 116. See letter from Claire P. McGrath,

Managing Director and Special Counsel, Derivatives

Securities, to Michael Walinskas, Branch Chief,

Division of Market Regulation, Commission, dated

March 9, 1995 (‘‘Amendment No. 1’’).

3All components of the Index will be REITs as

that term is defined in Sections 856 through 860 of

the Internal Revenue Code, 26 U.S.C. §§ 856–60

(1988 & Supp. 1993). Id. A REIT is a financial

vehicle that allows investors to pool funds for

participation in real estate ownership or financing.

REITs are subject to special tax treatment and are

exempt from corporate level tax if they meet certain

qualifications. These qualifications include, but are

not limited to, the distribution of 95% of taxable

income; that five or fewer individuals cannot own

more than 50% of the shares; that over 10% of total

assets cannot be sold in one year; and that at least

75% of taxable income be derived from real estate

in the form of, for example, rents, mortgages, or

gains from the sale of real estate. See letter from

Claire P. McGrath, Managing Director and Special

Counsel, Derivatives Securities, Amex, to Michael

Walinskas, Branch Chief, Division of Market

Regulation, Commission, dated March 6, 1995.

settlement.7 Thomas believes that the

PSE should amend Rule 9.12(a)(5)

which requires the use of the facilities

of a registered securities depository for

confirmation and acknowledgement of

all transaction in depository-eligible

securities.

III. Discussion

The Commission believes the

proposal is consistent with the

requirements of Section 6 of the Act.8

Specifically, Section 6(b)(5) states that

the rules of the exchange must be

designed to foster cooperation and

coordination with persons engaged in

regulating, clearing, settling, and

processing information. The PSE rules

and other self-regulatory organizations’

rules currently establish the standard

time frame for settlement of securities

transactions. On June 7, 1995, the new

settlement cycle of T+3 will be

established as mandated by the

Commission’s Rule 15cb–1. As a result,

the PSE’s current rule providing for a

T+5 settlement cycle will be

inconsistent with the Commission rule.

This proposal will amend the PSE’s

rules to harmonize them with the

Commission’s Rule 15cb–1 and a T+3

settlement cycle.

In addition, the Commission believes

that the proposed rule change is

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

Act in that it protects investors and the

public interest by reducing risks to

clearing corporations, their members,

and public investors which are inherent

in settling securities transactions. The

reduction of the time period for

settlement of most securities

transactions will correspondingly

decrease the number of unsettled trades

in the clearance and settlement system

at any given time. Thus, fewer unsettled

trades will be subject to credit and

market risk, and there will be less time

between trade execution and settlement

for the value of those trades to

deteriorate.9

While Thomson’s letter supports the

PSE’s efforts to shorten the settlement

cycle for securities transactions,

Thomson believes that the PSE should

amend Rule 9.12(a)(5), which requires

the use of the facilities of a registered

securities depository for the

confirmation and acknowledgement of

all transactions in depository-eligible

securities where payment for securities

purchased or delivery of securities sold

is to be made by or to an agent of the

customer. The Commission believes that

the issue raised by the Thomson letter

need not be resolved prior to the

approval of the proposed rule change.

Discussions regarding Thomson’s

concerns are underway among the

Commission, Thomson, and DTC. DTC

has submitted a rule filing that will

establish a linkage between DTC and

vendors such as Thomson.10 The

Commission intends to consider

whether self-regulatory organization

rules should continue to preclude use of

private vendor systems for

confirmation/affirmation services in

DVP/RVP trades. However, if the PSE’s

proposed rule change being approved by

this order is not approved prior to the

June 7, 1995, effective date of Rule

15c6–1, the PSE rules will conflict with

the Commission’s Rule 15c6–1.

The Thomson letter suggests that

approval of the proposed rule change

without amendments to Rule 9.12(a)(5)

raises competitive concerns. Under the

Act, the Commission’s responsibility is

to balance the perceived anticompetitive

effects of a regulatory policy or decision

against the purpose of the Act that

would be advanced by the policy or

decisions and the costs associated

therewith. The Commission notes that

any anticompetitive effects pointed to

by Thomson are not caused by the

proposed rule change being approved by

this order but rather by an existing PSE

rule. The Commission is reviewing

Thomson’s claim but does not believe

that approval of this proposal will itself

create any burdens on competition.

Moreover, as discussed above, the rule

advances fundamental purposes under

the Act, namely the efficient clearance

and settlement of securities.

IV. Conclusion

For the reasons stated above, the

Commission finds that PSE’s proposal is

consistent with Section 6 of the Act.11

It is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,12 that the

proposed rule change (File No. SR–PSE–

94–27) be and hereby is approved and

will become effective on June 7, 1995.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–7138 Filed 3–22–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35511; File No. SR–Amex–

95–06]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the American Stock Exchange, Inc.,

Relating to Options on the Morgan

Stanley REIT Index.

March 17, 1995.

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

Securities Exchange Act of 1934

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

February 16, 1995, the American Stock

Exchange, Inc. (‘‘Amex’’ 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 Amex. The

Exchange filed Amendment No. 1 to the

proposed rule change on March 9,

1995.2 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 Amex proposes to trade options

on the Morgan Stanley REIT Index

(‘‘REIT Index’’), a new index developed

by Morgan Stanley & Co. Incorporated

(‘‘Morgan Stanley’’) comprised of real

estate investment trusts (‘‘REITs’’)3

which are traded on the Amex, the New
Federal Register / Vol. 60, No. 56 / Thursday, March 23, 1995 / Notices 15317

4See Amendment No. 1, supra note 2.

York Stock Exchange, Inc. (‘‘NYSE’’), or

through the facilities of the Nasdaq

system and are reported Nasdaq

national market (‘‘NM’’) securities. In

addition, the Amex proposes to amend

Rule 902C(d) to include the REIT Index

in the disclaimer provisions of the rule.

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

1. Introduction

The Exchange is proposing to trade

standardized options on the REIT Index,

a capitalization weighted index

developed by Morgan Stanley,

representing a portfolio of the largest

and most actively traded REITs, and

designated to provide a broad measure

of real estate equity performance. The

Index does not include healthcare

REITs, real estate operating companies

or partnerships, or REITs that invest

primarily in real estate mortgages or

debt securities.

2. Eligibility Standards for Index

Components

The REIT Index conforms with

Exchange Rule 901C, which specifies

criteria for inclusion of stocks in an

index on which standardized options

will be traded. In addition, Morgan

Stanley has included in the Index only

those REITs that meet the following

standards: (1) A minimum market

capitalization of $100 million; (2) a

market price of at least $7.50 for the

majority of business days during the

three calendar months preceding the

date of selection, as measured by the

lowest closing price reported in any

market in which the component security

traded on each of the subject days; (3)

trading volume in the component

security of at least 1.2 million shares

during the preceding six months; (4)

each component security must be traded

on the Amex, NYSE or must be a

Nasdaq NM security; and (5) no

component security will represent more

than 25% of the weight of the Index, nor

will the five highest weighted

component securities in the Index, in

the aggregate, account for more than

50% of the weight of the Index. The

criteria set forth above are the same as

or exceed many of the criteria

established for the expedited listing of

options on stock industry indexes

pursuant to Exchange rule 901C,

Commentary .02.

3. Maintenance of the Index

In creating the Index, Morgan Stanley

identified approximately 87 REITs that

meet or exceed the above criteria. In

maintaining the Index, the Exchange

will review the component securities on

a quarterly basis to ensure that the Index

continues to represent only the largest

and most actively traded REITs. After

the close of trading on the last business

day of December, March, June, and

September, all publicly traded equity

REITs (except healthcare stocks and

REITs that invest primarily in real estate

mortgage or debt securities) will be

reviewed to see if they meet the criteria

outlined above. After the close of

trading on the third Friday of January,

April, July, and October, and Exchange

will add to the Index all those REITs

that meet the criteria and are not

currently in the Index.

Those REITs already in the Index that

no longer meet the following

maintenance criteria will be removed

from the Index at the same time. The

maintenance criteria for the component

securities are: (1) A minimum market

capitalization of $75 million; (2) a

market price of at least $5.00 for the

majority of business days during the

three calendar months preceding the

date of selection, as measured by the

lowest closing price reported in any

market in which the component security

traded on each of the subject days; and

(3) trading volume in the component

security of at least 900,000 shares

during the preceding six months.

It is anticipated that the number of

components in the REIT Index will

increase as more real estate investment

companies enter the public market, and

those currently in the public market

grow in size and trading volume.

However, if the number of component

securities in the Index shall increase to

more than 116 or decrease to fewer than

58, the Exchange will file with the

Commission pursuant to Section

19(b)(1) of the Act to obtain additional

approval for such Index.4

The number of component stocks in

the Index shall remain fixed between

quarterly reviews except in the event of

certain types of corporate actions such

as a merger or takeover which warrants

the removal of a component security

from the Index prior to its quarterly

review. In such case, the divisor shall be

recalculated to ensure continuity of the

Index’s value.

4. Index Calculation

The REIT Index is market

capitalization weighted, where the

Index value is calculated by multiplying

the primary exchange regular way last

sale price of each component security

by its number of shares outstanding,

adding the sums and dividing by the

current index divisor. The REIT Index is

a total return index, in that the regular

cash dividends of its component

securities are reinvested into the Index

portfolio. Therefore, at the close of

trading each day, the prices of

component securities which will trade

‘‘ex-dividend’’ the next day will be

adjusted (downward) by the value of the

dividend amount to reflect the price

impact on the stock as it trades without

(‘‘ex’’) the dividend on the following

day. The divisor is then adjusted to

ensure continuity of the Index value.

The Index divisor was initially

determined to yield a benchmark value

of 200 on December 31, 1994. Similar to

other stock index values published by

the Exchange, the value of the Index

will be calculated continuously and

disseminated every 15 seconds over the

Consolidated Tape Association’s

Network B.

5. Expiration and Settlement

The proposed options on the Index

will be European style (i.e., exercises

permitted at expiration only), and cash

settled. Standard option trading hours

(9:30 a.m. to 4:10 p.m. New York time)

will apply. The options on the REIT

Index will expire on the Saturday

following the third Friday of the

expiration month. The last trading day

in an expiring option series will

normally be the second to last business

day preceding the Saturday following

the third Friday of the expiration month

(normally a Thursday). Trading in

expiring options will cease at the close

of trading on the last trading day.

The Exchange plans to list options

series with expirations in the three nearterm calendar months and in the two

additional calendar months in the

January cycle. In addition, longer term

option series having up to 36 months to

expiration may be traded. In lieu of such

long-term options on a full value Index

level, the Exchange may instead list
15318 Federal Register / Vol. 60, No. 56 / Thursday, March 23, 1995 / Notices

5Rule 904C(c) relates to position limits for stock

index industry groups.

6 17 CFR 200.30–3(a)(12) (1994).

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

2Securities Exchange Act Release No. 35176

(December 29, 1994), 60 FR 2417.

3Letter from Dr. Keith B. Jarrett, President,

Thomson Trading Services, Inc., to Jonathan G.

Katz, Secretary, Commission (January 30, 1995).

4 17 CFR 240.15c6–1 (1994).

5Securities Exchange Act Release Nos. 33023

(October 6, 1993), 58 FR 52891 (order adopting Rule

15c6–1) and 34952 (November 9, 1994), 59 FR

59137 (changing effective date from June 1, 1995,

to June 7, 1995).

long-term, reduced value put and call

options based on one-tenth (1/10th) the

Index’s full value.

In either event, the interval between

expiration months for either a full value

or reduced value long-term option will

not be less than six months. The trading

of any long-term options would be

subject to the same rules which govern

the trading of all the Exchange’s index

options, including sales practice rules,

margin requirements and floor trading

procedures, and all options will have

European style exercise. Position limits

on reduced value long-term REIT Index

options will be equivalent to the

position limits for regular (full value)

Index options and would be aggregated

with such options (for example, if the

position limit for the full value options

is 10,500 contracts on the same side of

the market, then the position limit for

the reduced value options will be

105,000 contracts on the same side of

the market).

The exercise settlement value for all

of the Index’s expiring options will be

calculated based upon the primary

exchange regular way opening sale

prices for the component stocks. In the

case of securities traded through the

Nasdaq system, the first reported regular

way sale price will be used. If any

component stock does not open for

trading on its primary market on the last

trading day before expiration, then the

prior day’s last sale price will be used

in the calculation.

6. Exchange Rules Applicable to Stock

Index Options

Amex Rules 900C through 980C will

apply to the trading of option contracts

based on the Index. These rules address

surveillance, exercise prices, and

position limits. Surveillance procedures

currently used to monitor trading in

each of the Exchange’s other index

options will also be used to monitor

trading in options on the REIT Index.

The Exchange has designated the Index

a Stock Index Option under Rule

901C(a) and a Stock Index Industry

Group under Rule 900C(b)(1). With

respect to Rule 903C(b), the Exchange

proposes to list near-the-money (i.e.,

within ten points above or below the

current index value) option series on the

Index at 21⁄2 point strike (exercise) price

intervals when the value of the Index is

below 200 points. In addition, the

Exchange expects that the review

required by Rule 904C(c) 5 will result in

a position limit of 10,500 contracts with

respect to options on the Index.

7. 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)

of the Act in particular in that it is

designated 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,

and in general to protect investors and

the public interest, and to remove

impediments to and perfect the

mechanism of a free and open market

and a national market system.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

The Amex 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, N.W.,

Washington, D.C. 20549. Copies of the

submissions, 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 and 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, 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 File No. SR–Amex-95–06 and

should be submitted by April 13, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.6

[FR Doc. 95–7136 Filed 3–22–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35503; File No. SR–Phlx–

94–55]

Self-Regulatory Organizations; the

Philadelphia Stock Exchange, Inc.,

Order Approving Proposed Rule

Change Relating to Implementation of

a Three-Day Settlement Standard

March 16, 1995.

On November 14, 1994, the

Philadelphia Stock Exchange, Inc.,

(‘‘Phlx’’) filed a proposed rule change

(File No. SR–Phlx–94–55) with the

Securities and Exchange Commission

(‘‘Commission’’) pursuant to Section

19(b) of the Securities Exchange Act of

1934 (‘‘Act’’).1 Notice of the proposal

was published in the Federal Register

on January 9, 1995 to solicit comments

from interested persons.2 The

Commission received one comment

letter.3 As discussed below, this order

approves the proposed rule change.

I. Description

In October 1993, the Commission

adopted Rule 15c6–1 under the Act 4

which establishes three business days

after the trade date (‘‘T+3’’), instead of

five business days (‘‘T+5’’), as the

standard settlement cycle for most

securities transactions. The rule will

become effective June 7, 1995.5 Several

of the Phlx’s rules are interrelated with

the T+5 settlement time frame. The