[Federal Register Volume 61, Number 18 (Friday, January 26, 1996)]
[Notices]
[Pages 2562-2564]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-1364]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36744; File No. SR-Phlx-95-92]


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 OTC Industrial Average Index

January 19, 1996.
    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 December 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 Exchange. On 
December 29, 1995, the Exchange filed with the Commission Amendment No. 
1 to the proposed rule change.\3\ The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Exchange amended the proposed rule change to indicate 
that the Index will be treated as a narrow based index. See Letter 
from Nandita Yagnik, New Product Development, Phlx, to John Ayanian, 
Attorney, Office of Market Supervision (``OMS''), Division of Market 
Regulation (``Market Regulation''), Commission, dated December 27, 
1995 (``Amendment No. 1'').
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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 OTC 
Industrial Average Index (``OTC Industrial Index'' or ``Index''), a 
price weighted index developed by the Phlx composed of ten of the 
largest stocks, by capitalization, traded through the National 
Association of Securities Dealers Automated Quotations system and are 
reported national market system securities (``NASDAQ/NMS''). 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 OTC Industrial Average Index which is composed of ten of 
the largest capitalized common stock issues traded through NASDAQ/NMS 
representing diversified industries including Telecommunications, 
Pharmacetuicals, Semiconductors, and Data Processing.\5\

    \4\ European-style options can be exercised only during a 
specific time period prior to expiration of the options.
    \5\ The components of the Index are: Amgen, Inc.; Applied 
Materials; Bay Networks, Inc.; CISCO Systems; Intel Corp.; Microsoft 
Corp.; MCI Communications; Oracle Corp.; Sun Microsystems; and Tele 
Communications, Inc.
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    The Phlx believes there are numerous benefits to listing the OTC 
Industrial Index options. First, the Exchange believes that the OTC 
Industrial Index will appeal to individual investors as well as program 
and basket traders because the Index reflects the direction and pricing 
of some of the nation's most important and heavily traded companies. 
These stocks are frequently found in investor and trader portfolios 
alike. Second, because the OTC Industrial Index is based on a 
relatively small number of actively traded stocks, replication of the 
Index for hedging purposes with underlying stocks can be readily 
accomplished with complete accuracy. Third, the Exchange does not 
believe that the OTC Industrial Index will be susceptible to 
manipulation because the stocks comprising the OTC Industrial Index are 
some of the largest and most widely held common stocks. Furthermore, 
all of the component stocks in the Index are options eligible and have 
overlying options currently trading.
    The formula for calculating the OTC Industrial Index is as follows:
    [GRAPHIC] [TIFF OMMITTED] TN26JA96.002
    

[[Page 2563]]

    The current price of each component issue is added and multiplied 
by 100 shares to determine the current aggregate market value of the 
issues in the Index. To compute the current Index value, the aggregate 
market value is divided by the divisor. The Index value was set at a 
starting value of 150 as of November 1, 1995.
    In order to maintain continuity in the value of the Index, the 
Index divisor will be adjusted for changes in capitalization of any of 
the component issues resulting from, among other things, mergers, 
acquisitions, delistings, and substitutions. 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 value of the Index as of the close of trading on Friday, January 4, 
1996 was 279.27.
    The 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 stock 
which the Exchange believes would be compatible with the intended 
market character of the Index. In making replacement determinations, 
the Exchange will also take into account the capitalization, liquidity, 
and volatility of a particular stock.
    The Exchange represents that all of the stocks comprising the Index 
are options eligible \6\ and have overlying options currently trading. 
At least 90% of the component issues, by weight, and 80% of the number 
of stocks, must be options eligible at all times.\7\ If at any time the 
Index does not meet the 90%/80% requirement, the Exchange will submit a 
Rule 19b-4 filing to the Commission before opening any new series of 
options on the Index for trading. Additionally, if at any time, the 
Exchange determines to increase to more than thirteen or decrease to 
fewer than seven, the number of component issues in the Index, the 
Exchange will submit a new Rule 19b-4 filing.

    \6\ The 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.
    \7\ Telephone conversation between Michele Weisbaum, Associate 
General Counsel, Phlx, and John Ayanian, Attorney, OMS, Market 
Regulation, Commission, on January 18, 1996.
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    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 and exercise limits 
applicable to the Exchange's other narrow-based indexes pursuant to 
Phlx Rule 1001A(b)(i) and 1002A, respectively. Exercise prices will be 
initially set at 5 point intervals and additional exercise prices will 
be added in accordance with Phlx Rule 1101A(a).
    As with the Exchange's other indexes, the multiplier for options on 
the OTC Industrial Index will be 100. The OTC Industrial 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 two additional 
near-term months so that the three nearest term months will always be 
available.
    OTC Industrial Index options will be traded pursuant to current 
Phlx rules governing the trading of index options.\8\ The Exchange 
notes that 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 OTC Industrial 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.

    \8\ See Phlx Rules 1000A through 1103A, and 1000 through 1070.
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    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.

    \9\ 15 U.S.C. Sec. 78f(b)(5) (1988).
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(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. Sec. 552, will be 

[[Page 2564]]
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-95-92 and should be submitted by February 16, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\

    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-1364 Filed 1-25-96; 8:45 am]
BILLING CODE 8010-01-M