[Federal Register Volume 60, Number 28 (Friday, February 10, 1995)]
[Notices]
[Pages 8104-8106]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-3327]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35326; File No. SR-Phlx-95-07]


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 Phlx USTOP Index

February 3, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on January 30, 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.

    \1\15 U.S.C. 78s(b)(1) (1988).
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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 Phlx USTOP 100 Index, a broad-based index 
developed by the Phlx and comprised of 100 highly capitalized U.S. 
stocks representing a variety of industries (``USTOP 100 Index'' or 
``Index''). Exchange Rules 1001A, 1006A and 1101A respecting position 
limits, exercise restrictions, trading hours and far term strike prices 
respectively will be amended to add references to the USTOP 100 Index. 
The test of the proposed rule changes is available at the Office of the 
Secretary, Phlx, and at the Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and the 
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 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 Phlx proposes to list for trading European-style options\2\ on 
the Index, a broad-based, capitalization-weighted index composed of 100 
highly capitalized U.S. common stocks in a variety of industries, 
including but not limited to technology, manufacturing and the service 
industries. USTOP 100 Index options will be traded pursuant to current 
Phlx rules governing the trading of index options.\3\

    \2\European-style options can be exercised only during a 
specific time period prior to expiration of the options.
    \3\See Phlx Rules 1000A through 1103A, and 1000 through 1070.
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    The Phlx represents that the Index includes some of the largest and 
most widely-held U.S. common stocks. As of January 23, 1995, the Phlx 
represents that the market capitalization of the individual stocks in 
the Index ranged from a high of $86 billion to a low of $7.6 billion. 
The market capitalization of all of the stocks in the Index was 
approximately $2 trillion. As of that same date, no one stock accounted 
for more than 4.17% of the Index's total value and the percentage 
weighting of the five largest issues in the Index accounted for 17.28% 
of the Index's value. The percentage weighting of the lowest weighted 
stock was 0.37% of the Index's value.
    The formula for calculating the value of the Index is as 
follows:\4\

    \4\The formula for calculating the value of the Index is the 
same as that previously approved by the Commission for calculating 
the value of the Phlx Big Cap Index. See Securities and Exchange Act 
Release No. 33973 (April 28, 1994), 59 FR 23245 (May 5, 1994). 
Telephone conversation between Michele Weisbaum, Associate General 
Counsel, Phlx, and Brad Ritter, Senior Counsel, Office of Market 
Supervision, Division of Market Regulation, Commission, on February 
2, 1995.
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[GRAPHIC][TIFF OMITTED]TN10FE95.000


Where:

MVn=Price  x  Shares outstanding for each component of the Index
Divisor=Number calculated to achieve a base value of 370 for the Index 
as of the close of trading on December 14, 1994.

    In order to maintain continuity in the value of the Index, the 
index divisor will be adjusted for changes in capitalization of any of 
the component issues resulting from, among other things, mergers, 
acquisitions, delistings, and substitutions. As the close of trading on 
January 27, 1995, the Index Value was 383.81.
    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 that 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. In making replacement determinations, 
the Exchange will also take into account [[Page 8105]] the 
capitalization, liquidity, and volatility of a particular stock.
    The Exchange represents that all of the stocks comprising the Index 
currently are options eligible\5\ and have standardized options listed 
on them. If at any time, less than 90% of the components in the Index, 
by weight, are options eligible, the Exchange will submit a Rule 19b-4 
filing for Commission approval before opening any new series of options 
on the Index for trading. Further, the Exchange will submit a Rule 19b-
4 filing for Commission approval prior to opening any new series of 
options on the Index if the number of stocks in the Index ever 
increases to more than 120 or decreases to less than 80.

    \5\The Phlx's options listing standards, which are uniform among 
the options exchanges, provide that a security underlying an option 
must, among other things, meet the following requirements: (1) The 
public float must be at least 7,000,000 shares; (2) there must be a 
minimum of 2,000 stockholders; (3) trading volume in the U.S. must 
have been at least 2.4 million over the preceding twelve months; and 
(4) the U.S. market price must have been at least $7.50 for a 
majority of the business days during the preceding three calendar 
months. See Phlx Rule 1009, Commentary .01.
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    The settlement value for Index options will be based on the opening 
values of the component securities on the date prior to expiration. 
Index options 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 applicable 
to the Exchange's other broad-based indexes pursuant to Phlx Rule 
1001A(b)(i) and 1002A, respectively. Specifically, the position limit 
will be $25,000 contracts total, of which no more than 15,000 contracts 
can be in the nearest expiration month.
    Exercise price intervals will be set at five point intervals in 
terms of the current value of the Index except exercise prices in the 
far-term series shall be $25.00 unless demonstrated customer interest 
exists at $5.00 intervals. The Exchange represents that demonstrated 
customer interest will include institutional (firm), corporate or 
customer interest expressed directly to the Exchange or through the 
customer's floor brokerage unit but not interest expressed by a 
registered options trader (``ROT'') with respect to trading for the 
ROT's own account. Exchange Rule 1101A, Commentary .02, which already 
permits $25.00 intervals for the Exchange's other broad-based indexes, 
will be amended to include this treatment for the USTOP 100 Index. 
Additional exercise prices will be added in accordance with Phlx Rule 
1101A(a).
    As with the Exchange's other indexes, the multiplier for options on 
the USTOP 100 Index will be 100. Index options will trade during the 
Exchange's regular trading hours (9:30 a.m. through 4:15 p.m., Eastern 
time).
    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, and December cycle plus two additional 
near-term months so that the three nearest term months will always be 
available.
    Surveillance procedures currently used to monitor trading in each 
of the Exchange's other index options will also be used to monitor 
trading in options on the Index. These procedures include having 
complete access to trading activity in the securities underlying the 
Index, all of which are traded on either the New York Stock Exchange 
(``NYSE'') or the American Stock Exchange (``Amex''), or are Nasdaq 
National Market securities. In addition, the Intermarket Surveillance 
Group Agreement will be applicable to the trading of options on the 
Index.\6\

    \6\The Intermarket Surveillance Group (``ISG'') was formed on 
July 14, 1983 to, among other things, coordinate more effectively 
surveillance and investigative information sharing arrangements in 
the stock and options markets. See Intermarket Surveillance Group 
Agreement, July 14, 1983. The most recent amendment to the ISG 
Agreement, which incorporates the original agreement and all 
amendments made thereafter, was signed by ISG members on January 29, 
1990. See Second Amendment to the Intermarket Surveillance Group 
Agreement, January 29, 1990. The members of the ISG are: the Amex; 
the Boston Stock Exchange, Inc.; the Chicago Board Options Exchange, 
Inc.; the Chicago Stock Exchange, Inc.; the National Association of 
Securities Dealers, Inc.; the NYSE; the Pacific Stock Exchange, 
Inc.; and the Phlx. Because of potential opportunities for trading 
abuses involving stock index futures, stock options, and the 
underlying stock and the need for greater sharing of surveillance 
information for these potential intermarket trading abuses, the 
major stock index futures exchanges (e.g., the Chicago Mercantile 
Exchange and the Chicago Board of Trade) joined the ISG as affiliate 
members in 1990.
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    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act, in general, and with Section 6(b)(5),\7\ 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.

    \7\15 U.S.C. 78f(b)(5) (1988).
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(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 will also be available for 
inspection and copying at the principal office of the Phlx. All 
submissions should refer to File No. SR-Phlx-95-07 and should be 
submitted by March 3, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\

    \8\17 CFR 200.30-3(a)(12) (1994). [[Page 8106]] 
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-3327 Filed 2-9-95; 8:45 am]
BILLING CODE 8010-01-M