33160 Federal Register / Vol. 61, No. 124 / Wednesday, June 26, 1996 / Notices

4A 401K account is a cash or deferred profit

sharing plan as described in Section 401(k) of the

Internal Revenue Code of 1986, as amended.

5 15 U.S.C. § 78q–1 (1988).

6Letter from Alan Rubin, Vice President, Smith

Barney, to Chris Hayes, NSCC (January 15, 1996).

1The Exchange’s minor rule plan is administered

pursuant to PHLX Rule 970, ‘‘Floor Procedure

Advices: Violations, Penalties, and Procedures,’’

which contains Advices with accompanying fine

schedules. Pursuant to paragraph (c)(1) of Rule

19d–1 under the Act, a self-regulatory 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.

shortened settlement cycle upon

agreement of the submitting parties. The

date established by the submitting

parties for a transaction will be the date

used for all trade processing relating to

that particular transaction and could be

as short as the same day or as long as

seven business days.

As a result of the expansion of the

types of businesses conducted by

broker-dealers, the mutual fund

industry has requested that NSCC

modify the Fund/SERV system to enable

broker-dealers to establish settlement

dates with respect to specific

transactions. For example, a transaction

involving shares of traditional load

mutual funds normally settles on a three

business day settlement cycle, whereas

a transaction for shares of the same fund

involving a 401K account 4 normally

settles on a next day settlement cycle.

The proposed modifications to the

Fund/SERV system will allow NSCC

members to make an adjustment to the

settlement cycle for mutual fund

transactions in order to accommodate

the need for different settlement cycles.

Under the proposed rules, a member

which submits a mutual fund order and

desires to establish a settlement cycle

other than that established by the Fund/

SERV system would include in the

order data the date on which the

transaction is to settle and a reason code

for modifying the settlement cycle. The

contraparty would then have the

opportunity to accept or to reject the

transaction. The transaction also would

be rejected by NSCC if the specified

settlement cycle is longer than seven

business days. Once accepted NSCC

will process the mutual fund transaction

in accordance with the specified

settlement cycle.

The proposed rule change is

consistent with the requirements of

Section 17A of the Act, and the rules

and regulations thereunder because it

will facilitate the prompt and accurate

clearance and settlement of securities

transactions.5

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

NSCC does not believe that the

proposed rule change will have an

impact on or impose a burden on

competition.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

NSCC solicited comments from the

Investment Company Institute Broker

Dealer Advisory Committee on

November 10, 1995. NSCC received one

letter from Smith Barney 6 requesting

certain formatting features. Based on

this letter, NSCC has made certain

modifications to the Fund/SERV system.

NSCC will notify the Commission of any

additional written comments received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within thirty-five 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

ninety 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 provisions of

5 U.S.C. 552, will be available for

inspection and copying in the

Commission’s Public Reference Room in

Washington, D.C. Copies of such filing

will also be available for inspection and

copying at the principal office of NSCC.

All submissions should refer to the file

number SR–NSCC–96–10 and should be

submitted by July 17, 1996.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–16293 Filed 6–25–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37322; File No. SR–PHLX–

96–20]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Philadelphia Stock Exchange, Inc.

Relating to Contrary Exercise Advices

for Expiring Equity Options

June 18, 1996.

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

Securities Commission Act of 1934

‘‘(Act’’), 15 U.S.C. § 78s(b)(1), notice is

hereby given that on May 30, 1996, the

Philadelphia Stock Exchange, Inc.

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

Securities and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’) 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

Pursuant to Rule 19b–4 of the Act, the

PHLX proposes to adopt new Floor

Procedure Advice (‘‘Advice’’) F–26,

‘‘Equity Options Contrary Exercise

Advices,’’ to add certain provisions of

paragraph (b), ‘‘Exercise Cut-Off for

Expiring Options,’’ of PHLX Rule 1042,

‘‘Exercise of Equity Option Contracts,’’

to the PHLX’s Floor Procedure Advice

Handbook. The PHLX proposes to

include Advice F–26 in the Exchange’s

minor rule violation enforcement and

reporting plan (‘‘minor rule plan’’).1
Federal Register / Vol. 61, No. 124 / Wednesday, June 26, 1996 / Notices 33161

2A violation of proposed Advice F–26 that is not

easily verifiable or that requires a complicated

factual or interpretative inquiry would also be

referred directly to the Exchange’s BCC.

Conversation between Edith Hallahan, Special

Counsel, Regulatory Services, PHLX, and Yvonne

Fraticelli, Attorney, Office of Market Supervision

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

(‘‘Division’’), Commission, on June 17, 1996.

3See note 2, supra.

4Under OCC Rule 805(d)(2), a clearing member

is deemed to have tendered to OCC an exercise

notice for options with an exercise price below (in

the case of a call) or above (in the case of a put)

the closing price of the underlying security by (i)

3⁄4 of a point or more, if the option contract is

carried in a customer’s account, or (ii) 1⁄4 of a point

or more, if the option contract is carried in any

other account, unless the clearing member has

instructed OCC to exercise none, or fewer than all,

of such contracts. If a clearing member desires that

any such contract not be exercised, the clearing

member must give appropriate instructions to OCC

in accordance with OCC Rule 805(b).

5One example of a minor violation of PHLX Rule

1042(b) would be submitting a CEA to the wrong

place. Telephone conversation between Edith

Hallahan, Special Counsel, Regulatory Services,

PHLX, and Yvonne Fraticelli, Attorney, OMS,

Division, Commission, on June 5, 1996.

6The fine schedule for proposed Advice F–26

provides a warning for a first offense for infractions

of the CEA procedure which are minor in nature;

any violation of the procedure which has been

deemed serious by the Exchange will be referred

directly to the Exchange’s BCC where stronger

sanctions may result. However, the Exchange notes

that this does not affect the other Advices

administered pursuant to the minor rule plan which

do not specifically contain this statement;

infractions cited pursuant to the minor rule plan are

minor in nature regardless of whether this specific

language was added to the Advice.

7See e.g., Advice F–15, ‘‘Minor Infractions of

Position/Exercise Limits and Hedge Exemptions.’’

Under the proposal, an initial violation

of proposed Advice F–26 that is minor

in nature will receive a warning and all

subsequent violations within a one year

period will be referred to the PHLX’s

Business Conduct Committee (‘‘BCC’’).

In addition, an initial violation of

proposed Advice F–26 that is deemed

serious by the Exchange will be referred

directly to the PHLX’s BCC.2

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

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

The PHLX proposes to adopt Advice

F–26 in order to add certain pertinent

provisions of PHLX Rule 1042 regarding

expiring equity options into the

Exchange’s Floor Procedure Advice

Handbook. The PHLX believes that

including these provisions in the Floor

Procedure Advice Handbook should

facilitate compliance with PHLX Rule

1042 due to ease of reference on the

trading floor. Proposed Advice F–26

will be incorporated into the PHLX’s

minor rule plan; accordingly, the PHLX

proposes to amend the minor rule plan

to include proposed Advice F–26.

Under the proposal, the first violation of

proposed Advice F–26 that is minor in

nature will be subject to a warning, and

all subsequent violations within a one

year calendar period will be referred to

the Exchange’s BCC for disciplinary

action. In addition, an initial violation

of proposed Advice F–26 that is deemed

serious by the Exchange will be referred

directly to the PHLX’s BCC.3

PHLX Rule 1042 establishes the

PHLX’s cut-off procedure for expiring

equity options. Specifically, PHLX Rule

1042(b) requires that final exercise

decisions be communicated to the

Exchange by 5:30 p.m. Eastern Time on

the business day immediately prior to

the expiration date by (1) taking no

action and allowing exercise

determinations to be made in

accordance with Options Clearing

Corporation’s (‘‘OCC’’) Rule 805(d)(2),

where applicable; 4 or (2) submitting a

Contrary Exercise Advice (‘‘CEA’’), a

form which commits an option holder

either to not exercise an option that

would otherwise be exercised

automatically pursuant to OCC Rule

805, or to exercise an option that

otherwise would not be exercised

automatically pursuant to OCC Rule

805. The Exchange states that PHLX

Rule 1042 is substantially similar to the

exercise rules of the other options

exchanges.

According to the PHLX, the current

proposal was developed in conjunction

with the other options exchanges. As

part of this joint review of exercise

procedures through the Intermarket

Surveillance Group (‘‘ISG’’), the

exchanges focused on the disciplinary

result of violating the exercise rules,

noting that a more streamlined process

was needed. Thus, the PHLX states that

the exchanges intend to permit the

prompt issuance of a warning for minor

violations of the exercise rules before

triggering the full disciplinary process.5

The Exchange believes that PHLX

Rule 1042 and proposed Advice F–26

contain important substantive

requirements, including an exercise cutoff time, and specific submission

requirements. The purpose of the

proposal is to codify minor infractions

into the PHLX’s minor rule plan. In

administering the minor rule plan, the

PHLX understands that infractions cited

pursuant to the minor rule plan are

minor in nature and more serious

violations are referred directly to the

BCC. Thus, proposed Advice F–26 is

intended only to cover minor infractions

and specifically states this.6 The

Exchange does not believe that, by

virtue of including the provisions as an

Advice, all violations of Advice F–26

are thereby minor. PHLX Rule 1042 was

intended to govern exercise procedures

in order to prevent the occurrence of

abuses and fraudulent activity.

Incorporating part of PHLX Rule 1042

into an Advice does not diminish this

critical purpose. The PHLX states that

many other important, substantive

provisions in the Exchange’s rules are

codified into Advices so that minor

violations can be handled efficiently.7

The PHLX believes that the proposal

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, to 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, as

well as to protect investors and the

public interest, by codifying the

provisions of PHLX Rule 1042(b) into

proposed Advice F–26.

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 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
33162 Federal Register / Vol. 61, No. 124 / Wednesday, June 26, 1996 / Notices

8 17 CFR § 200.30–3(a)(12) (1995).

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

2 17 CFR 240.19b–4.

3 In Amendment No. 1 the Phlx states that the

Index is currently a P.M.-settled index and that it

proposes to apply all of the maintenance criteria of

Phlx Rule 1009(A)(c) except the requirement that

the Index be designated as A.M.-settled. See letter

from Michele R. Weisbaum, Associate General

Counsel, Phlx, to James T. McHale, Attorney, Office

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

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

16, 1996 (‘‘Amendment No. 1’’).

4See Securities Exchange Act Release No. 37123

(April 18, 1996), 61 FR 18454 (April 25, 1996).

5 In Amendment No. 2, the Exchange states that

it has received oral comments that AMAX Gold Inc.

(AU) would not be an appropriate stock to include

in the XAU as it is not actually a gold or silver

mining stock, but more of a ferrous metal company

stock. Accordingly, the Exchange wishes to

withdraw the proposed addition of AU to the Index.

See Letter from Michele R. Weisbaum, Associate

General Counsel, Phlx, to James T. McHale,

Attorney, OMS, Division, Commission, dated May

15, 1996 (‘‘Amendment No. 2’’).

6See Securities Exchange Act Release No. 20437

(December 2, 1983) 48 FR 55229 (December 9, 1983)

(‘‘Index Approval Order’’).

7 Id.

8According to the Exchange, as of May 14, 1996,

the capitalizations of Santa Fe Pacific Gold Corp.

and TVX Gold Inc. were approximately $2 billion

and $1.46 billion respectively.

9The following data is based on prices and shares

outstanding as of May 14, 1996.

10The maintenance criteria set forth in Rule

1009A(c) are principally designed as index

maintenance criteria that are required to be met by

certain narrow-based index option products that

were listed pursuant to Rule 1009A(b). Rule

1009A(c), among other things, requires that for a

capitalization weighted index, the lesser of the five

highest weighted component securities in the index

or the highest weighted component securities in the

index that in the aggregate represent at least 30%

of the total number of stocks in the index each have

an average monthly trading volume of at least

1,000,000 shares over the past six months. Rule

1009A(c) also requires each component security to

have a market capitalization of at least $75 million,

except that for each of the lowest weighted

component securities in the index that in the

aggregate account for no more than 10% of the

weight of the index, the market capitalization is at

least $50 million. See Securities Exchange Act

Release No. 34157 (June 3, 1994), 59 FR 30062 (June

10, 1994).

11See Amendment No. 1, supra note 3. The

settlement value of an A.M.-settled index is based

on the opening prices of the component securities,

in contrast to a P.M.-settled index, which is based

on closing prices. As mentioned above, the XAU is

a P.M.-settled index.

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. Solicition 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. Copies of such

filing will also be available for

inspection and copying at the principal

office of the PHLX. All submissions

should refer to File No. SR-PHLX–96–20

and should be submitted by July 17,

1996.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–16228 Filed 6–25–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37334; File No. SR–Phlx–

96–03]

Self-Regulatory Organizations; Order

Approving a Proposed Rule Change

and Notice of Filing and Order

Granting Accelerated Approval of

Amendment No. 2 thereto by the

Philadelphia Stock Exchange, Inc.

Relating to Component Additions to

the Phlx Gold/Silver Index

June 19, 1996.

On April 1, 1996, the Philadelphia

Stock Exchange, Inc. (‘‘Phlx’’ or

‘‘Exchange’’) submitted to the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’), pursuant to Section

19(b) of the Securities Exchange Act of

1934 (‘‘Act’’),1 and Rule 19b–4

thereunder,2 a proposed rule change to

revise the composition of the Phlx Gold/

Silver Index (‘‘XAU’’ or ‘‘Index’’) by

adding three underlying stocks and to

adopt procedures to address

replacements, additions and deletions of

component stocks. On April 16, 1996,

the Exchange filed Amendment No. 1 to

the proposal.3 Notice of the proposal

was published for comment and

appeared in the Federal Register on

April 25, 1996.4 No comment letters

were received on the proposal. On June

5, 1996, the Exchange filed Amendment

No. 2 to the proposal.5 This order

approves the Phlx’s proposal as

amended.

I. Description of the Proposal

The XAU is a capitalization weighted

index currently composed of the stocks

of nine widely held U.S. companies in

the gold and silver mining industry.

Options on the Index have an American

style expiration and the settlement

value is based on the closing values of

the component issues on the day

exercised or on the last trading day prior

to expiration (i.e. ‘‘P.M.-settled’’). The

Index was the first narrow-based or

industry index approved for trading on

the Exchange.6 Pursuant to Footnote 10

to the Index Approval Order,7 the

Exchange previously agreed to submit to

the Commission, pursuant to Rule 19b–

4 under the Act, any changes to the

stocks comprising the Index and to

attempt to formulate a rule that would

govern this process. Accordingly,

pursuant to this rule filing, the

Exchange is requesting approval to

change the composition of the XAU by

adding two stocks. The stocks are Santa

Fe Pacific Gold Corp. (GLD) and TVX

Gold Inc. (TVX) and they both currently

trade on the New York Stock Exchange.8

The Exchange believes that the addition

of these two stocks will help ensure an

even more accurate response to overall

market activity in the precious metals

mining industry. The Phlx represents 9

that the proposed change would

increase the total capitalization of the

Index from $28.63 billion to $34.01

billion. The two additional stocks

combined will account for 10.19% of

the revised Index by capitalization

weight. The value of the XAU as of the

close of trading on March 28, 1996 was

143.83.

The Exchange also proposes to adopt

a procedure which will govern future

replacements, additions or deletions of

underlying stocks from the Index. If at

any time a stock is deleted from the

Index due to merger, acquisition or

otherwise, and the Exchange determines

to replace it, the Phlx will take into

account the capitalization, liquidity,

volatility and name recognition of any

proposed replacement stock which fits

the character of the Index. Moreover, the

Phlx will ensure that the Index meets all

of the maintenance criteria in Rule

1009A(c) 10 except the requirement that

the Index be A.M.-settled.11 The Phlx

notes that this maintenance criteria, in

part, requires it to ensure that no fewer

than 90% of the stocks comprising the

Index by weight, nor fewer than 80% of

the total number of stocks in the Index,