Federal Register / Vol. 61, No. 18 / Friday, January 26, 1996 / Notices 2557

7 17 CFR 200.30–3(a)(12).

1The rules initially were approved by the

Commission as an eight month pilot program on

May 21, 1987. See Securities Exchange act Release

No. 24496 (May 21, 1987), 52 FR 20183 (May 29,

1987). On February 23, 1988, the pilot program was

extended indefinitely until further action was taken

by the Commission. See Securities Exchange Act

Release No. 25388 (Feb. 23, 1988), 53 FR 6725 (Mar.

2, 1988). The rules were permanently approved on

June 26, 1991. See Securities Exchange Act Release

No. 29369 (June 26, 1991), 56 FR 30604 (July 3,

1991).

2At least one of the core committee members in

attendance must conduct a public securities

business.

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

Room in Washington, DC. Copies of

such filing also will be available for

inspection and copying at the principal

office of the Amex. All submissions

should refer to File No. SR–Amex–96–

01 and should be submitted by February

16, 1996.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–1360 Filed 1–25–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36752; File No. SR–Phlx–

95–77]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Philadelphia Stock Exchange, Inc.

Relating to the Rules of the Allocation,

Evaluation and Securities Committee.

January 22, 1996.

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 December 22, 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 Exchange proposes to update its

rules relating to the Allocation,

Evaluation and Securities Committee

(‘‘Committee’’). Specifically, Rules 500,

501, 505, 506, 508 and 511 are being

amended as well as By-Law Article X,

Section 10–7. The text of the proposed

rule change is available at 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

self-regulatory organization 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 self-regulatory organization 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

1. Purpose

The purpose of the proposed rule

change is to update the Exchange’s 500

Series of rules, which govern the

allocation of specialist privileges. The

rules that are currently in place have not

been significantly amended since they

were adopted in 1987 as a pilot

program.1 as described below, almost all

of the rules are being revised in order

to address issues that have come up

over the past eight years. All of the

proposed changes are described below.

Composition of Allocation, Evaluation

and Securities Committee

Currently, the Committee has a

minimum nine member requirement but

has no maximum requirement. For

competitive reasons, the Committee is

often called upon to meet on short

notice and meets more frequently than

other committees that may only hold

monthly meeting. Having a large

committee makes it difficult to obtain a

quorum, and thus, conduct business.

Accordingly, By-Law Article X,

Section 10–7 and Rule 500 are being

amended to revise the Committee size

and structure. The By-Law section will

still require a minimum of nine

members on the Committee but would

add that a quorum will always be five

members. The Committee would also be

structured differently. Pursuant to

proposed new subsection (b) to Rule

500, for each meeting, the Committee

will be composed of five core committee

members and four members of a 20

member allocation panel. The core

committee, whose members would serve

for three year terms (no more than two

consecutive terms), would be created to

assure some continuity of membership

on the Committee. The allocation panel

would also be created, whose members

would serve for one-year terms, to allow

for new persons with fresh perspectives.

Rule 500 would be amended to

provide who may serve on the core

committee and allocation panel and

how many members of each must attend

meetings in order for a quorum to be

reached. Specifically, the core

committee would have five members:

three who conduct a public securities

business, one from the equity floor, and

one from the options floor. The

allocation panel would have twenty

members: six who conduct a public

securities business, five from the equity

floor, five from the options floor, and

four from the foreign currency options

(‘‘FCO’’) floor.

For each meeting, the Committee will

be composed of the five core committee

members and four members of the 20

member panel chosen on a rotating

alphabetical basis. The Chairman will,

however, have the discretion to also

specifically invite any other members of

the panel who he believes would have

particular knowledge or expertise

respecting the subject matter of the

meeting. For example, if a FCQ is being

allocated and the four alphabetically

chosen panel members for the meeting

happen to all be from the equity and

equity options floors, the Chairman

could also invite any or all of the four

FCO panel members to the meeting.

Additionally, all other members of the

panel will always be notified of

meetings and may attend and vote if

they so chose even if they are not at the

top of the rotation list. Finally, at least

two of the core committee members

must be part of the quorum at every

meeting in order to assure that there are

some experienced committee members

in attendance.2

Transfers of Specialist Privileges

Currently, a specialist does not have

to seek Committee approval when it

proposes to transfer all of its specialist

privileges, but it must do so in order to

transfer less than all of its privileges.

The Exchange has determined to amend

Rule 508 to now require that all

proposed transfers of specialist

privileges be subject to prior Committee

approval so that the Committee has the

ability to consider the qualifications of

all proposed transferees. The criteria

provided in Rule 511 that is currently

used for making allocation and

reallocation decisions would now also
2558 Federal Register / Vol. 61, No. 18 / Friday, January 26, 1996 / Notices

3Registered Options Traders (‘‘ROTs’’) are

assigned one or more classes of options by the

Exchange and have affirmative obligations to make

markets in such options pursuant to Exchange Rule

1014. ROTs, thus, usually request assignments in

options classes that are physically traded in the

same general area of the floor.

4The Exchange is concurrently filing SR–PHLX

95–91, which proposes to revise the options

specialist evaluation form and review procedure.

The proposed amendments to Rule 511(c) herein

are the same as those proposed in that filing and

are explained in more detail.

be applicable to transfer approval

decisions.

Often, when option specialist

privileges are transferred, the physical

trading location on the floor is also

moved. In the past, the Exchange has

often been requested to effect a move of

screens and equipment overnight. Not

only is this difficult for the staff to

accomplish but it could also cause

problems for the market makers in the

trading crowd who may have part of

their assigned classes of options

moved.3 Thus, new Commentary .01

would also be added to Rule 508 in

order to impose a 45 day moratorium on

trading floor location moves in order to

give the staff and the traders in the

crowd time to prepare for the move.

Specialist Unit Performance Reviews

Currently, the Committee conducts

two kinds of reviews of specialist units

pursuant to Exchange Rule 511. First,

the Committee performs routine

quarterly reviews of any specialist unit.

Second, special reviews are conducted

within 60 days after a transfer has been

effected or a material change in a

specialist unit has occurred. The

Committee will still conduct the routine

reviews, except that now the Quality of

Markets Subcommittee will perform the

initial stage of the review.4

In the cases of transfers of specialist

privileges and material changes to the

units, the Exchange proposes to

commence the reviews after 90 days

rather than 60 days because the

Exchange has found that 60 days is not

enough time in which to determine the

adequacy of performance. The second

proposed change to these types of

reviews is that in the case of transfer

reviews, if the new unit’s performance

is below minimum standards, the unit

will be given 30 days in which to

improve prior to beginning reallocation

proceedings. This review provision will

be renumbered as new subsection (d)(2)

to Rule 511.

Finally, a new type of review will be

instituted regarding new allocations of

specialist privileges in new proposed

subsection (d)(1) to Rule 511. When a

specialist unit applies for a new equity

book or options class, it is required to

fill out an application and sometimes to

have a representative appear before the

Committee. The Committee makes

allocation decisions, in part, based on

representations made by the applicant

either orally or in writing. For instance,

an options specialist might commit to

being 100 up on all displayed markets

or an equity specialist might commit to

a volume guarantee on PACE

significantly larger than the minimum.

In order to help ensure that the

Committee is making allocations based

on realistic expectations of performance,

the Exchange proposes to now

commence reviews of specialist units

that are awarded books within 90 days

thereafter to specifically consider

whether the unit has attempted to

comply with the information that it gave

to the Committee when applying. If the

Committee finds that the unit is not in

compliance, they will be given 30 days

in which to comply prior to instituting

reallocation proceedings.

Registration of Specialist Privileges

Presently, equity books and options

classes may be registered in the name of

either the specialist unit, the individual

specialist or both. There is no

requirement, however, in the rules that

the registrant be an Exchange member or

approved specialist. The Exchange

proposes to add this language into Rule

505. Also, where a specialist unit has

leased its specialist privileges to another

unit, the Exchange will now require that

both the lessor and the lessee be noted

on the Registration form.

Specialist Applications

Exchange Rule 501 only presently

addresses the contents of applications to

become specialist units. The

Committee’s practice has been,

however, to require both specialist units

and individual specialists to apply in

writing to the Committee for approval.

Therefore, Rule 501 is being amended to

specify that both specialists and

specialist units must apply in writing to

the Committee and to note what

information must be in the applications.

Exchange Rule 506 will also be

amended to require that when five or

more specialist units apply for a

particular equity book or options class,

personal appearances before the

Committee will be required. Currently,

appearances are discretionary with the

Committee. Finally, various

amendments have been made to the

rules to include references to the

Foreign Currency Options Committee

where appropriate.

2. Statutory Basis

The proposed rule change 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

to remove impediments to and perfect

the mechanism of a free and open

market and a national market system, 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 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 received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the publication of

this notice in the Federal Register or

within such other 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 the 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
Federal Register / Vol. 61, No. 18 / Friday, January 26, 1996 / Notices 2559

1Position limits impose a ceiling on the aggregate

number of option contracts on the same side of the

market that an investor, or group of investors acting

in concert, may hold or write. Exercise limits

impose a ceiling on the aggregate long positions in

option contracts that an investor, or group of

investors acting in concert, can or will have

exercised within five consecutive business days.

2See Securities Exchange Act Release No. 36409

(October 23, 1996), 60 FR 55399 (October 31, 1995)

(order approving File Nos. SR–NYSE–95–31; SR–

PSE–95–25; SR–Amex–95–42; and SR–PHLX–95–

71) (‘‘Hedge Exemption Order’’). See also Securities

Exchange Act Release No. 36371 (October 13, 1995),

60 FR 54269 (October 20, 1995) (order approving

File No. SR–CBOE–95–42).

3 Id.

4See Securities Exchange Act Release No. 35738

(May 18, 1995), 60 FR 27573 (May 24, 1995) (order

approving File Nos. SR–Amex–95–13; SR–CBOE–

95–13; SR–NYSE–95–04; SR–PSE–95–05; and SR–

PHLX–95–10).

5Securities Exchange Act Release No. 32423

(June 7, 1993), 58 FR 32976 (June 14, 1993) (order

approving File No. SR–PHLX–92–21).

6See Hedge Exemption Order, supra note 2.

7The PHLX’s Minor Rule Plan, codified in PHLX

Rule 970, ‘‘Floor Procedure Advices: Violations,

Penalties, and Procedures,’’ contains Advices with

accompanying fine schedules. Pursuant to

paragraph (c)(1) of Rule 19d–1 under the Act, a selfregulatory organization (‘‘SRO’’) is required to file

promptly with the Commission notice of any

‘‘final’’ disciplinary action taken by the SRO.

Pursuant to paragraph (c)(2) of Rule 19d–1, any

disciplinary action taken by the SRO for violation

of an SRO rule that has been designated a minor

rule violation pursuant to the plan shall not be

considered ‘‘final’’ for purposes of Section 19(d)(1)

of the Act if the sanction imposed consists of a fine

not exceeding $2500 and the sanctioned person has

not sought an adjudication, including a hearing, or

otherwise exhausted his or her administrative

remedies. By deeming unadjudicated minor

violations as not final, the Commission permits the

SRO to report violations on a periodic (quarterly),

as opposed to immediate, basis.

8See Hedge Exemption Order, supra note 2.

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 Exchange. All submissions

should refer to File No. SR–Phlx–95–77

and should be submitted by February

16, 1996.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–1361 Filed 1–25–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36747; File No. SR–PHLX–

95–87]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval to a Proposed

Rule Change by the Philadelphia Stock

Exchange, Inc., Relating to Advice F–

15 and the Expanded Equity Option

Hedge Exemption

January 19, 1996.

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 December 7, 1995,

the Philadelphia Stock Exchange, Inc.

(‘‘PHLX’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘SEC’’ or ‘‘Commission’’) the proposed

rule change as described in Items I and

II below, which Items have been

prepared by the self-regulatory

organization. The Commission is

approving this proposal on an

accelerated basis.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The PHLX proposes to amend

paragraph (b) of Floor Procedure Advice

(‘‘Advice’’) F–15, ‘‘Minor Infractions of

Position/Exercise Limits and Hedge

Exemptions,’’ to indicate that the

maximum allowable position for each

option contract ‘‘hedged’’ by 100 shares

of stock or securities convertible into

the stock will be three times, instead of

twice, the standard position and

exercise limit of the option.1 The

proposed amendment to Advice F–15

will make Advice F–15 consistent with

a proposal approved previously by the

Commission which expands the

maximum allowable hedge exemption

for equity options to three times the

standard limit of the option.2

The text of the proposal 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

self-regulatory organization 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 self-regulatory organization 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

Recently, the Commission approved

proposals by various options exchanges,

including the PHLX, to create two

additional tiers of equity option position

and exercise limits and to expand the

equity option hedge exemption from

two times to three times the applicable

position limit for the option.3 The

PHLX’s equity option hedge exemption,

which is contained in Commentary .07

to PHLX Rule 1001, ‘‘Position Limits,’’

was adopted originally on a pilot basis,

and recently was permanently approved

by the Commission.4 The equity hedge

exemption applies where each option

contract is ‘‘hedged’’ by 100 shares of

stock or securities convertible into such

stock, (in the case of an adjusted option,

the number of shares at option), as

follows: (1) long call and short stock; (2)

short call and long stock; (3) long put

and long stock; and (4) short put and

short stock.

Advice F–15 was adopted in 1993.5

Paragraph (a) of Advice F–15 provides

for a fine for violations of the

Exchange’s position and exercise limits

which do not exceed the position and

exercise limits by more than 5%.

Paragraph (b) of Advice F–15 governs

the equity option hedge exemption,

with paragraph (b)(1) requiring the filing

of a hedge exemption report and

paragraph (b)(ii) providing for a fine if

an option position is not reduced when

the stock side to a hedge exemption is

decreased.

The PHLX proposes to amend Advice

F–15(b) to reflect the recent expansion

of the equity option hedge exemption,6

which was inadvertently omitted from

the PHLX’s proposal to expand the

equity option hedge exemption.

Specifically, the PHLX proposes to

amend Advice F–15 to provide that the

equity hedge exemption permits

positions up to three times the

applicable equity option position limit,

rather than two times the applicable

equity option position limit.

The PHLX notes that because Advice

F–15 contains a fine schedule which is

administered pursuant to the PHLX’s

minor rule violation enforcement and

reporting plan (‘‘Minor Rule Plan’’),7 the

proposal necessarily amends the

Exchange’s Minor Rule Plan. Since the

equity option hedge exemption has

already been expanded to three times

the position limit,8 the PHLX believes

that the proposal does not raise new

regulatory issues; rather, the Exchange

believes that the proposal enhances

investors’ hedging abilities by correcting

Advice F–15 to correspond to PHLX

Rule 1001, as amended by the Hedge

Exemption Order.

The PHLX believes that increasing the

maximum levels of the automatic hedge

exemption should provide greater depth

and liquidity, and, hence, greater

protection to investors against market

declines. Because the proposal codifies

the expanded exemption in Advice F–