[Federal Register Volume 59, Number 107 (Monday, June 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13605]


[[Page Unknown]]

[Federal Register: June 6, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34130; File No. SR-Phlx-94-01]

 

Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment Nos. 1, 2, 3, and 4 to the Proposed Rule Change by 
the Philadelphia Stock Exchange, Inc. Relating to the Listing and 
Trading of Options on the Phlx Phone Index

May 27, 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 
3, 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 February 18, 1994, the Phlx amended the proposal: (1) To 
provide that the Index will be updated during the trading day at 
least once every 15 seconds, rather than once every minute; (2) to 
provide that the exercise prices will be set at five point Index 
intervals rather than 2.5 point Index intervals as stated in the 
original filing; (3) to specify that the expiration cycle applicable 
to options on the Index will be three expiration months from the 
March, June, September, December cycle plus two additional near-term 
months; (4) to clarify the Exchange's obligations with respect to 
delisting and replacing components of the Index; (5) to clarify that 
all of the proposed Index's component stocks are, and any future 
replacement or added component securities will be, traded either on 
NASDAQ National Market, the New York Stock Exchange (``NYSE''), or 
the American Stock Exchange (non-ECM); and (6) to clarify that all 
of the current Index component stocks have overlying exchange traded 
options on them. See Letter from Michele R. Weisbaum, Associate 
General Counsel, Phlx, to Sharon Lawson, Assistant Director, 
Division of Market Regulation, SEC, dated February 16, 1994 
(``Amendment No. 1''). On February 24, 1994, the Phlx amended the 
proposal to change the name of the Index from the Phlx Baby Bell 
Index to the Phlx Phone Index. See Letter from Michele R. Weisbaum, 
Associate General Counsel, Phlx, to Michael Walinskas, Staff 
Attorney, Division of Market Regulation, SEC, dated February 24, 
1994 (``Amendment No. 2''). On April 6, 1994, the Phlx amended the 
proposal to represent that the Phlx will submit a Rule 19b-4 filing 
to the Commission prior to opening any new series of options on the 
Index for trading if at any time less than 90 percent of the 
component securities, by weight, are eligible for exchange options 
tradings, or if at any time the number of stocks in the Index 
increases to more than ten or decreases to less than eight. See 
Letter from Michele R. Weisbaum, Associate General Counsel, Phlx, to 
Sharon Lawson, Assistant Director, Division of Market Regulation, 
SEC, dated March 3, 1994 (``Amendment No. 3''). On April 11, 1994, 
the Phlx amended the proposal: (1) To change the manner in which the 
current Index value would be calculated; (2) to represent that the 
surveillance procedures currently used to monitor trading in each of 
the Exchange's other index options, which include having complete 
access to trading activity in the underlying securities comprising 
the Index (all of which are traded on the NYSE), also will be used 
to monitor trading in options on the Index; (3) to provide that the 
Intermarket Surveillance Group Agreement dated July 14, 1983, as 
amended on January 29, 1990, will be applicable to the trading of 
options on the Index; and (4) to confirm that the trading hours for 
the Index will be 9:30 a.m. to 4:10 p.m. (New York time). See Letter 
from Michele R. Weisbaum, Associate General Counsel, Phlx, to Thomas 
McManus, Esq., Division of Market Regulation, SEC, dated April 7, 
1994 (``Amendment No. 4'').
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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 under the Act, proposes to list 
and trade options on the Phlx Phone Index (``Index''), an index 
developed by the Phlx and comprised of eight common stocks representing 
the companies created as a result of the divestiture of the American 
Telephone & Telegraph Co. (``AT&T'') in 1983, as well as AT&T itself.

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 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 the 
Statutory Basis for, the Proposed Rule Change

    The purpose of the proposed rule change is to list for trading an 
American-style option on the Index. The Index, which is comprised of 
the common stocks of the eight companies created as a result of the 
divestiture of AT&T in 1983, includes the seven regional telephone 
companies spun off from AT&T as well as AT&T. AT&T and the spun-off 
regional telephone companies represent some of the largest and most 
widely-held U.S. common stocks. If at any time the number of stocks 
comprising the Index increases to more than ten or decreases to less 
than eight, the Exchange will submit a filing to the Commission 
pursuant to Rule 19b-4 under the Act prior to opening any new option 
series on the Index.
    The Phlx believes that there is a need for an index option that 
represents solely AT&T and its spun-off regional telephone companies. 
In this regard, the Phlx states that there is a significant segment of 
the investing community that avidly follows these companies. The Phlx 
believes that the Index, therefore, would fill a current market void by 
creating a pure U.S. telephone industry index that would not be diluted 
with other telecommunications stocks.
    The Index will be calculated using a capitalization-weighting 
methodology. The value of the Index was set to equal 200 on December 1, 
1993. The formula for calculating the Index value is as follows:

TN06JN94.002

Where:

Total Capitalization = Sum of Market Values (price x shares 
outstanding) for all component securities
Divisor = The number which, when divided from the total capitalization 
when the Index was initially calculated (on December 1, 1993), yielded 
an Index value of 200

    The Index divisor will be adjusted for changes in the 
capitalization of any of the component securities resulting from 
mergers, acquisitions, delistings, substitutions, and other like 
corporate events. The formula for adjusting the divisor is as follows:
    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 and disseminated 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 also will be available on 
broker/dealer interrogation devices to subscribers of the option 
information.

TN06JN94.003

    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.
    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(b)(i) and 1002A, respectively.\2\ Exercise price 
intervals will be set initially at five point intervals, and additional 
exercise prices will be added in accordance with Phlx Rule 1101A(a).
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    \2\Because, as of March 11, 1994, AT&T represented 31.15 percent 
of the Index, the position and exercise limits applicable to options 
on the Index are 5,500 contracts, respectively. See Phlx Rules 
1001A(b)(i) and 1002A.
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    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 always will be 
available.
    All of the component securities in the Index currently are eligible 
to have, and do have, overlying exchange traded options on them. The 
Exchange represents that, if at any time less than 90 percent of the 
component securities, by weight, are eligible for options trading, the 
Exchange will submit a filing to the Commission pursuant to Rule 19b-4 
under the Act prior to opening any new series of options on the Index.
    The Exchange represents that surveillance procedures currently used 
to monitor trading in each of the Exchange's other index options also 
will be used to monitor trading in options on the Index. These 
procedures include having complete access to trading activity in the 
underlying securities comprising the Index, all of which are traded on 
the NYSE. In addition, the Exchange represents that the Intermarket 
Surveillance Group Agreement dated July 14, 1983, as amended on January 
29, 1990, will be applicable to the trading of options on the Index.
    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, 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 also will be available for 
inspection and copying at the principal office of the Phlx. All 
submissions should refer to File No. SR-Phlx-94-01 and should be 
submitted by June 27, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\3\
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    \3\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-13605 Filed 6-3-94; 8:45 am]
BILLING CODE 8010-01-M