[Federal Register Volume 59, Number 28 (Thursday, February 10, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3152]


[[Page Unknown]]

[Federal Register: February 10, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33579; File No. SR-Phlx-93-64]

 

Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange Relating to the Listing and 
Trading of Options on The Big Cap Index

February 4, 1994.
    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 January 
2, 1994, 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 Phlx.\1\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\On January 5, 1994, the Phlx amended the proposal, changing 
the name of the index from the ``Nifty Fifty Index'' to ``The Big 
Cap Index.'' See letter from Michele R. Weisbaum, Associate General 
Counsel, Phlx, to Brad Ritter, Office of Derivatives Regulation, 
Division of Market Regulation (``Division''), SEC, dated January 5, 
1994 (``Amendment No. 1''). On January 25, 1994, the Phlx amended 
the proposal: (1) to set the exercise prices at 5 point intervals 
instead of 2\1/2\ point intervals; and (2) to request accelerated 
approval of the proposed rule change. See Letter from Michele R. 
Weisbaum, Associate General Counsel, Phlx, to Richard Zack, Branch 
Chief, Office of Derivatives Regulation, Division, SEC, dated 
January 25, 1994. On January 28, 1994, the Phlx amended the 
proposal: (1) to reflect the new ticker symbol as a result of 
Amendment No. 1; (2) to provide that the index will be updated 
during the trading day at least once every 15 seconds, rather than 
once every minute; (3) to specify that the expiration cycle 
applicable to options of the Index will be three expiration months 
from the March, June, September, December cycle plus two additional 
near-term months; and (4) to clarify the Exchange's obligations with 
respect to delisting and replacing components of the Index. See 
Letter from Michele R. Weisbaum, Associate General Counsel, Phlx, to 
Richard Zack, Branch Chief, Office of Derivatives Regulation, 
Division, SEC, dated January 27, 1994.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx, pursuant to Rule 19b-4 of the Act, proposes to list and 
trade options on The Big Cap Index (``Index''), an index developed by 
the Phlx and comprised of fifty highly capitalized U.S. stocks 
representing a variety of industries.

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 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 the 
Statutory basis for, the Proposed Rule Change

    The Phlx proposes to list for trading European-style options\2\ on 
the Index, a capitalization-weighted index comprised of fifty highly 
capitalized U.S. common stocks in a variety of industries, including 
but not limited to technology, manufacturing, and the service 
industries. The Index also includes some of the largest and most 
widely-held U.S. common stocks.\3\ The Exchange proposes classifying 
the Index as a broad-based index.
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    \2\A European-style option can be exercised only during a 
specified period before the option expires.
    \3\The components of the Index are: General Electric; Exxon; 
AT&T Wal-Mart; Coca Cola; Philip Morris Co.; Proctor & Gamble; 
Merck & Co.; GTE Corp.; Mobil; DuPont; American International; Pepsi 
Co.; Intel; General Motors; Bristol-Meyers Squibb; Amoco; Bell 
Atlantic; Ford; Johnson & Johnson; Motorola; IBM; Ameritech; 3M; 
Walt Disney Co.; Eastman Kodak; Sears, Roebuck; Home Depot; 
McDonalds Corp.; Atlantic Reichfield; Hewlett-Packard; American 
Express; Time Warner; Schlumberger Ltd.; Dow Chemical; BankAmerica; 
Southern Co; Citicorp; Boeing Co.; ITT Corp.; Toys R Us; Merrill 
Lynch; K Mart; H.J. Heinz; Weyerhauser; The Limited; Colgate 
Palmolive; Monsanto; Xerox; and International Paper.
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    The formula for calculating the Index is as follows:

TN10FE94.016

Where:

MV=Market Value (Price  x  Shares outstanding), summed for all issues.
BMV=Base Market Value; Summation of (Closing Price  x  Shares 
Outstanding) for the day prior to the start of the Index calculation.

    The current price of each component issue is multiplied by the 
number of outstanding shares. The resulting market values are added 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 base market value and multiplied by 100. The value of 
the Index was set to equal 200 on December 1, 1993.
    To account for changes in capitalization of any of the component 
issues resulting from mergers, acquisitions, delistings, substitutions, 
etc., the base market value will be adjusted periodically. The 
following formula is used to make such adjustments:

TN10FE94.017

Where:

NBMV=new base market value
OBMV=old base market value
NMV=new market value
OMV=old market value

    Adjustments in the value of the Index which are necessitated by the 
addition and/or deletion of an issue from the Index are made by adding 
and/or subtracting the market value (price  x  shares outstanding) of 
the relevant issues.
    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 the value 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 this 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.
    The Exchange believes that there is a market need for an index that 
captures and reflects the sentiment, direction, and pricing of the 
largest and most important companies in the U.S. but remains based on a 
relatively small number of stocks for easy replication of the Index 
with a basket of stocks for more accurate hedging. The Phlx proposes to 
list only European-style options on the Index, which, they believe, 
should appeal to sellers of the option that desire to contain any risks 
attendant with early exercises. In light of these features, the Phlx 
believes that the proposed Index option is unique and will fill a 
current void in the options market.
    Index options will be traded pursuant to the current Phlx rules 
governing the trading of index options, particularly Phlx Rules 1000A 
through 1103A, and generally, Phlx Rules 1000 through 1070.
    Index options will be ``A.M.-settled index options'' and 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 position and exercise limits pursuant 
to Phlx Rule 1001A(a)(1) and 1002A, respectively. Essentially, the 
Exchange proposes to establish position limits for Index options of 
25,000 contracts total, with no more than 5,000 such contracts in the 
series with the nearest expiration date. Exercise price intervals will 
be initially set at 5 point intervals and additional exercise prices 
will be added in accordance with Phlx Rule 1012(a)(iii).
    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.
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act, in general, and with Section 6(b)(5), 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.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Phlx 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 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, NW., Washington, 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-93-64 and should be submitted by March 3, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-3152 Filed 2-9-94; 8:45 am]
BILLING CODE 8010-01-M