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–
2560 Federal Register / Vol. 61, No. 18 / Friday, January 26, 1996 / Notices

9 15 U.S.C. § 78f(b)(5) (1988 & Supp. V 1993).

10The Commission notes that to the extent the

potential for manipulation increases because of the

expanded hedge exemption, the Commission

believes that the PHLX’s surveillance programs will

be adequate to detect as well as to deter attempted

manipulative activity. The Commission will, of

course, continue to monitor the PHLX’s

surveillance programs to ensure that problems do

not arise.

11 15 U.S.C. § 78s(b)(2) (1982).

12 17 CFR 200.30–3(a)(12) (1995).

15, the PHLX believes that the proposal

is consistent with Section 6(b) 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, remove impediments to and

perfect the mechanism of a free and

open market and protect investors and

the public interest by incorporating the

new, broader equity hedge exemption in

to the Exchange’s Minor Rule Plan.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

The PHLX does not believe that the

proposed rule change will impose an

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 either

solicited or received.

III. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The Exchange has requested that the

proposed rule change be given

accelerated effectiveness pursuant to

Section 19(b)(2) of the Act in order to

promptly correct Advice F–15 to reflect

the expanded equity option hedge

exemption approved in the Hedge

Exemption Order and to clarify the

application of the Minor Rule Plan to

the exemption.

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) in that it

is designed to protect investors and the

public interest and to facilitate

transactions in securities.9 Exchange

Rule 1001, Commentary .07 and Advice

F–15(b) set forth an exemption from

equity option position and exercise

limits for equity options hedge by 100

shares of stock or securities convertible

into the stock. In the Hedge Exemption

Order, the Commission approved a

proposal to amend PHLX Rule 1001,

Commentary .07, to expand the

maximum allowable hedged position for

equity options to three times the

standard position and exercise limit of

the option. However, a corresponding

amendment to Advice F–15(b) was

inadvertently omitted from the PHLX’s

proposal to amend PHLX Rule 1001,

Commentary .07.

The Commission believes that the

proposal protects investors and the

public interest by making Advice F–

15(b) consistent with PHLX Rue 1001,

Commentary .07, as amended by the

Hedge Exemption Order, thereby

clarifying the Exchange’s rules and

eliminating potential confusion.

Specifically, the proposal amends

Advise F–15(b) to indicate that the

maximum allowable position for each

option contract hedge 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.

As the Commission found in the

Hedge Exemption Order, the

Commission believes that the proposal

to expand the hedge exemption is an

appropriate method to accommodate the

needs of options market participants. By

increasing the hedge exemption, the

Commission continues to believe that

large hedge funds and institutional

accounts will be provided with the

means necessary to adequately hedge

their stock holdings without adding risk

to the options market. Based on the

PHLX’s experience, the Commission

believes, as it concluded in the Hedge

Exemption Order, that the increased

equity option hedge exemption should

result in little or no additional risk to

the marketplace.10

In addition, the Commission believes

that it is appropriate to continue to

administer Advice F–15, as amended,

pursuant to the PHLX’s Minor Rule

Plan. Under the proposal, violations of

the hedge exemption continue to be

objective in nature and easily verifiable;

therefore, the enforcement of the

expanded hedge exemption should not

entail the complicated factual and

interpretive inquiries associated with

more sophisticated disciplinary actions.

Accordingly, the Commission believes

that violations of the equity option

hedge exemption continue to lend

themselves to the use of the PHLX’s

Minor Rule Plan and the fines provided

for in Advice F–15.

The Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice of filing thereof

in the Federal Register. The

Commission believes that the proposal

clarifies the PHLX’s rules by making

Advice F–15(b) consistent with PHLX

Rule 1001, Commentary .07. In addition,

the proposal does not raise any new

regulatory issues since the Commission

previously approved an identical

amendment to PHLX Rule 1001,

Commentary .07. Accordingly, the

Commission believes that granting

accelerated approval of the proposed

rule change is appropriate and

consistent with Sections 6(b)(5) and

19(b)(2) of the Act.

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. Copies of such filing

will also be available for inspection and

copying at the principal office of the

above-mentioned self-regulatory

organization. All submissions should

refer to the file number in the caption

above and should be submitted by

February 16, 1996.

It Is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,11 that the

proposed rule change (SR–PHLX–95–

87) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–1362 Filed 1–25–96; 8:45 am]

BILLING CODE 8010–01–M