Federal Register / Vol. 60, No. 78 / Monday, April 24, 1995 / Notices 20133

amended. Amendment No. 1 altered the proposed

rule change to reference Rule 3 of Article XII as the

correct rule to be amended.

4Under Rule 1 of Article XII, any default,

misconduct or other offense alleged to have been

committed by a member, member organization or

any other person or organization subject to the

Exchange’s jurisdiction that comes to the attention

of the president shall be investigated by the staff

and a written report of such investigation shall be

made to the president. In addition, if the president

decides from such a report that such member,

member organization, or other person or

organization has committed a default or other

offense in violation of the Constitution or Rules of

the Exchange, the president shall direct the staff to

prefer written charges against the accused, a copy

of which will be served upon the accused.

5Class B violations involve minor offenses such

as dress code and smoking violations. See .01 of the

Interpretations and Policies to Rule 3 of Article XII.

6Class A represents more serious violations than

Class B and includes such conduct as fighting,

threatening speech, and other conduct that is

detrimental to the interest or welfare of the

Exchange. See .01 of the Interpretations and

Policies to Rule 3 of Article XII.

7A member summarily excluded has the right to

petition for reinstatement after a sufficient ‘‘coolingoff’’ period has elapsed. See .02 of the

Interpretations and Policies to Rule 3 of Article XII.

8The Exchange does not specifically define the

term ‘‘associated person’’ in its Rules. For purposes

of Rule 3, Article XII, the Exchange refers to an

associated person as defined in Section 3(a)(21) of

the Securities Exchange Act of 1934. Telephone

conversation with David Rusoff, Foley & Lardner,

and Jennifer Choi, Attorney, SEC, dated February

27, 1995. Section 3(a)(21) defines an ‘‘associated

person of a member’’ as any ‘‘partner, officer,

director, or branch manager of such member (or any

person occupying a similar status or performing

similar functions), any person directly or indirectly

controlling, controlled by, or under common

control with such member, or any employee of such

member.’’

9 15 U.S.C. 78f(b) (1988 & Supp. v 1993).

10 15 U.S.C. 78s(b)(2) (1988).

11 17 CFR 200.30–3(a)(12) (1994).

The proposed rule change, including

Amendment No. 1 thereto, was

published for comment in Securities

Exchange Act Release No. 35449 (Mar.

7, 1995), 60 FR 13492 (Mar. 13, 1995).

No comments were received on the

proposal.

At present, Rule 3 of Article XII

provides the Committee on Floor

Procedure with the authority to

summarily fine members and exclude

them from the Exchange premises under

certain circumstances. The Rule

provides that the Committee on Floor

Procedure or an appropriately

designated subcommittee has the

authority to summarily fine and exclude

from the Exchange a member whose

conduct is deemed to be improper and

to recommend investigations pursuant

to Rule 1 of Article XII 4 regarding any

conduct on the floor of the Exchange.

Specifically, any member of the Floor

Committee or a member of its

appropriately designated subcommittee

may summarily fine any member for

conduct classified as Class B5 in an

amount not to exceed $100. For conduct

classified as Class A offenses,6 any

member of the Floor Committee or a

member of its appropriately designated

subcommittee with the concurrence of

two other floor officials (floor governors

if immediately available) may

summarily fine a member in an amount

not to exceed $2,500 and summarily

exclude a member from the Exchange

for no longer than the remainder of the

trading day.

For either class of offenses, a member,

who has been adversely affected by any

action taken under Rule 3, except for a

summary exclusion,7 by any person or

body, other than the full Floor

Procedure Committee, may appeal to the

full Floor Procedure Committee within

five days of receiving notice of the

action by making a written request.

Upon appeal, the full Floor Procedure

Committee may increase or decrease the

amount of a summary fine or the length

of an exclusion from the Exchange. The

Floor Procedure Committee, however,

may not fine a member in an amount in

excess of $2,500 or exclude a member

from the Exchange in excess of five full

business days. The decision of the Floor

Procedure Committee is deemed final

with respect to any action involving no

more than a $100 fine.

By written request, a member may

appeal a determination of the full Floor

Procedure Committee involving more

than a $100 fine to the Executive

Committee. The Executive Committee

will review the report of the action as

certified by the Secretary unless it

decides to open the record for

additional evidence. Upon review, the

Executive Committee may increase or

decrease the amount of a summary fine

or the length of an exclusion. The

Executive Committee, however, may not

fine a member in an amount in excess

of $2,500 or exclude a member from the

Exchange in excess of five full business

days.

The Exchange proposes to amend

Rule 3 and interpretation .02 thereunder

to extend the application of the rule to

persons associated with a member.8

Therefore, under the proposed rule

change, the Committee on Floor

Procedure would exercise the same

authority over members and persons

associated with a member.

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange, and, in particular, with the

requirements of Section 6(b).9 The

Commission believes the proposal is

consistent with the Section 6(b)(6)

requirements that the rules of an

exchange provide for the appropriate

discipline of its members and persons

associated with its members for

violation of the Act, the rules

promulgated thereunder, or the rules of

the exchange because the rule change

provides that members and persons

associated with a member may be

summarily fined or excluded from the

Exchange premises for conduct that the

Exchange deems improper. Moreover,

the Commission believes the proposal is

consistent with the Section 6(b)(1)

requirements that an exchange have the

capacity to enforce compliance by its

members and persons associated with

its members, with the provisions of the

Act, the rules promulgated thereunder,

and the rules of the exchange because

under the proposed rule change, the

Exchange’s Committee on Floor

Procedure would have the authority to

enforce compliance by members and

persons associated with a member, with

the rules that it deems important in the

fair administration of the Exchange.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,10 that the

proposed rule change (SR–CHX–95–05)

is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–9980 Filed 4–21–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35615; International Series

Release No. 802 File No. SR–Phlx–95–05]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Philadelphia Stock Exchange, Inc.

Relating to the Response Period for

Customized Foreign Currency Options

April 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 February 21, 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. 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 amend

Exchange Rule 1069(b) in order to
20134 Federal Register / Vol. 60, No. 78 / Monday, April 24, 1995 / Notices

1See Securities Exchange Act Release No. 34925

(November 1, 1994), 59 FR 55720 (November 8,

1994).

2The FCO Committee shortened the response

period to one minute for all types of RFQs for

Customized FCOs on January 16, 1995, effective at

the opening on January 17, 1995.

3Telephone conversation between Michele

Weisbaum, Associate General Counsel, Phlx, and

Brad Ritter, Senior Counsel, Office of Market

Supervision, Division of Market Regulation,

Commission, on February 22, 1995.

simplify customized foreign currency

option (‘‘Customized FCO’’) trading by

conforming the procedure for obtaining

quotes and executing trades with

existing rules for regular Exchangetraded FCOs. Additionally, the

Exchange proposes to adopt Floor

Procedure Advice F–20 (Quoting and

Trading Customized Foreign Currency

Options) which will parallel the

provisions of Exchange Rule 1069(b).

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 November 1, 1994, the

Commission approved the Exchange’s

proposal to trade customized foreign

currency options.1 The Phlx proposes to

amend Exchange Rule 1069(b) in order

to eliminate the response period and the

special parity rules for assigned

Registered Options Traders (‘‘ROTs’’)

that apply during that response period.

Presently, when a participant requests a

quote for a Customized FCO (‘‘RFQ’’), if

any participant requests a response

time, the preset amount of time

applicable to that type of Customized

FCO is invoked and the assigned ROTs

are given the ability to match any

responsive quote that improves their

previously voiced responsive quote. The

response period was initially set by the

Exchange’s FCO Committee at two

minutes for simple strike options, five

minutes for simple spreads, inverses,

and cross-rates, and eight minutes for

options strategies involving more than

three legs.2 Once the response period

has been invoked, a trade may only

occur prior to the end of the response

period if at least two assigned ROTs

respond to the RFQ. The Exchange has

found that in almost every instance,

participants have requested a response

period, however, responsive quotes

generally are not received until after the

end of the response period.3

The Exchange represents that the

intent of the response period was to give

all participants and customers an equal

amount of time to calculate a price in

response to a RFQ because Customized

FCOs are not continuously quoted FCOs

for which participants have readily

available trade sheets. Presently, when a

RFQ is disseminated, a ROT who

intends to respond may have to leave

the crowd that he is in, go over to the

Customized FCO post to listen to the

RFQ, formulate a responsive quote, and

then voice the responsive quote in the

trading crowd.

The response period and attendant

parity rules were intended, according to

the Exchange, to assure that the floor

traders who are crucial to providing

liquidity to the market place were not

placed at a competitive disadvantage to

the off-floor traders due to their lack of

prepared trading sheets. The Exchange

has not been able to determine whether

this concern is valid or not by reviewing

the present level of activity in

Customized FCOs. The Exchange has

determined, however, that it is

important at this time to promote more

activity in Customized FCOs and,

therefore, it is proposing to eliminate

the response period. The Exchange

represents that, pursuant to the

proposed rule change, Customized FCOs

will trade similar to regular Exchangetraded FCOs such that trades will be

executable as soon as any responsive

quote is made. Moreover, existing parity

and priority principles in Exchange

Rule 1014(h) will apply to trades in

Customized FCOs. As more experience

is gained, the Exchange feels that it will

be in a better position to review trading

activity to ensure that no competitive

disparity is actually occurring.

The Phlx also proposes to adopt a

new Floor Procedure Advice applicable

to the FCO floor. Proposed Advice F–20

(Quoting and Trading Customized

Foreign Currency Options), generally

follows the text of Rule 1069(b). The

Exchange represents that the purpose of

Advice F–20 is to codify the trading

procedure for Customized FCOs in the

Floor Procedure Advice Handbook for

ease of reference.

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

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 by simplifying the

trading process for Customized FCOs.

(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

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
Federal Register / Vol. 60, No. 78 / Monday, April 24, 1995 / Notices 20135

4 17 CFR 200.30–3(a)(12) (1994).

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

2 17 CFR 240.19b–4 (1994).

3See Securities Exchange Act Release No. 35376

(February 14, 1995), 60 FR 9880.

4 In Amendment No. 1, the Phlx proposed to: (1)

Amend Rule 1101A to specify that ten additional

expiration months may be added for the proposed

longer-term index LEAPS, as opposed to the six

additional months currently allowed for LEAPS;

and (2) provide that the proposal will apply to all

indexes, both broad-based and narrow-based,

previously approved for the trading of standardized

index options on the Exchange. See Letter from

Edith Hallahan, Special Counsel, Phlx, to Michael

Walinskas, Branch Chief, Office of Market

Supervision, Division of Market Regulation,

Commission, dated February 23, 1995.

5The proposal would permit five-year LEAPS on

both broad-based and narrow-based indexes on

which LEAPS have been approved for trading on

the CBOE. Id.

6 Id.

7See Phlx Rule 1101A(b)(iii) and Securities

Exchange Act Release No. 28910 (February 22,

1991), 56 FR 9032 (March 4, 1991) (‘‘Exchange Act

Release No. 28910’’).

8 15 U.S.C. 78f(b)(5) (1988 & Supp. V 1993).

9The Commission also finds that extending the

maximum term for Index LEAPS from three to five

years does not alter the Commission’s designation

of index LEAPS as standardized options pursuant

to Rule 9b–1(a)(4) of the Act.

10See Exchange Act Release No. 28910, supra

note 7.

11 Id.

12 Id.

13The Commission’s findings are predicated on

the somewhat limited length of five-year index

LEAPS. Any subsequent proposal to list index

LEAPS with expirations beyond five years could

alter the nature of the product and would raise new

regulatory concerns, including, among other things,

the appropriate margin treatment, disclosure, and

trading rules for the product.

14See Exchange Act Release No. 28910, supra

note 7.

15See Phlx Rules 1014, 1020, and 1000A(a).

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–95–05 and should be

submitted by May 15, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.4

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–9977 Filed 4–21–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35616; File No. SR–Phlx–

95–11]

Self-Regulatory Organizations; Order

Approving a Proposed Rule Change

and Notice of Filing and Order

Granting Accelerated Approval of

Amendment No. 1 to the Proposed

Rule Change by the Philadelphia Stock

Exchange, Inc. Relating to the Listing

of Long-Term Index Options Series

(‘‘LEAPS’’) With a Duration of up to

Sixty Months Until Expiration

April 17, 1995.

On February 8, 1995, the Philadelphia

Stock Exchange, Inc. (‘‘Phlx’’ or

‘‘Exchange’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 1 and Rule 19b–4

thereunder,2 filed with the Securities

and Exchange Commission

(‘‘Commission’’) a proposed rule change

to permit the listing of long-term index

options series (‘‘LEAPS’’) with a

duration of up to sixty months (five

years) until expiration. Notice of the

proposal appeared in the Federal

Register on February 22, 1995.3 No

comment letters were received on the

proposed rule change. The Exchange

filed Amendment No. 1 to the proposal

on February 23, 1995.4 This order

approves the Phlx proposal, as

amended.

The purpose of the proposed rule

change is to permit the Exchange to list

index LEAPS with a duration of up to

sixty months (five years).5 Presently, the

Exchange has authority pursuant to Phlx

Rule 1101A(b)(iii) to list index LEAPS

that expire from twelve to thirty-six

months from the time they are listed.

The Exchange represents that there has

been increasing member firm and

customer interest in longer term

instruments. The Exchange, therefore, is

proposing to amend Exchange Rule

1101A to permit the listing of index

options with up to sixty months until

expiration. In addition, the Exchange

proposes to amend Rule 1101A(b)(iii) to

allow for up to ten expiration months

for index LEAPS, as opposed to the six

months currently allowed.6 The

proposal does not change any other rule

regarding the listing and trading of

index LEAPS.7

The Commission finds that the

proposed rule change 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).8

Specifically, the Commission believes

the proposal is designed to provide

investors with additional means of

hedging equity portfolios from longterm market risk with an exchangetraded security (i.e., a standardized

option), thereby facilitating transactions

in options and contributing to the

protection of investors and the

maintenance of fair and orderly

markets.9

Currently, institutional customers use

index options to hedge the risks

associated with holding diversified

equity portfolios. The Commission

continues to believe, as originally stated

in its approval of the listing of index

LEAPS by the Exchange, that allowing

investors to lock in their hedges with

longer-term index LEAPS will permit

institutions to protect better their

portfolios from adverse market moves.10

Further, the Commission believes that

index LEAPS with up to five years until

expiration will allow this protection at

a known and limited cost.11 Moreover,

the proposal will provide institutions

with an additional securities product

with which to hedge their portfolios as

an alternative to hedging with futures

positions or off-exchange customized

index options.12 Accordingly, the

Commission believes that the proposed

rule change will better serve the longterm hedging needs of institutional

investors.13

Finally, although as with index

LEAPS presently trading on the

Exchange, specific strike price interval,

bid/ask differential, and price

continuity rules will not apply until the

proposed longer-term index LEAPS

have less than 12 months until

expiration,14 the Commission notes that

Phlx’s general rule obligating market

makers to maintain fair and orderly

markets will continue to apply to the

proposed longer-term index LEAPS.15

The Commission believes that the

requirements of Phlx Rules 1014 and

1020 are broad enough, even in the

absence of strike price interval, bid/ask

differential, and continuity

requirements, to provide the Exchange

with the authority to make a finding of

inadequate market maker performance

should market makers enter into

transactions or make bids or offers (or

fail to do so) in the proposed longerterm index LEAPS that are inconsistent

with the maintenance of a fair and

orderly market.

The Commission finds good cause for

approving Amendment No. 1 to the

proposed rule change prior to the

thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register. Specifically,

Amendment No. 1 provides that the

Exchange may list up to ten additional

expiration months when listing the

proposed longer-term index LEAPS. The

Commission believes this is consistent

with the original approval of index

LEAPS which allowed for up to six

additional expiration months for LEAPS

expiring 36 months from the date of