[Federal Register Volume 60, Number 19 (Monday, January 30, 1995)]
[Notices]
[Pages 5745-5746]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2139]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35261; International Series Release No. 777 File No. 
SR-Phlx-95-03]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc., Relating to Customized 
Foreign Currency Options Transaction Size

January 23, 1995.
    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 
17, 1995, 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. 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 Phlx proposes to amend Exchange Rule 1069(a) to revise the 
minimum transaction size for customized foreign currency options 
(``Customized FCOs'') from 300 to 200 contracts. The text of the 
proposed rule change is available at the Office of the Secretary, the 
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 Phlx included statements 
concerning the purpose of and basis for the proposed rule change the 
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 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

    On November 1, 1994, the Commission approved the Exchange's 
proposal to trade customized foreign currency options.\1\ Customized 
FCOs provide users of the Exchange's FCO markets with the ability to 
customize the strike price and quotation method and to choose any 
underlying and base currency combination out of all Exchange-listed 
currencies, including the U.S. dollar, for their FCO transactions. The 
Phlx represents that Customized FCOs were introduced to attract 
institutional customers who enjoy the flexibility and variety offered 
in the over-the-counter foreign currency market but who prefer the 
benefits attributed to an exchange auction market for hedging their 
exchange rate risks.

    \1\See Securities Exchange Act Release No. 34925 (November 1, 
1994), 59 FR 55720 (November 8, 1994).
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    The Exchange imposed a 300 contract minimum opening transaction 
size pursuant to Rule 1069(a)(6) for a number of reasons. Because the 
Customized FCOs are not continuously quoted and, therefore, only 
reported to the Options Price Reporting Authority (``OPRA'') when a 
request for quote or responsive quote is voiced and when a trade 
occurs,\2\ there is somewhat less transparency in the Customized FCO 
market than in the market for regular FCOs. Further, the Exchange 
represents that Customized FCOs are extremely labor intensive to quote, 
therefore making it impractical to offer the ability to request quotes 
for small opening transactions.

    \2\See Phlx Rule 1069(h).
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    The Exchange represents that a number of mid-sized corporations and 
institutions have told the Exchange that the current minimum contract 
value is too large for their purposes. They believe that Customized 
FCOs would fill a market need for them but that the opening transaction 
size is prohibitive. The Exchange's analysis (see chart below) shows 
that the average value of a 300 contract trade at prevailing exchange 
rates is approximately $15 million. The Exchange believes that an 
important corporate market segment is being priced out of the market by 
this excessively large opening transaction size. Therefore, the 
Exchange proposes to reduce the minimum opening transaction size for 
Customized FCO transactions to 200 contracts, which, the Exchange 
represents, would still result in an average minimum transaction value 
of approximately $10 million. This, in the Exchange's opinion, would be 
consistent with Flexible Exchange Options (``FLEX Options'') traded on 
the Chicago Board Options Exchange and the American Stock Exchange 
which also have a $10 million minimum opening transaction 
requirement.\3\ [[Page 5746]] 

    \3\See CBOE Rule 24A.4(e)(ii) and Amex Rule 903G(d)(ii).

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                                                                                   Value of 300    Value of 200 
               Underlying currency                    Rate\4\      Contract size     contracts       contracts  
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Australian dollar...............................        0.776300          50,000     $11,644,500      $7,763,000
Canadian dollar.................................        0.721400          50,000      10,821,000       7,214,000
Swiss franc.....................................        0.752600          62,500      14,111,250       9,407,500
German mark.....................................        0.636900          62,500      11,941,875       7,961,250
French franc....................................        0.184800         250,000      13,860,000       9,240,000
British pound...................................        1,561500          31,500      14,639,063       9,759,375
Japanese yen....................................        0.009965       6,250,000      18,684,375      12,456,250
ECU.............................................        1,212700          62,500      22,738,125      15,158,750
                                                 ---------------------------------------------------------------
      Averages..................................  ..............  ..............      14,805,023       9,870,016
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\4\As of December 15, 1994, assuming that the U.S. dollar is the base currency.                                 

    The Exchange believes that the foregoing rule change proposal is 
consistent with Section 6 of the Act, in general, and with Section 
6(b)(5), in particular, in that it is designed to promote just and 
equitable principles of trade, foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, and processing 
information, and facilitate transactions in securities, remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, protect investors and the 
public interest by opening up the Customized FCC market to smaller 
corporate FCC users while keeping the market geared primarily towards 
institutional investors.

(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, 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 in the 
Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. Copies of such filing with also be available for 
inspection and copying at the principal office of the Phlx. All 
submissions should refer to File No. SR-Phlx-95-03 and should be 
submitted by February 21, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\

    \5\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-2139 Filed 1-27-95; 8:45 am]
BILLING CODE 8010-01-M