Federal Register / Vol. 61, No. 2 / Wednesday, January 3, 1996 / Notices 211

14A strike that is no longer around-the-money

based on a delta change may qualify as an update

strike if there is open interest in the series and the

series has traded within the previous five trading

days. In addition, update series may be activated

intra-day at the PHLX’s initiative or in the response

to a request from a specialist or an FCO floor

official.

15See SQF Approval Order, supra note 9.

16 15 U.S.C. § 78s(b)(2) (1988).

1717 CFR 200.30–3(a)(12) (1994).

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

2 17 CFR 240.19b–4.

3The Exchange proposes to amend its position

limit rule to state that the position limit for options

on the Big Three Auto Index is 5,500 contracts total.

Additionally, the Exchange proposes to amend the

filing to change the method of calculating the Index

from equal-dollar weighting to capitalization

weighting. See Letter from Michele Weisbaum,

Associate General Counsel, Phlx, to John Ayanian,

Attorney, Office of Market Supervision (‘‘OMS’’),

Division of Market Regulation (‘‘Market

Regulation’’), Commission, dated December 20,

1995 (‘‘Amendment No. 1’’).

4European-style options can be exercised only

during a specific time period prior to expiration of

the options.

number of FCO positions creates open

interest, which remains without

fluctuation or additional trading

volume; the PHLX believes that

classifying series with open interest that

have not traded within the previous five

days as non-update series will eliminate

a significant number of quote changes.

This, in turn, should decrease FCO

quotation processing times so that active

quotes are updated and disseminated

more quickly to public investors.

In addition, the PHLX proposes to

amend the definition of update series to

include the approximately 10, 20, 30,

40, and 50 delta strikes below and above

the underlying price. The delta

associated with a strike changes as the

spot price changes, so that different

strikes become the approximately 10–50

delta strikes and, thus, the active series.

According to the PHLX, strike prices

with a delta up to 50 represent the most

active, volatile options, for which the

dissemination of quotations is

meaningful. Because the proposal

provides that the approximately 10–50

delta strikes above and below the

underlying price will be classified as

update series, it benefits investors and

helps the PHLX to maintain fair and

orderly markets by allowing for the

updating and dissemination of the

quotations that are most useful to FCO

market participants.

The PHLX proposes further to deactivate strikes intra-day that no longer

fit the definition of active, thus

eliminating quote change

disseminations in series of improbable

public investor interest and helping the

PHLX to provide timely and accurate

FCO quotes in series of interest to

investors.14 At the time, the Exchange

proposes to update and disseminate

strikes which become active due to

market changes, thereby helping to

ensure that the most active FCO strikes

are updated and disseminated

throughout the trading day.

In addition, the Commission believes

that the proposal protects market

participants by providing for the

dissemination of one bid/ask quote at

the end of each trading day for nonupdate series with open interest. This

quote will provide option holders with

an indication of the market for that

option and will provide the OCC with

a closing value to mark the market for

margin and capital purposes.

The Commission continues to believe,

as it has concluded previously,15 that

the SQF, as amended, will not create an

advantage to FCO participants on the

trading floor with respect to the trading

of options series not disseminated to the

public. Public customers are protected

by the feature of the SQF which requires

a quotation to be disseminated after an

options series is activated but before a

trade can be entered. Accordingly, a

participant who is physically on the

trading floor will learn of the specialist’s

market for a given options series when

the series is activated and a quote is

published, nearly identical in time to a

potential customer watching a vendor

screen off-floor.

IV. Conclusion

For the foregoing reasons, the

Commission finds that the PHLX’s

proposal to amend the SQF is consistent

with the requirements of the Act and the

rules and regulations thereunder.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,16 that the

proposed rule change (SR–PHLX–95–

62) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.17

Jonathan G. Katz,

Secretary.

[FR Doc. 96–00038 Filed 1–2–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36637; File No. SR–Phlx–

95–74]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Philadelphia Stock Exchange, Inc.

Relating to the Listing and Trading of

Options on the PHLX Big Three Auto

Sector Index

December 26, 1995.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on

September 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 Exchange. On December

20, 1995, the Exchange submitted to the

Commission Amendment No. 1 to the

proposed rule change.3 The Commission

is publishing this notice, as amended, 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 Exchange proposes to list and

trade options on the Phlx Big Three

Auto Sector Index (‘‘Big Three Auto

Index’’ or ‘‘Index’’), a capitalization

weighted index developed by the Phlx

composed of all of the U.S. automobile

manufacturing company stocks. The text

of the proposed rule change is available

at the Office of the Secretary, the

Exchange, 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

Exchange included statements

concerning the purpose of and basis for

the proposed rule change. The text of

these statements may be examined at

the places specified in Item IV below.

The Exchange has prepared summaries,

set forth in Section (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 Phlx proposes to list for trading

an European-style option 4 on the Phlx

Big Three Auto Sector Index which is an

index representing the domestic

automobile industry. The Phlx believes

that the Big Three Auto Index will

appeal to individual investors as well as

program and basket traders because the

Index reflects the direction and pricing

of the nation’s entire domestic

automobile industry. Because the Big

Three Auto Index is based on a small

number of actively traded stocks, the

Exchange believes that replication of the

Index for hedging purposes with

underlying stocks can be readily

accomplished with complete accuracy.

Thus, the Phylx believes that the
212 Federal Register / Vol. 61, No. 2 / Wednesday, January 3, 1996 / Notices

5The weightings of all 3 components of the Big

Three Auto Index as of October 31, 1995 are as

follows: General Motors Corp.—42.57%; Ford

Motor Company—34.22%; and Chrysler

Corporation—23.19%.

6The Phlx’s options listing standards, which are

uniform among the options exchanges, provide that

a security underlying an option must, among other

things, meet the following requirements: (1) the

public float must be at least 7,000,000 shares; (2)

there must be a minimum of 2,000 stockholders; (3)

trading volume in the U.S. must have been at least

2.4 million over the preceding twelve months; and

(4) the U.S. market price must have been at least

$7.50 for a majority of the business days during the

preceding three calendar months. See Phlx Rule

1009, Commentary .01.

proposed Big Three Auto Index is

unique and will fill a current market

void. The Exchange does not believe

that the Big Three Auto Index will be

susceptible to manipulation as the

stocks comprising the Big Three Auto

Index represent extremely large, liquid,

and widely held common stocks. The

Exchange represents that all three

underlying component securities are

traded on the New York Stock Exchange

and are therefore, ‘‘report securities’’ as

defined in Rule 11Aa3–1 under the Act.

Further, the Exchange represents that all

three underlying component securities

currently meet the Phlx’s listing criteria

for equity options contained in

Exchange Rule 1009 and are the subject

of options trading on U.S. options

exchanges.

The Phlx represents that as of

December 19, 1995, the market

capitalization of the individual stocks in

the Index ranged from a high of $37.37

billion (General Motors Corp.) to a low

of $20.51 billion (Chrysler Corporation).

The market capitalization of all three of

the stocks in the Index was

approximately $88.23 billion. The total

number of shares outstanding on

October 31, 1995 for the stocks in the

Index ranged from a high of 1.07 billion

shares (Ford Motor Company) to a low

of 382 million shares (Chrysler

Corporation). Additionally, the average

monthly trading volume in the U.S. of

the stocks in the Index, for the twelvemonth period from November 1, 1995 to

October 31, 1995, ranged from a high of

69 million shares per month (Ford

Motor Company) to a low of 50.9

million shares per month (General

Motors Corp.). Lastly, as of December

19, 1995, no one stock accounted for

more than 42.57% (General Motors

Corp.), or less than 23.19% (Chrysler

Corporation), of the Index’s total value.5

The Big Three Auto Index will be

calculated using a capitalizationweighting methodology. The

representation of each security in the

Index will be proportional to the

security’s last sale price multiplied by

the total number of shares outstanding,

in relation to the total market value of

all the securities in the Index. The

Exchange believes that this

capitalization weighting methodology is

appropriate because many investors

who might use this Index as a hedging

vehicle own stock baskets containing

shares of each of the three component

stocks in amounts proportionate to their

respective market capitalizations. The

Index value was set at a starting value

of 200 as of September 29, 1995. The

value of the Index as of the close of

trading on December 19, 1995 was

199.58. The formula for calculating the

‘‘Current Index Value’’ is as follows:

Current Index Value Total Capitalization

Divisor =

Where:

Total Capitalization = Sum of Market

Values (price x shares outstanding)

for all component securities

Divisor = The number which, when

divided from the total capitalization

when the Index was initially

calculated (on September 29, 1995),

yielded an Index value of 200.

In order to maintain continuity in the

value of the Index, the Index divisor

will be adjusted to reflect non-market

changes in the capitalization of the

component securities as well as changes

in the composition of the Index.

Changes that may result in divisor

adjustments include, but are not limited

to, stock splits and dividends, spin-offs,

certain rights issuances, and mergers

and acquisitions. The formula for

adjusting the divisor is as follows:

Divisor = Total Capitalization (as a result of adjustments)

Index Value

Adjustments in the value of the Index

which are necessitated by the addition

and/or the deletion of an issue from the

Index are made by adding and/or

subtracting the market value (price

times shares outstanding) of the relevant

issues.

The Big Three Auto Index value will

be updated dynamically at least once

every 15 seconds during the trading day.

The Phlx has retained Bridge Data, Inc.

to compute and do all necessary

maintenance of the Index. Pursuant to

Phlx Rule 1100A, updated Index values

will be disseminated and displayed by

means of primary market prints reported

by the Consolidated Tape Association

and over the facilities of the Options

Price Reporting Authority. The Index

value will also be available on broker/

dealer interrogation devices to

subscribers of the option information.

In accordance with Phlx Rule 1009A,

if any change in the nature of any stock

in the Index occurs as a result of

delisting, merger, acquisition or

otherwise, the Exchange will take

appropriate steps to delete that stock

from the Index and replace it with

another domestic automobile industry

stock. If no replacement is available, the

Exchange will submit a proposed rule

change pursuant to Section 19(b) of the

Act and that proposal would have to be

specifically approved by the

Commission before the Exchange is able

to open any new series of options on the

Index for trading.

The Phlx will evaluate the Index

quarterly, following the close of trading

on the third Friday at each March, June,

September, and December to ensure that

it is an accurate representation of the

intended market character of the Index.

The Exchange represents that all of the

stocks comprising the Index are options

eligible 6 and have overlying options

currently trading. If at any time, any of

the component issues are not options

eligible, the Exchange will submit a new

proposed rule change pursuant to
Federal Register / Vol. 61, No. 2 / Wednesday, January 3, 1996 / Notices 213

7See Amendment No. 1, supra note 3.

8See Phlx Rules 1000A through 1103A, and 1000

through 1070. 9 15 U.S.C. 78f(b)(5). 10 17 CFR 200.30–3(a)(12).

Section 19(b) of the Act and that

proposal would have to be specifically

approved by the Commission before the

Exchange is able to open any new series

of options on the Index for trading.

Additionally, if at any time, the

Exchange determines to increase or

decrease the number of component

issues, the Exchange will submit a new

proposed rule change pursuant to

Section 19(b) of the Act.

The settlement value for the Index

options will be based on the opening

values of the component securities on

the date prior to expiration. Index

options will expire on the Saturday

following the third Friday of the

expiration month, and the last day for

trading in an expiring series will be the

second business day (ordinarily a

Thursday) preceding the expiration

date.

The Phlx proposes to employ the

same position limit applicable to the

Exchange’s Super Cap Index pursuant to

Phlx Rule 1001A(b). Specifically, the

position and exercise limits for the Big

Three Auto Index options, will be 5,500

contracts on the same side of the

market.7 The Big Three Auto Index

option will not be subject to a hedge

exemption.

Exercise price intervals will be set at

five point intervals in terms of the

current value of the Index. Additional

exercise prices will be added in

accordance with Phlx Rule 1011A(a).

As with the Exchange’s other indexes,

the multiplier for options on the Big

Three Auto Index will be 100. The Big

Three Auto Index options will trade

from 9:30 a.m. to 4:10 p.m. eastern time.

The Phlx will trade consecutive and

cycle month series pursuant to Phlx

Rule 1101A. Specifically, there will be

three expiration months from the

March, June, September, December

cycle plus at least two additional nearterm months so that the three nearest

term months will always be available.

LEAPS will also be traded on the Index

pursuant to Phlx Rule 1101A(b)(iii).

Big Three Auto Index options will be

traded pursuant to current Phlx rules

governing the trading of index options.8

The Exchange notes that surveillance

procedures currently used to monitor

trading in each of the Exchange’s other

index options will also be used to

monitor the trading of options on the

Big Three Auto Index. These procedures

included having complete access to

trading activity in the underlying

securities which are all traded on the

NYSE via the Intermarket Surveillance

Group Agreement (‘‘ISG Agreement’’)

dated July 14, 1983, as amended on

January 29, 1990.

The Exchange believes that the

proposed rule change is consistent with

Section 6 of the Act, in general, and

furthers the objectives of Section

6(b)(5),9 in particular, in that it is

designed to prevent fraudulent and

manipulative acts and practices, to

facilitate transactions in securities, and

to remove impediments to and perfect

the mechanism of a free and open

market.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any 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

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, N.W.,

Washington, D.C. 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the PHLX. All submissions

should refer to SR–Phlx–95–74 and

should be submitted by January 24,

1996.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.10

Jonathan G. Katz,

Secretary.

[FR Doc. 96–00037 Filed 1–2–96; 8:45 am]

BILLING CODE 8010–01–M

DEPARTMENT OF TRANSPORTATION

Aviation Proceedings; Agreements

Filed During the Week Ending 12/22/95

The following Agreements were filed

with the Department of Transportation

under the provisions of 49 U.S.C. 412

and 414. Answers may be filed within

21 days of date of filing.

Docket Number: OST–95–944.

Date filed: December 18, 1995.

Parties: Members of the International

Air Transport Association.

Subject: TC23 Reso/P 0726 dated

December 5, 1995 r–1–13, Expedited

Europe-Southwest Pacific resos,

Intended effective date: February 1,

1996.

Docket Number: OST–95–954.

Date filed: December 21, 1995.

Parties: Members of the International

Air Transport Association.

Subject: TC2 Reso/P 1868 dated

December 1, 1995 r–1–15, TC2 Reso/P

1869 dated December 1, 1995 r–16–38,

TC2 Reso/P 1870 dated December 1,

1995 r–39–48, Intended effective date:

April 1, 1996.

Docket Number: OST–95–955.

Date filed: December 21, 1995.

Parties: Members of the International

Air Transport Association.

Subject: TC12 Reso/P 1708 dated

November 24, 1995, South AtlanticEurope/Middle East Resos r–1–20,

Intended effective date: April 1, 1996.

Docket Number: OST–95–956.

Date filed: December 21, 1995.

Parties: Members of the International

Air Transport Association.

Subject: Pursuant to Sections 41308

and 41309 of Title 49 of the United

States Code and Parts 303.03, 303.05

and 303.30(c) of Title 14 of the Code of

Federal Regulations, it is hereby