Federal Register / Vol. 61, No. 2 / Wednesday, January 3, 1996 / Notices 209

16, 1995), 60 FR 54741 [File No. SR–PTC–95–06]

(notice of filing of proposed rule change.

5 15 U.S.C. § 78q–1(b)(3)(F) (1988).

6 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. 36473

(November 9, 1995), 60 FR 58124.

4An American-style option can be exercised on

any business day prior to its expiration date and on

its expiration date.

5A European-style option can only be exercised

during a specified period before it expires.

Based on its experience during the

pilot program, PTC anticipates that the

later opening of processing activity will

have no impact on the settlement

process. PTC will continue to monitor

any effects of the change.

PTC believes that the proposed rule

change is consistent with Section

17A(b)(3)(F) of the Act 5 and the rules

and regulations thereunder because it

facilitates the prompt and accurate

clearance and settlement of securities

transactions and provides for the

safeguarding of securities and funds in

PTC’s custody or control or for which

PTC is responsible.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

PTC 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

PTC has not received written

comments on the proposed rule change.

The pilot program and the proposed

permanent opening of security

processing activity at 8:30 a.m. was

discussed on December 7, 1995, at a

meeting of the PTC Operations

Committee, which consists of

participant representatives. It was the

consensus of the Committee members

that the 8:30 a.m. opening time should

be made permanent and that in addition

to the intraparticipant activities that

retained the 7:00 a.m. opening time

under the pilot program the return of

collateral using the CLF mechanism

should also open at 7:00 a.m.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within thirty-five 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

ninety 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, NW.,

Washington, DC 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of PTC. All submissions should

refer to file number SR–PTC–95–08 and

should be submitted by January 24,

1996.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.6

Jonathan G. Katz,

Secretary.

[FR Doc. 96–00019 Filed 1–2–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36636; International Series

Release No. 910; File No. SR–PHLX–95–62]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

the Philadelphia Stock Exchange, Inc.,

Relating to the Selective Quoting

Facility for Foreign Currency Options

December 26, 1995.

I. Introduction

On September 18, 1995, the

Philadelphia Stock Exchange, Inc.

(‘‘PHLX’’ or ‘‘Exchange’’) submitted to

the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’),

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

Securities Exchange Act of 1934

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

proposed rule change to amend the

Selective Quoting Facility (‘‘SQF’’) for

foreign currency options (‘‘FCOs’’) to

reduce the number of FCO strike prices

which the Exchange must make

available for continuous dissemination

to the public throughout the trading

day.

Notice of the proposed rule change

was published for comment and

appeared in the Federal Register on

November 24, 1995.3 No comments

were received on the proposal.

II. Description of the Proposal

The SQF, contained in Commentary

.04 to PHLX Rule 1012, ‘‘Series of

Options Open for Trading,’’ and Floor

Procedure Advice (‘‘Advice’’) F–18,

‘‘FCO Expiration Months and Strike

Prices,’’ is a feature of the Exchange’s

Auto-Quote system which establishes

criteria to determine whether the bid/

ask quotation for each FCO series is

eligible for processing through the

Options Price Reporting Authority

(‘‘OPRA’’) for off-floor dissemination to

vendors. The SQF categorizes each FCO

series as either an ‘‘update strike’’ or a

‘‘non-update strike.’’ ‘‘Non-update’’ or

‘‘inactive’’ strikes are disseminated with

the OPRA indicator ‘‘I’’ and zeroes (e.g.,

000–000) in lieu of a market. When a

series is added to the inactive category,

those bids and offers are no longer

updated in the Exchange’s Auto-Quote

system for dissemination. Because

inactive series are not continuously

updated and disseminated, quotation

processing times are shortened so that

quotes of interest are updated and

disseminated to customers more

quickly. According to the PHLX,

approximately 40% of the Exchange’s

10,000 FCO strike prices are currently

inactive.

Update strikes, for which PHLX

quotes must be made available for

continuous dissemination to the public

throughout the trading day currently

include, at the minimum: (1) the four

strike prices below and the four strike

prices above the underlying price for

American-style options 4 with

expiration dates of the three nearest

mid-month expirations and the three

nearest month-end expirations; and (2)

any other European-style 5 or Americanstyle series where there is open interest

as of the commencement of that date. In

addition, update series may be activated

intra-day at the initiative of the PHLX or

in response to a request from either the

respective specialist or from an FCO

floor official.

The PHLX proposes to amend

Exchange Rule 1012, Commentary .04

and Advice F–18 to (1) categorize series
210 Federal Register / Vol. 61, No. 2 / Wednesday, January 3, 1996 / Notices

6 Delta is a measure of how an option premium

changes in relation to the price of the underlying

instrument. For example, a delta of 50 means that

for every one point move in the spot price of an

underlying foreign currency, the option premium

moves 1⁄2.

7Telephone conversation between Edith

Hallahan, Special Counsel, Regulatory Services,

PHLX, and Yvonne Fraticelli, Attorney, Office of

Market Supervision, Division of Market Regulation,

Commission, on October 6, 1995.

8The PHLX notes that these conditions have been

particularly pronounced for Japanese yen options.

See Securities Exchange Act Release No. 36539

(November 30, 1995), 60 FR 62910 (December 7,

1995) (File No. SR–PHLX–95–47) (order approving

proposed rule change to widen the quote spread

parameters for Japanese yen options).

9See Securities Exchange Act Release No. 33067

(October 19, 1993), 58 FR 57458 (October 26, 1993)

(order approving File No. SR–PHLX–92–23) (‘‘SQF

Approval Order’’). In the SQF Approval Order, the

Commission noted that 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.

10See PHLX Rule 722(e)(i). See also SEC Rule

15c3–1.

11Under the proposal, a 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 trade dates.

12 15 U.S.C. § 78f(b)(5) (1988 & Supp. V 1993).

13The PHLX estimates that the proposal will

reduce the number of FCO strike prices currently

disseminated each day by approximately 15%, or

1,000 strikes.

which maintain open interest but have

not traded within the previous five days

as nonupdate series; and (2) amend the

definition of update series to include

the approximately 10, 20, 30, 40 and 50

delta 6 strikes below and above the

underlying price rather than the four

strike prices above and below the

underlying price. The proposal 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 will not result in

additional strike price intervals; rather,

it will identify the existing strike prices

which will be classified as update

series.7 Because deltas change, the

designation of active strikes will also be

changed automatically throughout the

trading day.

According to the PHLX, recent

volatility in the foreign currency

markets has caused fluctuating and

dramatic movements in foreign currency

exchange rates.8 This volatility has

resulted in the addition of more strike

prices as the spot price moves to

accommodate the new trading ranges of

the underlying currencies. The

Exchange believes that these market

conditions impose an onerous burden

on FCO specialists to maintain updated

markets in strike prices for which, on

occasion, there is little or no customer

interest. The purpose of the proposal is

to alleviate this burden and, thus, to

improve the timeliness and accuracy of

FCO quotes in which there is apparent

customer interest. By eliminating quote

change disseminations in series with no

probable public investor interest, the

proposal will reduce dissemination

delays caused by thousands of quote

changes in volatile trading periods.

According to the PHLX, categorizing

series which maintain open interest but

have not traded within the previous five

days as non-update series will eliminate

a significant number of quote changes,

because in many series a small number

of FCO positions create open interest,

which remains without fluctuation or

additional trading volume. The PHLX

notes that public customers, like all

market participants, continue to be

protected by the SQF feature which

requires a quotation to be disseminated

before a trade can be entered.9 In

addition, the PHLX believes that the

proposal protects public investors

because one quote will be disseminated

at the end of the trading day for any

inactive series with open interest. The

purpose of this quote is to provide

option holders with an indication of the

market for that option as well as to

provide the Options Clearing

Corporation (‘‘OCC’’) with a closing

value to mark the market for margin and

capital purposes.10

The proposal also redefines active

strikes as those with an approximately

10, 20, 30, 40, or 50 delta around the

underlying price. According to the

PHLX, the purpose of this change is to

categorize strike prices in the

terminology used by FCO market

participants. The PHLX notes that, in

some instances, the fourth strike price

below the spot price could be a 30 delta

option, so that the activated around-themoney series would not include a 40 or

50 delta option. The Exchange believes

that it is important to define strike

prices with a delta up to 50 as update

series because these represent the most

active, volatile options, for which the

dissemination of quotes is meaningful.

The PHLX recognizes that redefining

active strikes in terms of a delta figure

may result in a greater number of

strikes. Further, the Exchange notes that

the delta associated with a strike

changes as the spot price changes,

different strikes will become the 10–50

delta strikes, and, thus, the active series.

Therefore, the PHLX proposes to amend

the SQF to ‘‘de-activate’’ strikes intraday that are no longer around-themoney based on a delta change.11 The

PHLX will update and disseminate new

around-the-money strikes in response to

market changes.

Thus, the Exchange believes that

enhancing the SQF should address the

strike price and quote change situation

in a volatile FCO market. The PHLX

estimates that the proposal will reduce

the number of strike prices currently

disseminated each day by

approximately 15%, or 1,000 strikes,

which will improve the Exchange’s

ability to provide timely and accurate

quotes, including quotes in new FCO

products that may be traded on the

Exchange in the future.

The Exchange believes that the

proposal is consistent with Section 6 of

the Act, in general, and, in particular,

with Section 6(b)(5), in that it is

designed to promote just and equitable

principles of trade, prevent fraudulent

and manipulative acts and practices, to

foster cooperation and coordination

with persons engaged in regulating,

clearing, settling, processing

information with respect to, and

facilitating transactions in securities, as

well as to protect investors and the

public interest. Specifically, the

Exchange believes that the proposal

should promote just and equitable

principles of trade by facilitating

speedier dissemination of FCO markets.

The PHLX states that the proposal is

also designed to facilitate coordination

between the Exchange and the OCC,

OPRA, and securities information

vendors. Finally, the PHLX believes that

the proposed changes to the SQF should

facilitate the specialists’ ability to focus

on active series, which should, in turn,

result in tighter, more liquid markets,

consistent with Section 6(b)(5).

III. Discussion

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).12 The

Commission believes that the proposed

amendments to the SQF will result in

more timely and accurate FCO quote

displays in series of known or probable

interest to public customers. Moreover,

the Commission believes that the

proposal will increase the efficiency of

the PHLX’s option data transmission

lines and increase the speed of the

dissemination of FCO quotes to public

investors in the series of most interest

to market participants, thereby helping

the PHLX to maintain fair and orderly

options markets.13

Specifically, the PHLX proposes to

categorize series with open interest that

have not traded within the previous five

days as non-update series. According to

the Exchange, in many series a small
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