[Federal Register Volume 60, Number 59 (Tuesday, March 28, 1995)]
[Notices]
[Pages 15947-15948]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-7576]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35523; File Nos. SR-Amex-95-13; SR-CBOE-95-13, SR-NYSE-
9504, SR-PSE-95-05, and SR-PHLX-95-10]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Changes by the American Stock Exchange, Inc., the Chicago Board Options 
Exchange, Inc., the New York Stock Exchange, Inc., the Pacific Stock 
Exchange, Inc., and the Philadelphia Stock Exchange, Inc., Relating to 
Permanent Approval of the Hedge Exemption Pilot Programs

March 22, 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 February 
1, 1995, the Chicago Board Options Exchange, Inc. (``CBOE''); on 
February 3, 1995, the Philadelphia Stock Exchange, Inc. (``PHLX''); on 
February 21, 1995, the Pacific Stock Exchange, Inc. (``PSE''); on 
February 28, 1995, the New York Stock Exchange, Inc. (``NYSE''); and on 
March 14, 1995, the American Stock Exchange, Inc. (``Amex'') (each 
individually referred to as an ``Exchange'' and two or more 
collectively referred to as ``Exchanges'') filed with the Securities 
and Exchange Commission (``SEC'' or ``Commission'') the proposed rule 
changes 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 changes 
from interested persons.

I. Self-Regulatory Organizations' Statement of the Terms of 
Substance of the Proposed Rule Changes

    The proposed rule changes filed by the Amex and PHLX request 
permanent approval of the Exchanges' pilot program for exemptions from 
equity option position limits for certain hedged positions.\1\

    \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 proposals filed by the CBOE, NYSE, and the PSE request 
permanent approval of the Exchanges' pilot programs for position limit 
exemptions for certain hedged equity option positions and certain stock 
index option positions.
    The text of the proposals are available at the Office of the 
Secretary of the respective Exchanges and at the Commission.

II. Self-Regulatory Organizations' Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

    In its filing with the Commission, the self-regulatory 
organizations included statements concerning the purpose of and basis 
for the proposed rule changes and discussed any comments it received on 
the proposed rule changes. The text of these statements may be examined 
at the places specified in Item IV below. The self-regulatory 
organizations have prepared summaries, set forth in sections (A), (B), 
and (C) below, of the most significant aspects of such statements.

(A) Self-Regulatory Organizations' Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

    The Commission has previously approved pilot programs proposed by 
the Amex and the PHLX providing exemptions from positions limits for 
certain fully hedged equity option positions.\2\ In addition, the 
Commission has previously approved pilot programs proposed by the CBOE, 
the NYSE and the PSE providing exemptions from position limits for 
certain fully hedged equity option positions and/or stock index option 
positions.\3\ The Exchanges' pilot programs were most recently extended 
through May 17, 1995.\4\

    \2\See Securities Exchange Act Release No. 25738 (May 24, 1988), 
53 FR 20201 (June 2, 1988).
    \3\See Securities Exchange Act Release Nos. 25738 (May 24, 
1988), 53 FR 20201 (June 2, 1988) (order approving CBOE's equity 
option hedge exemption pilot programs); 25739 (May 24, 1988), 53 FR 
20204 (June 2, 1988) (approving CBOE's stock index option hedge 
exemption pilot program); 27786 (March 8, 1990), 55 FR 9523 (March 
14, 1990) (order approving NYSE's equity option and stock index 
option hedge exemption pilot programs); 25811 (June 20, 1988), 53 FR 
23821 (June 24, 1988) (order approving PSE's equity option hedge 
exemption pilot program); and 32900 (September 14, 1993), 58 FR 
49077 (September 21, 1993) (order approving PSE's stock index option 
hedge exemption pilot program).
    \4\See Securities Exchange Act Release Nos. 24986 (November 18, 
1994), 59 FR 60856 (November 28, 1994) (order approving File Nos. 
SR-Amex-94-49, SR-CBOE-94-41, SR-PSE-94-33, and SR-PHLX-94-53); and 
35194 (January 5, 1995), 60 FR 2800 (January 11, 1995) (order 
approving File Nos. SR-NYSE-94-47).
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    Each of the pilot programs allow the underlying hedged positions to 
include securities that are readily convertible into common stock.\5\ 
Under all of the pilot programs, exercise limits continue to correspond 
to position limits, so that investors are allowed to exercise, during 
five consecutive business days, the number of option contracts set 
forth as the position limit, as well as those contracts purchased 
pursuant to the pilot program.\6\

    \5\Under the pilot, the Exchanges must determine on a case-by-
case basis whether an instrument that is being used as the basis for 
an underlying hedged position is readily and immediately convertible 
into a security that is convertible at a future date, but which is 
not presently convertible, is not a ``convertible'' security for 
purposes of the equity option position limit hedge exemption until 
the date it becomes convertible. In addition, if the convertible 
security used to hedge an options position is called for redemption 
by the issuer, the security would have to be converted into the 
underlying security immediately or the corresponding options 
position reduced accordingly. See, e.g., Securities Exchange Act 
Release No. 32904 (September 14, 1993), 58 FR 49339 (September 2, 
1993) (order approving File No. SR-CBOE-91-43).
    \6\Exercise limits prohibits the exercise by an investor or 
group of investors acting in concert of more than the number of 
options contracts specified in the position limit rule within five 
consecutive business days.
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    The Exchanges believe that the proposed rule changes are consistent 
with Section 6(b) of the Act, in general, and further the objectives of 
Section 6(b)(5), in particular, in that they are designed to protect 
investors and the public interest and to remove impediments and perfect 
the mechanism of a free and open market.

(B) Self-Regulatory Organizations' Statement on Burden on Competition

    The Exchanges do not believe that the proposed rule changes will 
impose any burden on competition.

(C) Self-Regulatory Organizations' Statements on Comments on the 
Proposed Rule Changes Received From Members, Participants or Others

    Written comments on the proposed rule changes were neither 
solicited nor received. [[Page 15948]] 

III. Date of Effectiveness of the Proposed Rule Changes 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 reason for so finding or (ii) as to 
which the self-regulatory organizations consent, the Commission will:
    (a) By order approve such proposed rule changes, or
    (b) Institute proceedings to determine whether the proposed rule 
changes 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 changes that are filed 
with the Commission, and all written communications relating to the 
proposed rule changes 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, 
NW., 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 
organizations. All submissions should refer to the file number in the 
caption above and should be submitted by April 18, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\

    \7\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-7576 Filed 3-27-95; 8:45 am]
BILLING CODE 8010-01-M