32880 Federal Register / Vol. 61, No. 123 / Tuesday, June 25, 1996 / Notices

14Market participants granted a hedge exemption

are also required to keep their application forms for

the hedge exemption current and promptly provide

the Phlx with any information concerning the dollar

value and composition of the stock portfolio, the

current hedged and aggregate options positions, and

any stock index futures positions, or economically

equivalent positions.

15 15 U.S.C. § 78s(b)(2) (1988).

16 17 CFR 200.30–3(a)(12) (1994).

1 15 U.S.C. 78s(b)(1).

2See letter from Murrary L. Ross, Vice President

and Secretary, Phlx, to Anthony P. Pecora,

Attorney, SEC, dated May 17, 1996. In this letter,

the Phlx represented that the limitation of liability

clause may not be relied upon to limit the

Exchange’s liability to nonmembers for any

intentional or negligent violations of the federal

securities laws. In addition, the Exchange made

some minor clarifying edits.

3See Securities Exchange Act Release No. 33732

(Mar. 8, 1994), 59 FR 12023 (approving File No. SR–

Phlx–93–10).

positions. Third, both the options and

stock positions must be initiated and

liquidated in an orderly manner. This

means that a reduction of the options

position must occur at or before the

corresponding reduction in the stock

portfolio position, thereby helping to

ensure that the stock transactions are

not used to impact the market so as to

benefit the options positions. Fourth,

the Phlx’s Market Surveillance

Department must be notified in writing

for approval prior to liquidating or

initiating any such position as well as

of any change in the portfolio or futures

positions which materially affects the

value of the qualified portfolio. Fifth,

the proposal provides a ceiling on the

maximum size of the options position

by providing that positions established

under the proposal may not exceed twotimes the limits set forth in Exchange

Rule 1001A(a). In addition, the

Exchange may determine to grant a

position limit exemption for less than

the maximum of two-times above the

limit.

The Commission notes that the Phlx’s

surveillance procedures are designed to

detect as well as deter manipulation and

market disruptions. In particular, the

Phlx will monitor the options position

of persons utilizing the hedge

exemption on a daily basis to ensure

that each option contract is hedged by

the equivalent dollar amount of

component securities.14 In addition, the

Phlx’s Market Surveillance Department

will monitor trading activity in Phlx

traded index options and the stocks

underlying those indexes to detect

potential frontrunning and

manipulation, as well as to review such

trading to ensure that the closing of

positions subject to the exemption are

conducted in a fair and orderly manner.

Violation of any of the provisions of the

market index hedge exemption, absent

reasonable justification or excuse, will

result in the withdrawal of the hedge

exemption and subsequent denial of an

application for hedge exemption

thereunder.

Finally, the Commission believes that

it is reasonable for the Phlx to allow

firm and proprietary traders as well as

public customers to utilize the proposed

hedge exemption. The Commission

believes that extending the broad-based

index option hedge exemption to firm

and proprietary traders may help to

increase the depth and liquidity of the

market for market index options and

may help to ensure that public

customers receive the full benefit of the

exemption. Moreover, the Phlx’s

monitoring procedures, as described

above, should be able to detect abuses

and ensure that the options position,

whether firm, proprietary trader, or

customer, are properly hedged.

IV. Conclusion

For the foregoing reasons, the

Commission finds that the Phlx’s

proposal to establish a hedge exemption

from broad-based index option position

and exercise limits 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,15 that the

proposed rule change (SR–Phlx–96–07)

is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.16

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–16064 Filed 6–24–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37323; File No. SR–Phlx–

96–11]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Philadelphia Stock Exchange, Inc.

Relating to Exchange’s Calculation of

Settlement Values for Cash/Spot

Foreign Currency Option Contracts

(‘‘3–D Options’’)

June 18, 1996.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

April 30, 1996, 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 selfregulatory organization. On May 20,

1996, the Exchange submitted to the

Commission Amendment No. 1 to the

proposed rule change.2 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 Phlx proposes to amend Phlx

Rule 1057 in order to provide the

Exchange with the election to calculate

settlement values for the cash/spot

Dollar Denominated Delivery foreign

currency option contracts (‘‘3–D

options’’). In addition, the Exchange

proposes to amend Phlx Rule 1057 by

including a ‘‘limitation of liability’’

clause for the settlement of 3–D options

similar to Phlx Rule 1102A, which

limits the Exchange’s liability in the

calculation and dissemination of

settlement values.

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

On March 8, 1994, the Commission

approved 3–D options for listing on the

Phlx.3 Currently, the closing settlement

value for 3–D options is calculated by a

market information vendor acting as the

Exchange’s designated agent. The

market information vendor will collect

the bid and offer quotations for the

current foreign exchange spot price from

quotations submitted by at least fifteen

interbank foreign exchange market

participants, which the designated agent

will select randomly from a list of

twenty-five active interbank foreign

exchange market participants. After

discarding the five highest and the five

lowest bids and offers, the market

information vendor averages the

remaining ten bids and offers to arrive

at a closing settlement price.

The Phlx proposes to amend Phlx

Rule 1057 to provide the Exchange with
Federal Register / Vol. 61, No. 123 / Tuesday, June 25, 1996 / Notices 32881

4See Phlx By-Laws, art. XII, § 12–11 (stating that

the Phlx is not liable for any damages incurred by

a member or member organization utilizing the

Exchange’s facilities to conduct its business).

5 15 U.S.C. 78f(b).

6 15 U.S.C. 78f(b)(5). 7 17 C.F.R. 200.30–3(a)(12).

1See Securities Exchange Act Release No. 36369

(October 13, 1995), 60 FR 54274 (October 20, 1995).

the choice of calculating the settlement

value for 3–D options itself rather than

employing a designated market

information vendor as an agent of the

Exchange for that purpose. The

Exchange will use the same

methodology for calculating the

settlement value for 3–D options as

described in Phlx Rule 1057.

The Phlx believes that by calculating

its own settlement value for 3–D

options, the Exchange will be able to

exert more control over the calculation

of those values. The Exchange also

believes that the proposed rule change

will reduce the response time in the

event there is a problem in the

calculation or dissemination of the 3–D

options settlement values.

Secondly, the Exchange proposes to

amend Phlx Rule 1057 by including a

‘‘limitation of liability’’ clause similar to

the one contained in Phlx Rule 1102A

that limits the Exchange’s liability in the

calculation and dissemination of index

values. The limitation of liability clause

provides added protection to the

Exchange and alleviates the threat of

potential liability in calculating the 3–

D settlement values. If further serves as

a more explicit extension of the

limitation of liability contained in the

Exchange’s By-Laws.4

2. Statutory Basis

The Exchange believes the proposed

rule change is consistent with Section

6(b) 5 of the Act in general and furthers

the objectives of Section 6(b)(5) 6 in

particular in that it is designed to

facilitate transactions in securities, to

remove impediments to and perfect the

mechanism of a free and open market.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange believes the proposed

rule change will impose no burden on

competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received from

Members, Participants, or Others

The Exchange has neither solicited

nor received written comments.

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 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 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

available for inspection and copying at

the Commission’s Public Reference

Section, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Also, copies of

such filing will be available for

inspection and copying at the principal

office of the Phlx. All submissions

should refer to File No. SR–Phlx–96–11

and should be submitted by July 16,

1996.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–16065 Filed 6–24–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37319; File No. SR–Phlx–

96–17]

Self-Regulatory Organization; Notice of

Filing of Proposed Rule Change by the

Philadelphia Stock Exchange, Inc. ØTo

Reduce the Value of the Super Cap

Index

June 18, 1996.

Pursusnat 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 May 24, 1996, 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 reduce the

value of its Super Cap Index (‘‘Index’’)

option (‘‘HFX’’) to one-third its present

value by tripling the divisor used in

calculating the Index. The Index is

comprised of the top five optionseligible common stocks of U.S.

companies traded on the New York

Stock Exchange, as measured by

capitalization. The other contract

specifications for the HFX will remain

unchanged.

The text of the proposed rule change

is available at the Office of the

Secretary, 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

Phlx 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 Phlx 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

The Exchange began trading the HFX

in November, 1995.1 The Index value

was created with a value of 350 on its

base date of May 31, 1995 which rose

to 430 on April 12, 1996. Thus, the

value of the Index has increased 23% in

less than one year. Consequently, the

premium for HFX options has also risen.

As a result, the Exchange proposed to

conduct a ‘‘three-for-one split’’ of the

Index, such that the value would be

reduced to one-third of its present

value. In order to account for the split,

the number of HFX contracts will be

tripled, such that for each HFX contract

currently held, the holder would receive

three contracts at the reduced value,

with a strike price one-third of the