[Federal Register Volume 59, Number 243 (Tuesday, December 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31207]
[[Page Unknown]]
[Federal Register: December 20, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35088; File No. SR-PSE 94-28]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 to Proposed Rule Change by the Pacific Stock
Exchange, Inc. Relating to the Establishment of Uniform Listing and
Trading Guidelines for Stock Index and Currency Warrants
December 12, 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
September 22, 1994, the Pacific Stock Exchange, Inc. (``PSE'' 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: (1) Amend its listing guidelines for
stock index (``stock index'' or ``index'') warrants and currency
warrants (``currency warrants'');\1\ (2) establish various new rules
for the trading of stock index and currency warrants; and (3) establish
special customer margin requirements for positions in stock index and
currency warrants. On Dec. 5, 1994, the PSE amended certain
surveillance related matters addressed in the filing. See footnote 3,
infra.
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\1\Currency warrants, as used in this filing, may refer to
warrants on individual currencies (or cross currencies) or to
warrants on a specific currency index group (``currency index
warrants'').
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The text of the proposed rule change is available at the Office of
the Secretary, PSE, 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. 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 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
Statutory Basis for, the Proposed Rule Change
The PSE proposes to: (1) Amend its listing guidelines and establish
uniform rules for the trading of stock index and currency warrants, and
(2) establish special customer margin requirements for positions in
stock index and currency warrants.
The PSE seeks to amend Rule 7.18 to provide higher standards for
warrant issuers than currently exists. In particular, future warrant
issuers would be expected to have a minimum tangible net worth in
excess of $150 million. In addition, the aggregate original issue price
of all of a particular issuer's warrant offerings (combined with
offerings by its affiliates) that are listed on a national securities
exchange or that are National Market securities traded through NASDAQ
would not be permitted to exceed 25% of the issuer's net worth. The
proposed amendment will require that each warrant issue will be
automatically exercised on either the delisting date (if the issue is
not listed upon another organized securities market) or upon
expiration. Rule 7.18 also will be amended to provide that opening
prices (``a.m. settlement'') for all U.S. traded securities will be
used to determine an index's settlement value where 25 percent or more
of the value of the index is represented by securities whose primary
trading market is in the U.S.
Rule 2.16 is being amended to apply the current customer margin
requirements for broad based stock index and currency options to stock
index and currency warrants, respectively. Thus, purchases of stock
index and currency warrants will require payment in full, and short
sales of stock index warrants will require initial margin of: (i) 100
percent of the current value of the warrant plus (ii) 15 percent of the
current value of the underlying broad stock index less the amount by
which the warrant is out of the money up to a maximum of five percent
of the index value. Short sales of currency warrants will follow the
margin requirements applicable to listed currency options. The Exchange
proposes that its stock index and currency warrant margin requirements
be permitted offset treatment for spread, straddle and covered
positions.\2\ Proposed Rule 8 of the Exchange rules applies to the
trading of index warrants and currency warrants. Proposed Rule 8.1
provides that, unless the context otherwise requires or a specific
provision of Rule 8 applies, the provisions of the Constitution and all
other rules and polices of the Exchange apply to trading of such
securities.
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\2\The staff of the Commission has indicated to the Exchange
that it must request and obtain appropriate interpretive or no-
action relief from the Commission in order to permit its index and
currency warrant margin requirements to allow offset treatment for
spread, straddle and covered positions.
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Proposed Rule 8.4 states that no member or member organization
shall accept an order from a customer for the purchase or sale of index
or currency warrants unless the customer's account has been approved
for options trading pursuant to Exchange Rule 9.18(b). Furthermore,
proposed Rules 8.5-8.8 require that the option rules pertaining to
suitability, discretionary account trading, supervision of accounts and
customer complaints be applied to stock index and currency warrants.
Proposed Rule 8.9 requires approval by a Compliance Registered
Options Principal of all advertisements, sales literature and
educational material issued by a member organization pertaining to
stock index and currency warrants. The rule further requires Exchange
approval of all advertisements and educational materials pertaining to
stock index and currency warrants.
Proposed Rule 8.10 provides that position limits for stock index
warrants on the same index with original issue prices of ten dollars or
less will be fifteen million warrants covering all such issues. The
rule provides that warrants with an original issue price greater than
ten dollars will be weighted more heavily than warrants with an
original issue price of ten dollars or less in calculating position
limits. The rule also gives the Exchange the authority to require the
liquidation of a position in stock index warrants that is in excess of
the position limits set forth in the rule, and Commentary to the rule
provides procedures for allowing limited exceptions to the position
limits.
Proposed Rule 8.11 provides for exercise limits on stock index
warrants analogous to those found in stock index options and states
that such limits are separate and distinct from any exercise limits
that may be imposed by the issuers of stock index warrants.
Proposed Rule 8.12 requires that the trading halt provisions in
Rule 7.11 shall be applied to trading in stock index warrants.
Upon Commission approval of the foregoing amendments, the Exchange
proposes it will only file rule changes for specific warrant issues
where there is no corresponding option or warrant on the same
underlying broad based index already listed on a national securities
exchange or NASDAQ. Accordingly, when a listed option overlies a
particular broad based index, the Exchange proposes it be able to list
warrants on that index without further Commission review and approval
pursuant to Section 19(b) of the Act.
Both initial and maintenance listing standards for stock index
warrants will require that no more than 20% of the securities in the
underlying index, by weight, may be comprised of foreign securities or
American Depositary Receipts (``ADRs'') overlying foreign securities
that are not subject to comprehensive surveillance sharing agreements
between the PSE and the primary exchange on which the foreign security
(including a foreign security underlying an ADR) is traded.\3\
Furthermore, Commentary .01 to Proposed Rule 2.16 provides that stock
index and currency warrants listed on the Exchange prior to SEC
approval of this filing shall continue to be governed by those
provisions of the Exchange's rules that were applicable to such
warrants prior to approval of this filing. Finally, prior to trading
index or currency warrants, the Exchange will distribute a circular to
its membership providing guidance regarding member firm compliance
responsibilities (including suitability recommendations) when handling
transactions in index or currency warrants.
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\3\Telephone conversation between Michael Pierson, PSE, and
Stephen M. Youhn, SEC, on December 5, 1994 (``Amendment No. 1'').
The Exchange proposes that the ``20% test'' be applied in the same
manner as that contained in Securities Exchange Act Release No.
34157 (June 3, 1994), 59 FR 30062 (June 10, 1994) (Commission
approval order allowing the expedited trading approval of certain
narrow-based index options).
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The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act, in general, and furthers the objectives
of Section 6(b)(5), in particular, in that it will facilitate
transactions in securities.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change imposes
a burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
Written comments on the proposed rule change were neither solicited
nor 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 other 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, 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 at the
Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such filing will also be available for
inspection and copying at the principal office of the PSE. All
submissions should refer to File No. SR-PSE-94-28 and should be
submitted by January 10, 1995.
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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[FR Doc. 94-31207 Filed 12-19-94; 8:45 am]
BILLING CODE 8010-01-M