2856 Federal Register / Vol. 61, No. 19 / Monday, January 29, 1996 / Notices

15 In this regard, the Commission notes that the

options exchanges and the NASD routinely review

the trading characteristics of the underlying stocks

to determine the appropriate position and exercise

limit tiers for the option classes.

16The Commission notes that to the extent the

potential for manipulation increases because of the

additional tiers, the Commission believes the

NASD’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 NASD’s surveillance programs to

ensure that problems do not arise.

17See supra note 4.

18 Id.

19 15 U.S.C. 78s(b)(2) (1988).

20 17 CFR 200.30–3(a)(12) (1994).

1Concurrently with the proposed rule change, the

Exchange is seeking to amend its Rule 19d–1(c)(2)

reporting plan for Rule 476A violations (‘‘Minor

Rule Violation Plan’’) to include the items proposed

for addition to the list of rules subject to Rule 476A.

See letter from Daniel Parker Odell, Assistant

Secretary, NYSE, to Glen Barrentine, Team Leader,

Division of Market Regulation, SEC, dated

December 27, 1995.

the proposed limit of 25,000-contracts

and 20,000-contracts for options on the

most actively traded, widely held

securities, permits the Commission to

avoid placing unnecessary restraints on

those options where the manipulative

potential is the least and the need for

increased positions likely is the greatest.

Accordingly, the Commission believes

that the additional position and exercise

limit tiers is warranted.

The Commission believes that the

proposed additions to the NASD’s

position and exercise limit tiers appears

to be both appropriate and consistent

with the Commission’s gradual,

evolutionary approach. There are no

ideal position limits in the sense that

options positions of any given size can

be stated conclusively to be free of any

manipulative concerns. The

Commission, however, is relying on the

absence of discernible manipulation

problems under the current framework

as an indicator that the proposed

additional limit tiers are justified.

The Commission does not believe that

the addition of the two new higher limit

tiers will have any adverse effects on the

options markets. In approving the initial

two-tiered position limit system, the

Commission stated that it did not

believe that requiring traders to keep

track of two limits rather than one was

burdensome or confusing or would lead

to accidental violations.15 The

Commission does not believe that a

change from the current three tiers to

five tiers should change this conclusion.

The Commission believes that

although position and exercise limits for

options must be sufficient to protect the

options and related markets from

disruptions by manipulations, the limits

must not be established at levels that are

so low as to discourage participation in

the options market by institutions and

other investors with substantial hedging

needs or to prevent market makers from

adequately meeting their obligations to

maintain a fair and orderly market. The

Commission believes that the NASD’s

proposal is a reasonable and

appropriately tailored effort to

accommodate the identified needs of

options market participants. In this

regard it is important to note that the

proposals only add higher position and

exercise limit tiers for classes of options

involving the most liquid stocks. As a

result, the proposal affects only a small

number of equity option classes that are

traded. In addition, based on the

NASD’s experience, the Commission

believes that the proposed additional

limit tiers should result in little or no

additional risk to the marketplace.16

The Commission finds good cause to

approve the proposed rule changes prior

to the thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register. Specifically, by

accelerating the approval of the NASD’s

rule proposal, the Commission is

conforming the NASD’s position and

exercise limits with those levels

recently approved for the options

exchanges.17 Accelerated approval of

the proposed rule change will thereby

provide for the desired uniformity for

position and exercise limits within the

exchange traded options market. Any

other course of action could lead to

unnecessary investor confusion. In

addition, the CBOE’s proposal was

noticed for the entire twenty-one day

comment period and generated no

negative responses.18 Accordingly, the

Commission believes that it is

consistent with Section 15A(b)(6) of the

Act to approve the proposed rule change

on an accelerated basis.

V. Conclusion

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

NASD–95–55) is hereby approved on an

accelerated basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.20

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–1475 Filed 1–26–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36756; File No. SR–NYSE–

95–45]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the New York Stock Exchange, Inc.

Relating to Additions to ‘‘List of

Exchange Rule Violations and Fines

Applicable Thereto Pursuant to Rule

476A’’

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 28, 1995,

the New York Stock Exchange, Inc.

(‘‘NYSE’’ 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 proposed rule change consists of

revisions to the ‘‘List of Exchange Rule

Violations and Fines Applicable Thereto

Pursuant to Rule 476A’’ (the Rule 476A

Violations List) by adding to the List: (1)

misstatements or omission of fact on

any submission filed with the Exchange

as provided in NYSE Rule 476(a)(10); (2)

failure to comply with the requirements

of NYSE Rule 95 with respect to its

order identification requirements or

prohibition of transactions by members

on the Floor involving discretion; and

(3) failure to comply with certain

requirements for execution of block

cross transactions under NYSE Rule

127. The Exchange believes it is

appropriate to make the failure to

comply with the provisions of the

above-named rules subject to the

possible imposition of a fine under Rule

476A procedures.1

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.
Federal Register / Vol. 61, No. 19 / Monday, January 29, 1996 / Notices 2857

2Rule 476A was approved by the Commission on

January 25, 1985. See Securities Exchange Act

Release No. 21688 (Jan. 25, 1985), 50 FR 5025 (Feb.

5, 1985). For subsequent additions of rules to the

Rule 476A Violations List see, e.g., Securities

Exchange Act Release Nos. 22037 (May 14, 1985),

50 FR 12213 (May 21, 1985); 22415 (Sept. 17, 1985),

50 FR 38600 (Sept. 23, 1985); 22490 (Oct. 2, 1985),

50 FR 41084 (Oct. 8, 1985); 23104 (Apr. 11, 1986),

51 FR 13307 (Apr. 18, 1986); 24935 (Oct. 22, 1987),

52 FR 23820 (Oct. 29, 1987), 25763 (May 27, 1988),

53 FR 20925 (June 7, 1988); 27878 (Apr. 4, 1990),

55 FR 13345 (Apr. 10, 1990); 28003 (May 9, 1990),

55 FR 20004 (May 14, 1990); 28505 (Oct. 2, 1990),

55 FR 41288 (Oct. 10, 1990); 28995 (Mar. 28, 1991),

56 FR 12967 (Mar. 28, 1991); 30280 (Jan. 22, 1992),

57 FR 3452 (Jan. 29, 1992); 30536 (Mar. 31, 1992),

57 FR 12357 (Apr. 9, 1992); 32421 (June 7, 1993),

58 FR 32973 (June 14, 1993); 33403 (Dec. 28, 1993),

59 FR 641 (Jan. 5, 1994); 33816 (Mar. 25, 1994), 59

FR 15471 (Apr. 1, 1994); 34230 (June 17, 1994), 59

FR 32727 (June 24, 1994).

3 In Securities Exchange Act Release No. 35103

(Dec. 15, 1994), 59 FR 65835 (Dec. 21, 1994), the

Commission approved amendments to NYSE Rule

127 involving revised procedures for handling such

blocks.

4The Exchange would not seek to review a

member’s initial determination as to whether the

member would incur excessive stock loss by

satisfying all orders at the clean-up price. Given the

member’s initial determination as to which of NYSE

Rule 127’s procedures to use, the Exchange would

regard the failure to adhere to the requirements of

the rule to satisfy public orders limited to the cleanup price at that price before retaining stock for the

member organization’s proprietary account as a

possible minor violation.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

Rule 476A 2 provides that the

Exchange may impose a fine, not to

exceed $5,000, on any member, member

organization, allied member, approved

person, or registered or non-registered

employee of a member or member

organization for a minor violation of

certain specified Exchange rules.

The purpose of the Rule 476A

procedure is to provide for a response

to a rule violation when a meaningful

sanction is appropriate but when

initiation of a disciplinary proceeding

under Rule 476 is not suitable because

such a proceeding would be more costly

and time-consuming than would be

warranted given the minor nature of the

violation. Rule 476A provides for an

appropriate response to minor

violations of certain Exchange rules

while preserving the due process rights

of the party accused through specified,

required procedures. The list of rules,

which are eligible for 476A procedures,

specifies those rule violations that may

be the subject of fines under the rule

and also includes a schedule of fines.

In SR–NYSE–84–27, which initially

set forth the provisions and procedures

of Rule 476A, the Exchange indicated it

would amend the list of rules from time

to time, as it considered appropriate, in

order to phase in the implementation of

Rule 476A as experience with it was

gained .

The Exchange is presently seeking

approval to add to the 476A List of

Rules subject to possible imposition of

fines under Rule 476A procedures the

failure by members or member

organizations to adhere to certain

procedures under NYSE Rule 127 for

execution of block cross transactions at

a price that is outside of the NYSE best

bid or offer.3 Specifically, the Exchange

would view the failure to fulfill the

requirement to satisfy public limit

orders at the clean-up price when a

position is established or increased for

a member’s or member organization’s

proprietary account as one type of

violation for which a fine pursuant to

Rule 476A might be imposed.4 In

addition, failure to utilize the procedure

of NYSE Rule 127 to satisfy all betterpriced limit orders when effecting block

crosses outside the currently quoted

market would also be considered a

violation for which a fine pursuant to

Rule 476A might be imposed.

The Exchange is also seeking to add

to the 476A List failure by members or

member organizations to follow the

procedures of NYSE Rule 95 with

respect to prohibition of transactions by

members on the Floor involving

discretion as to (1) choice of security, (2)

total amount of security to be bought or

sold, or (3) whether a transaction is to

be a purchase or a sale. The Exchange

is also seeking to add to the 476A List

of failure to appropriately identify a

liquidating order pursuant to NYSE

Rule 95(c) (all liquidating orders

effected pursuant to Rule 95(c) must be

marked on the Floor as ‘‘BC’’ in the case

of an order covering a short position or

‘‘SLQ’’ in the case of the sell order

liquidating a long position).

The Exchange is also seeking to add

to the 476A List misstatements or

omissions of fact on applications for

membership approval, financial

statements, reports or other submissions

filed with the Exchange as provided in

NYSE Rule 476(a)(10). The Exchange

would be careful to distinguish

misstatements or omissions of facts from

willfully made false or misleading

statements and omissions of material

fact, as a finding by the Exchange of

conduct in the latter two categories

could cause an individual or entity to be

subject to a statutory disqualification as

defined in Section 3(a)(39)(F) of the Act.

Moreover, in appropriate circumstances

(e.g., findings of a pattern of

misstatements or omissions), the

Exchange would not use the procedures

under Rule 476A to address the

conduct.

While the Exchange, upon

investigation, may determine that a

violation of these procedures is a minor

violation of the type which is properly

addressed by the procedures adopted

under Rule 476A, in those instances

where investigation reveals a more

serious violation of the above-described

rules, the Exchange will provide an

appropriate regulatory response.

2. Statutory Basis

The proposed rule change will

advance the objectives of Section 6(b)(6)

of the Act in that it will provide a

procedure whereby member

organizations can be ‘‘appropriately

disciplined’’ in those instances when a

rule violation is minor in nature, but a

sanction more serious than a warning or

cautionary letter is appropriate. The

proposed rule change provides a fair

procedure for imposing such sanctions,

in accordance with the requirements of

Sections 6(b)(7) and 6(d)(1) of the Act.

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 either

solicited or received.

III. Date or 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, NW.,

Washington, DC 20549. Copies of the
2858 Federal Register / Vol. 61, No. 19 / Monday, January 29, 1996 / Notices

1 15 U.S.C. § 78s(b)(1) (1988).

2 17 CFR § 240.19b-4 (1995).

3Position limits impose a ceiling on the number

of option contracts which an investor or group of

investors acting in concert may hold or write in

each class of options on the same side of the market

(i.e., aggregating long calls and short puts or long

puts and short calls).

4Exercise limits prohibit an investor or group of

investors acting in concert from exercising more

than a specified number of puts or calls in a

particular class within five consecutive business

days.

5See note 7, infra, and accompanying text.

6On April 5, 1995, the PHLX submitted a revised

version of the text of the proposed rule change,

which amends the text to indicate that the proposed

position and exercise limit for FCOs is 200,000

contracts. See Letter from Edith Hallahan, Special

Counsel, Regulatory Services, to Michael

Walinskas, Branch Chief, Office of Market

Supervision (‘‘OMS’’), Division of Market

Regulation (‘‘Division’’), Commission, dated April

5, 1995 (‘‘Amendment No. 1’’). On April 26, 1995,

the PHLX amended PHLX Rule 1001, Commentary

.05(c), to (1) replace references to the current FCO

position limits with references to the proposed FCO

position limit; (2) designate current paragraph (c) as

paragraph (b), in order to reflect the deletion of

current paragraph (b); and (3) provide that the

position and exercise limit for customized and noncustomized contracts on the German mark/Japanese

yen cross-rate and the British pound/German mark

cross-rate options, as well as for cross-rate options

traded pursuant to PHLX Rule 1069, ‘‘Customized

Foreign Currency Options,’’ is 200,000 contracts.

See Letter from Edith Hallahan, Special Counsel,

Regulatory Services, PHLX, to Michael Walinskas,

Branch Chief, OMS, Division, Commission, dated

April 26, 1995 (‘‘Amendment No. 2’’).

7The PHLX amended its proposal to provide that

options on the Italian lira and the Spanish peseta

will continue to be subject to their current position

and exercise limits of 100,000 contracts. The

Exchange also indicated that, under the proposal,

the aggregation principles provided in PHLX Rule

1001 will continue to apply. See Letter from Gerald

D. O’Connell, First Vice President, Market

Regulation and Trading Operations, PHLX, to

Michael Walinskas, Branch Chief, OMS, Division,

Commission, dated December 20, 1995

(‘‘Amendment No. 3’’).

8See Securities Exchange Act Release No. 35688

(May 8, 1995), 60 FR 26062.

9As noted above, the position and exercise limits

for options on the Italian lira and the Spanish

peseta will continue to be 100,000 contracts. See

Amendment No. 3, supra note 7.

10See Securities Exchange Act Release no. 19313

(October 14, 1982), 47 FR 46946 (October 21, 1982)

(order approving File No. SR–PHLX–81–4).

11See Securities Exchange Act Release Nos.

21676 (January 18, 1985), 50 FR 3859 (January 28,

1985) (order approving File No. SR–PHLX–84–18

(increasing position limits from 10,000 to 25,000

contracts); 22479 (September 27, 1985), 50 FR

41276 (October 9, 1985) (order approving File No.

SR–PHLX–85–22) (increasing position limits to

50,000 contracts); 23710 (October 15, 1986), 51 FR

37691 (October 23, 1986) (order approving File No.

SR–PHLX–86–24) (increasing position limits to

100,000 contracts); and 34712 (September 23, 1994),

59 FR 50307 (October 3, 1994) (order approving File

No. SR–PHLX–93–13) (adopting position limit of

150,000 contracts for FCOs with annual trading

volume of at least 3,500,000 contracts).

12See Securities Exchange Act Release No. 34712,

supra note 10.

13Position accountability standards require

traders who own or control positions in excess of

established limits to provide to the exchange, upon

request, information regarding the nature of the

position and the trading strategy employed.

14See Letter from Jean A. Webb, Secretary,

Commodity Futures trading Commission (‘‘CFTC’’),

to Todd E. Petzel, Senior Vice President, Research,

and Chief Economist, CME, dated January 2, 1992.

See also Speculative Position Limits—Exemption

from CFTC Rule 1.61; CME Proposed Amendments

to Rules 3902.D, 5001.E, 3010.F, 3012.F, 3013.F,

3015.F, 4604, and Deletion of Rules 3902.F, 5001.G,

3010.H., 3012.H, 3013.H, and 3015.H.

15See Securities Exchange Act Release No. 34925

(November 1, 1994), 59 FR 55720 (November 8,

1994) (order approving File No. SR–PHLX–94–18).

16See e.g., Securities Exchange Act Release Nos.

30672 (May 6, 1992), 57 FR 20546 (May 13, 1992)

(order approving File No. SR–PHLX–91–30)

(aggregating long-term FCOs); 30945 (July 21, 1992),

57 FR 33381 (July 28, 1992) (order approving File

No. SR–PHLX–92–13) (aggregating month-end

FCOs); 33732 (March 8, 1994), 59 FR 12023 (March

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, NW.,

Washington, DC 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–NYSE–95–

45 and should be submitted by February

20, 1996.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–1472 Filed 1–26–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36746; International Series

Release No. 919; File No. SR–PHLX–95–13]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change and

Notice of Filing and Order Granting

Accelerated Approval of Amendment

No. 3 to the Proposed Rule Change by

the Philadelphia Stock Exchange, Inc.,

Relating to Modifications of the

Position and Exercise Limits for

Foreign Currency Options

January 19, 1996.

On March 10, 1995, as subsequently

amended below, 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 PHLX Rules 1001, ‘‘Position

Limits,’’ 3 and 1002, ‘‘Exercise Limits,’’ 4

to increase the position and exercise

limits for all foreign currency options

(‘‘FCOs’’), except for options on the

Italian lira and the Spanish peseta, to

200,000 contracts.5 The PHLX

subsequently filed Amendment Nos. 1,

2,6 and 3 7 to the proposed rule change

on April 5, 1995, May 2, 1995, and

December 20, 1995, respectively.

Notice of the proposed rule change

and Amendment Nos. 1 and 2 appeared

in the Federal Register on May 16,

1995.8 No comments were received on

the proposal.

Currently, PHLX Rules 1001 and 1002

establish the following position and

exercise limits for FCOs: (i) 150,000

contracts for FCOs which meet an

annual trading volume of at least

3,500,000 contracts; and (ii) 100,000

contracts for all other FCOs traded on

the PHLX. The PHLX proposes to

amend Exchange Rules 1001 and 1002

to increase the position and exercise

limits for all FCOs, except for options

on the Italian lira and the Spanish

peseta,9 to 200,000 contracts.

PHLX FCO position and exercise

limits were set initially at 10,000

contracts in 1982, when FCOs first

began trading on the Exchange.10 Since

that time, the position and exercise

limits have been raised four times.11 In

1993, the Exchange filed a proposal to

adopt a two-tiered approach to FCO

position and exercise limits, which was

approved by the Commission in

September 1994.12 According to the

PHLX, many of the factors cited at that

time continue to indicate that FCO

position and exercise limits warrant an

increase to 200,000 contracts. For

example, the Chicago Mercantile

Exchange (‘‘CME’’) substituted ‘‘position

accountability standards’’ 13 for position

limits for futures and futures options on

certain foreign currencies.14 As a result,

the PHLX believes that the Exchange is

placed at a serious competitive

disadvantage.

In addition, the Exchange has

commenced trading customized FCOs,15

in which positions are aggregated with

other FCO positions in the underlying

currency; however, customized option

trading volume is not included in the

volume calculation to determine the

applicable position limit under the

current two-tiered system. In addition to

customized options, there are also other

FCO products that are aggregated for

position and exercise limit purposes,

including long-term, month-end, cash/

spot, and American- and European-style

FCOs.16 According to the PHLX, FCO