[Federal Register Volume 59, Number 25 (Monday, February 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2709]


[[Page Unknown]]

[Federal Register: February 7, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33550; File No. SR-Phlx-93-30]

 

Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. and Notice of Filing 
and Order Granting Accelerated Approval to Amendment No. 2 to a 
Proposed Rule Change Relating to Rule 1047A Regarding Index Option 
Opening Rotations, Halts and Reopenings

January 31, 1994.

I. Introduction

    On June 29, 1993, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``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 make certain amendments to Rule 1047A regarding 
index option opening rotations, halts, and reopenings.\3\ Notice of the 
proposal, including Amendment No. 1, appeared in the Federal Register 
on October 15, 1993.\4\ No comment letters were received on the 
proposed rule change. This order approves the Exchange's proposal.
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1992).
    \3\On July 13, 1993 the Phlx amended the rule change proposal to 
adopt a floor procedure advice to parallel the provisions of the 
proposed rule in order to make the procedures readily available to 
floor members in their advice handbooks. See letter from Edith 
Hallahan, Attorney, Market Surveillance, Phlx to Richard Zack, 
Branch Chief, Options Regulation, Division of Market Regulation, 
SEC, dated July 8, 1993 (``Amendment No. 1''). On January 19, 1994 
the Phlx amended the proposal to remove the proposed provision that 
would have required index options to be halted from trading whenever 
securities representing more than 50% of the current index value had 
been halted or suspended from trading on the primary market. Rather, 
as amended, under such circumstances, the decision to halt index 
option trading would be left to the discretion of the Exchange or 
one of its floor officials. This amendment would also be reflected 
in the proposed floor procedure advice. See letter from Gerald D. 
O'Connell, Vice President, Market Surveillance, Phlx to Richard 
Zack, Branch Chief, Options and Derivatives Branch, Division of 
Market Regulation, SEC, dated January 19, 1994 (``Amendment No. 
2'').
    \4\See Securities Exchange Act Release No. 33025 (October 6, 
1993), 58 FR 53604.
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II. Description of the Proposal

    The Phlx has proposed amending Phlx Rule 1047A: (1) To require 
specialists to open an industry index option for trading once 
securities representing 90% of the current value of the index have 
opened for trading on the primary market; (2) to permit specialists to 
open such industry index options once securities representing 50% of 
the current value of the index have opened; (3) to permit specialists 
to halt index option trading, subject to floor official approval, once 
securities representing more than 10% of the current value of the index 
are halted or suspended upon; and (4) to permit specialists to reopen 
halted options once securities representing 50% of the market value of 
an index are opened or the Exchange determines that the conditions that 
led to the trading halt are no longer present. Although the text of 
Rule 1047A would be reorganized, the following provisions would not be 
substantively changed: (1) The provision in Rule 1047A(a) that the 
Exchange may halt index options trading in the best interests of fair 
and orderly markets if certain conditions are met would appear in Rule 
1047A(c); (2) Rule 1047A(d) would be renumbered as paragraph (e); (3) 
Rule 1047A(c), to be renumbered as paragraph (b) would be retitled as 
``Modified Rotations and SORT''; and (4) the third paragraph of Rule 
1047A(a) would contain the provisions formerly in paragraph (b) 
regarding the procedure for opening.
    In addition, with respect to reorganization, Rule 1047A, currently 
titled ``Traded Rotations, Halts or Suspensions'' would be retitled 
``Trading Rotations, Halts or Reopenings.'' The proposal would also 
reorganize the paragraphs to logically follow the procedure of the 
opening, halting and reopening of trading.

III. Commission Findings and Conclusions

    The Commission believes 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 sections 6(b)(5) in that the proposal 
is designed to promote just and equitable principles of trade as well 
as to protect investors and the public interest.
    Specifically, the proposal will, under the applicable 
circumstances, help prevent investors from being exposed to index 
options trading based on incomplete pricing data in the underlying 
securities by setting forth specific standards for opening and halting 
trading. For example, in providing that a specialist may open industry 
index options for trading when securities representing 50% of the 
current index value of all securities underlying the particular 
industry index have opened for trading on their respective primary 
market, industry index option market specialists will have the 
discretion to determine if adequate pricing information is available in 
order to ensure that pricing of industry index options at least 
substantially reflects the current market value of the traded index's 
underlying securities. The proposed requirement that specialists must 
open their assigned industry index options when 90% of the current 
index value of all securities in the index have opened reflects the 
appropriate determination that such a level should permit index option 
pricing that accurately reflects the value of the underlying index 
components, upon the index option opening.
    The Commission also believes that the Phlx proposal to permit index 
option specialists to request floor official approval to halt index 
options trading where securities representing more than 10% of the 
index value are halted or suspended should promote just and equitable 
principles of trade by allowing the cessation of trading where 
investors might lack access to updated pricing information in the 
component securities of the index. Moreover, the Commission also 
believes that the Phlx proposal to adopt a floor procedure advice, 
paralleling the provisions of Exchange Rule 1047A will help make such 
procedures readily available to floor members in their advice handbook.
    The Commission finds good cause for approving Amendment No. 2 prior 
to the thirtieth day after the date of publication of notice of filing 
thereof in the Federal Register. Accelerating the amendment will allow 
the proposal to be enacted without delay. The amendment changes the 
originally proposed requirement that index options be automatically 
halted whenever more than 50% of the current index value has been 
halted or suspended from trading on the primary market. The revised 
requirement will not automatically require a trading halt under such 
circumstances, but rather will direct that such a decision be made 
within the discretion of the Exchange or one of its floor officials. 
The Commission believes that this amendment may help provide greater 
index option market liquidity under certain market conditions and also 
provide the Exchange and its floor officials the flexibility to halt or 
continue index option trading based upon the circumstances and 
conditions of the current market. The Commission also notes that the 
proposal, including Amendment No. 1 (but excluding Amendment No. 2), 
was published for the full 21 day comment period and no comments were 
received.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 2. 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 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 in the Commission's Public Reference Section, 450 Fifth Street, 
NW., Washington, DC. 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-93-30 and should be 
submitted by February 28, 1994.
    It is therefore ordered, Pursuant to section 19(b)(2) of the 
Act,\5\ that the proposed rule change (SR-Phlx-93-30), as amended, is 
approved.
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    \5\15 U.S.C. 78s(b)(2) (1982).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\17 CFR 200.30-3(a)(12) (1993).
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Margaret M. McFarland,
Deputy Secretary.
[FR Doc. 94-2709 Filed 2-4-94; 8:45 am]
BILLING CODE 8010-01-M