Federal Register / Vol. 60, No. 58 / Monday, March 27, 1995 / Notices 15807

21The Amex has comprehensive surveillance

sharing agreements with all of the exchanges upon

which the futures contracts overlying COINs trade

and is able to obtain market surveillance

information, including customer identity

information, for transactions occurring on NYMEX

and Comex. Furthermore, under the ISG

information sharing agreement, SFA will be able to

provide, on request, surveillance information with

respect to trades effected on the LME, including

client identity information. Finally, if the

composition of the applicable COINs Index changes

or if a different market is utilized for purposes of

calculating the value of the designated futures

contracts, the Amex will ensure that it has entered

into a surveillance sharing agreement with respect

to the new relevant market.

22See December 16 Letter.

23As discussed above, members of the JPMCI

Policy Committee are expressly prohibited from

trading COINs and from communicating any

knowledge concerning changes in the value of the

Indexes to any other person. Amex will also have

surveillance procedures in place to periodically

review activity in the notes and/or underlying

Index components.

24 15 U.S.C. 78s(b)(2) (1982).

25 17 CFR § 200.30–3(a)(12) (1994).

1 In Amendment No. 1, the Exchange proposed to:

(1) Amend the procedure for the symbols that will

be used for the proposed longer term 3D Options;

(2) change the name of these options in Phlx’s rules

from ‘‘cash/spot’’ to ‘‘3D’’ FCOs; (3) specify the

strike price intervals applicable to the longer-term

3D Options; and (4) clarify that the proposal to

permit spread margin treatment between the 3D

Options and the regular Deutsche mark FCO will be

applicable to the weekly, consecutive month, and

cycle month series 3D Options. See Letter from

Michele Weisbaum, Associate General Counsel,

Phlx, to Brad Ritter, Senior Counsel, Office of

Market Supervision, Division of Market Regulation,

Commission, dated February 24, 1995

(‘‘Amendment No. 1’’).

2 ‘‘3D’’ refers to dollar denominated delivery.

3See Securities Exchange Act Release No. 33732

(March 8, 1994), 59 FR 12023 (March 15, 1994).

4A European-style option may only be exercised

during a specified time period immediately prior to

expiration of the option.

section of exchange-traded industrial

commodities. Second, each of the

futures contracts overlying the

commodities is relatively actively

traded, and has considerable open

interest. Third, the majority of futures

contracts overlying the component

commodities trade on exchanges that

impose position limits on speculative

trading activity, which are designed,

and serve, to minimize potential

manipulation and other market impact

concerns. Fourth, as discussed below,

the Amex has entered into certain

surveillance sharing agreements with

each of the futures exchanges upon

which the underlying designated futures

contracts trade. These agreements

should help to ensure the availability of

information necessary to detect and

deter potential manipulations and other

trading abuses, thereby making COINs

less readily susceptible to

manipulation.21 Fifth, the price of

COINs will be comprised of readily

ascertainable and verifiable futures

contract settlement and closing prices

and disseminated once each trading day

after 4 p.m. (New York time) to vendors

of electronic financial information and

on the Amex tape.22 Sixth, adequate

procedures are in place to prevent the

misuse of information by members of

the JPMCI Policy Committee.23

Accordingly, for the reasons discussed

above, the Commission believes the

Indexes are not readily susceptible to

manipulation and that in any event, the

surveillance procedures in place are

sufficient to detect as well as deter

potential manipulation.

The Commission notes that COINs,

unlike standardized options, do not

contain a clearinghouse guarantee but

are instead dependent upon the

individual credit of the issuer, J.P.

Morgan. This heightens the possibility

that a purchaser of COINs may not be

able to receive full principal cash

payment upon maturity. To some extent

this credit risk is minimized by the

Exchange’s listing guidelines requiring

COINs issuers to possess at least

$100,000,000 in assets and stockholders’

equity of at least $10 million. In any

event, financial information regarding

J.P. Morgan will be disclosed or

incorporated in the prospectus

accompanying the offering of COINs.

Finally, the Commission notes that

the approval granted herein is limited to

the issuance of COINs whose value is

derived from the JPMCI or JPMCIX, as

described in this Order. Accordingly,

the use of either of the Indexes as an

underlying value for any other

derivative product, irrespective of the

issuer, raises additional legal and/or

regulatory issues which would

necessitate a rule filing pursuant to Rule

19b–4.

Based on the above, the Commission

finds that the proposal to trade COINs

is consistent with the Act, and, in

particular, the requirements of Section

6(b)(5).

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,24 that the

proposed rule change is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.25

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–7447 Filed 3–24–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35520; International Series

Release No. 793, File No. SR–Phlx–95–02]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment No. 1 to the Proposed

Rule Change by the Philadelphia Stock

Exchange, Inc. Relating to Additional

Expirations for the Cash/Spot German

Mark Foreign Currency Options (‘‘3D

Options’’)

March 21, 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 January 25, 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 Phlx. On February 24,

1995, the Exchange filed Amendment

No. 1 to the proposed rule change.1 The

Commission is publishing this notice to

solicit comments on the proposed rule

change, as amended, from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Phlx, pursuant to Rule 19b–4 of

the Act, proposes to amend Exchange

Rule 1012(a)(ii) to permit listing German

mark cash/spot foreign currency options

(‘‘FCOs’’), commonly referred to as ‘‘3D

Options,’’ 2 with series having up to 12

months to expiration. The text of the

proposed rule change is available at the

Office of the Secretary, the 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

Phlx 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 Phlx 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 the

Statutory Basis for, the Proposed Rule

Change

On March 8, 1994, the Commission

approved the listing and trading of 3D

Options.3 These FCOs are issued by The

Options Clearing Corporation and are

European-style.4 The options have oneweek and two-week expirations to

provide a hedging vehicle for:

sophisticated retail customers, portfolio

managers, and multi-national

corporations which need to hedge their
15808 Federal Register / Vol. 60, No. 58 / Monday, March 27, 1995 / Notices

5The Exchange is also proposing to amend Rules

1000, 1012, 1014, 1057, and 1069 to change

references in its rules from cash/spot FCOs to 3D

FCOs, as, these FCOs are more commonly referred

to. The Exchange is also proposing non-substantive

changes to Rule 1012 for ease of reading. See

Amendment No. 1, supra note 1.

6For example, a March 1995 3D Option that

would expire on Monday March 13, would be

listed, for example, as an XDB March 62 call,

whereas the April 1995 3D Option that would

expire on Tuesday, April 18 (Monday being an

Exchange holiday) would be listed as an XDC April

62 call. See Amendment No. 1, supra note 1.

7 Id.

8Exchange Rule 722(c)(2)(E) provides: ‘‘Where a

call that is listed or traded on a registered national

securities exchange or association is carried ‘short’

for a customer’s account and the account is ‘long’

a call listed or traded on an exchange or association,

expiring on or after the date of the ‘short’ call and

written on the same number of * * * units of the

same underlying foreign currency, the minimum

margin must be maintained in respect of the ‘short’

position shall be the lesser of (i) the required

amount pursuant to subparagraph (B)(i) or (B)(ii) of

the paragraph (c)(2), as the case may be, or (ii) the

amount, if any, by which the exercise price of the

‘long’ call exceeds the exercise price of the ‘short’

call.’’

‘‘Where a put that is listed or traded on a

registered national securities exchange or

association is carried ‘short’ for a customer’s

account and the account is also ‘long’ a put listed

or traded on an exchange or association expiring on

or after the expiration date of the ‘short’ put and

written on the same number of * * * units of the

same underlying foreign currency (in the case of

options on a foreign currency), the minimum

margin which must be maintained in respect of the

‘short’ put shall be the lesser of (i) the margin

required pursuant to subparagraphs (B)(i) or (B)(ii)

of this paragraph (c)(2) as the case may be, or (ii)

the amount, if any, by which the exercise price of

the ‘short’ put exceeds the exercise price of the

‘long’ put.’’

9This proposal will apply both to the existing 3D

Options and to the proposed longer-term 3D

Options. See Amendment No. 1, supra note 1.

short term foreign currency exposure;

and to banks which need to hedge the

risks associated with trading in the

forward and cash markets. The

Exchange represents that the users of 3D

Options have particularly liked the U.S.

dollar settlement feature because they

do not have to establish foreign bank

credit lines, nor do they have to worry

about the potential of exchanging

currency due to exercises and

assignments. The Exchange further

represents that although the users find

3D Options beneficial for managing

their short term foreign currency risks,

they have also suggested that they

would like to use a U.S. dollar settled

option to hedge longer term risks. The

Phlx, therefore, proposes to add longer

term expirations to the 3D Option

contract in order to address these

requests.

The Exchange proposes to list 3D

Options with expirations corresponding

to the consecutive month and cycle

month series for regular FCOs.

Specifically, 3D Options will be listed

on the March, June, September, and

December cycle with two near-term

months. The expiration date will be the

Monday preceding the third Wednesday

of each month, thus creating a midmonth U.S. dollar settled FCO. The Phlx

proposes to amend Phlx Rule

1012(a)(ii)(B) and (C) to reflect these

additional series of options. The

Exchange will not list 3D Options with

month-end expirations or with more

than 12 months to expiration.5

The Exchange believes that 3D

Options with a longer term to expiration

will meet the needs of investment

managers who are seeking to protect

portfolios against foreign exchange

fluctuations but who do not wish to

receive or deliver the underlying

currency to achieve that goal. Similarly,

the Exchange believes that corporate

treasurers seeking balance sheet

protection would also prefer paying or

receiving U.S. dollars rather than

exchanging German marks. Both of

these potential users may have either

short or long-term concerns. Finally,

retail traders who may have either a

short or long-term market perspective,

will, in the Exchange’s opinion, find

these options attractive because they

will not have to establish foreign bank

credit lines or have to deal with the

delivery or receipt of the underlying

foreign currency at settlement.

Currently, the weekly 3D Options are

listed with the symbol XDA, SDB, XDC,

XDD, or XDE depending on whether

they will expire on the first, second,

third, fourth, or fifth Monday of the

month, respectively. Because the

proposed longer term 3D Options will

expire on the Monday before the third

Wednesday of each month, they will

always expire on either the second or

third Monday of the month.

Accordingly, the longer-term 3D

Options will be listed with the symbol

XDB or XDC and will carry that symbol

until expiration.6

3D Options are currently listed in

one-half point strike price intervals. The

Exchange proposes that the proposed

longer-term 3D Options listed for the

three near term months will also be

listed in one-half point strike price

intervals, while the 3D Options listed

with six, nine, or twelve months to

expiration will have one point strike

price intervals.7

The Exchange intends to allow spread

margin treatment between the German

mark FCO (‘‘XDM’’) and the 3D Options

pursuant to Exchange Rule 722(c)(2)(E).8

This provision allows for short calls or

puts to be offset against long calls or

puts for margin purposes if the

underlying foreign currency and

number of units are the same, provided

that the ‘‘long’’ position expires on or

after the date of the ‘‘short’’ position.

Even though 3D Options are settled in

U.S. dollars and XDM contracts are

settled in German marks, the Exchange

believes that it should be permissible for

a broker-dealer to extend to its

customers spread margin treatment for a

position consisting of a 3D Option offset

against an XDM under the existing

Exchange rules.9 The Exchange believes

that this type of spread margin

treatment is warranted for the same

economic reasons that the Exchange has

allowed customers to spread two XDM

positions against each other. In both

cases, a customer is hedging an option

position on the same underlying

currency—the German mark. If the

market value of the underlying

decreases, the customer will lose money

on the long side and profit on the short

side and, conversely, if the market value

of the underlying increases, the

customer will profit on the long side

and lose on the short side. The

Exchange feels that risk reducing

strategies need to be recognized and

spread margin treatment permitted.

The Exchange believes that the

foregoing rule change proposal is

consistent with Section 6 of the Act, in

general, and with Section 6(b)(5), in

particular, in that it is designed to

prevent fraudulent and manipulative

acts and practices, to promote just and

equitable principles of trade, to facilitate

transactions in securities, to remove

impediments to and perfect the

mechanism of a free and open market

and a national market system, and to

protect investors and the public interest

by providing FCO users who do not

necessarily need to exchange currency

at settlement with an alternative U.S.

dollar settled FCO with corresponding

expirations.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

The Phlx does not believe that the

proposed rule change will impose any

inappropriate 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.

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
Federal Register / Vol. 60, No. 58 / Monday, March 27, 1995 / Notices 15809

10 17 CFR 200.30–3(a)(12) (1994).

1The Phlx’s minor rule violation enforcement

and reporting plan (‘‘minor rule plan’’), codified in

Phlx Rule 970, contains floor procedure advices

with accompanying fine schedules. Rule 19d–

1(c)(2) authorizes national securities exchanges to

adopt minor rule violation plans for summary

discipline and abbreviated reporting; Rule 19d–

1(c)(1) requires prompt filing with the Commission

of any final disciplinary actions. However, minor

rule violations not exceeding $2,500 are deemed not

final, thereby permitting periodic, as opposed to

immediate, reporting. Violations of Advice F–4 are

currently subject to a minor rule plan citation and

fine.

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 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

Phlx. All submissions should refer to

File No. SR–Phlx–95–02 and should be

submitted by April 17, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.10

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–7448 Filed 3–24–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35512; File No. SR–Phlx–

95–15]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Philadelphia Stock Exchange, Inc.

Relating to the Codification of Order

Ticket Marking Requirements

March 17, 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 13, 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 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 Phlx proposes to consolidate and

codify its order ticket marking

requirements under Floor Procedure

Advice (‘‘Advice’’) F–4. 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

Phlx included statements concerning

the purpose of the 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 Phlx 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 purpose of the proposed rule

change is to list the order ticket marking

requirements in a single advice to

facilitate floor compliance. By providing

a sort of checklist of required marks and

by placing the checklist in the Floor

Procedure Advice Handbook for ease of

reference, the Exchange believes that it

will be easier for trading floor personnel

to identify and verify in a timely fashion

whether an order ticket has been

properly marked.

Currently, Advice F–4 requires order

tickets for spreads, straddles,

combinations and synthetics that

receive spread priority to be marked

accordingly (e.g., ‘‘sp,’’ ‘‘st,’’ etc.). This

existing requirements, which is now

proposed to be labelled as paragraph (a),

contains a fine schedule for violations,

administered pursuant to the

Exchange’s minor rule violation

enforcement and reporting plan.1

Proposed paragraph (b) would not

contain a fine schedule, and therefore,

does not require an amendment to the

Exchange’s minor rule plan. Instead,

failure to mark the order ticket is a

violation of the rule or advice, subject

to the applicable fine, if any, requiring

that mark, not Advice F–4(b). For

example, failure to mark ‘‘SS’’

respecting a trade designated as ‘‘sold

sale’’ violates Advice F–3. Proposed

Advice F–4(b) does not in and of itself

impose new marking requirements.

In recent years, several new order

types and marking requirements have

been introduced on the options floors.

For example, ‘‘BD’’ for purposes of the

Ten-up Rule, and ‘‘F’’ respecting

facilitation orders may be required on

order tickets. In each case, the Phlx

believes that marking the floor ticket

correctly is instrumental to ensuring to

proper handling of the order in the

trading crowd.

The Phlx believes 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

prevent fraudulent and manipulative

acts and practices, as well as to protect

investors and the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe the

proposed rule change will impose any

inappropriate burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

The Exchange has neither solicited

nor received written comments on the

proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Because the foregoing proposed rule

change: (1) Does not significantly affect

the protection of investors or the public

interest; (2) does not impose any

significant burden on competition; (3)

was provided to the Commission for its

review at least five days prior to the

filing date; and (4) does not become

operative for 30 days from March 13,