[Federal Register Volume 60, Number 133 (Wednesday, July 12, 1995)]
[Notices]
[Pages 35978-35979]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16994]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35928; International Series Release No. 823 File No. 
SR-Phlx-95-43]


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

June 30, 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 June 21, 
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 200 to 100 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 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

    On November 1, 1994, the Commission approved the Exchange's 
proposal to trade Customized FCOs.\1\ Customized FCOs provide users of 
the Exchange's foreign currency options (``FCOs'') 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 originally imposed a 300 contract minimum opening 
transaction size pursuant to Rule 1069(a)(6). The Exchange represents 
that a number of mid-sized corporations and institutions subsequently 
told the Phlx that a 300 contract minimum was too large for their 
purposes. The Exchange represents that these corporations and 
institutions believed that Customized FCOs would fill a market need for 
them but that the opening transaction size was prohibitive. As a 
result, the Exchange states that it determined to reduce the minimum 
opening transaction size in stages. As a first step, earlier this year, 
the Exchange reduced the minimum size of opening transactions in 
Customized FCOs to 200 contracts.\2\ The Exchange believes, however, 
that 200 contracts is still too large for a significant segment of mid-
sized corporations (i.e., $1-10 billion in market capitalization) that 
wish to hedge their currency risk in a cost-effective manner using an 
exchange-traded Customized FCO. The Exchange, therefore, now proposes 
to reduce the minimum opening transaction size for Customized FCOs to 
100 contracts, which would still provide for an average minimum opening 
transaction value of almost $5 million, as shown below:

    \2\ See Securities Exchange Act Release No. 35464 (March 9, 
1995), 60 FR 14043 (March 15, 1995.

                                                                        

[[Page 35979]]
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                                                   Exchange rate    Underlying     Value of 200    Value of 100 
               Underlying currency                      \3\        contract size     contracts       contracts  
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Australian dollar...............................      $0.7285000          50,000      $7,285,000      $3,642,500
Canadian dollar.................................       0.7379000          50,000       7,379,000       3,689,500
Swiss franc.....................................       0.8295000          62,500      10,368,750       5,184,375
German mark.....................................       0.6925000          62,500       8,656,250       4,328,125
French franc....................................       0.1959800         250,000       9,799,000       4,899,500
British pound...................................       1.5640000          31,250       9,775,000       4,887,500
Japanese yen....................................       0.0115410       6,250,000      14,426,250       7,213,125
ECU.............................................       1.2841000          62,500      16,051,250       8,025,625
Italian lira \4\................................       0.0006066      50,000,000       6,066,000       3,033,000
Spanish peseta \5\..............................       0.0080220       5,000,000       8,022,000       4,011,000
                                                 ---------------------------------------------------------------
      Averages..................................  ..............  ..............       9,782,850       4,891,425
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    By reducing the minimum size of a Customized FCO opening 
transaction to 100 contracts, now both opening and closing 
transactions, regardless of open interest, would have the same minimum 
size.\6\ Further, assigned registered options traders (``ROTs'') would 
no longer have more stringent quote obligations than non-assigned ROTs 
because the minimum size for any responsive quote would be at least 100 
contracts. The Exchange notes that the beneficial parity and priority 
provisions in Phlx Rule 1069(b) that were adopted as a quid pro quo for 
assigned ROTs in exchange for this heightened quotation size 
responsibility is the subject of another rule change that has been 
filed with the Commission.\7\

    \3\ As of May 16, 1995, assuming that the U.S. dollar is the 
base currency.
    \4\ The Exchange has requested approval to trade Customized FCOs 
on the Italian lira. See Securities Exchange Act Release No. 35678 
(May 4, 1995), 60 FR 24945 (May 10, 1995) (notice of File No. SR-
Phlx-95-20).
    \5\ The Exchange has requested approval to trade Customized FCOs 
on the Spanish peseta. See Securities Exchange Act Release No. 35677 
(May 4, 1995), 60 FR 24941 (May 10, 1995) (notice of File No. SR-
Phlx-95-21).
    \6\ Pursuant to Rule 1069(a)(6), the minimum closing transaction 
size is the lesser of 100 contracts or the remaining number of 
contracts.
    \7\ In that proposal, the Exchange proposes to eliminate the 
response period applicable to Customized FCOs which would also 
eliminate the parity/priority benefits currently available to 
assigned ROTs. See Securities Exchange Act Release No. 35615 (April 
17, 1995), 60 FR 20133 (April 24, 1995) (notice of File No. SR-Phlx-
95-05).
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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), in 
particular, in that it is designed to promote just and equitable 
principles of trade, prevent fraudulent and manipulative acts and 
practices, 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 FCO market to smaller 
institutional and corporate FCO users who are currently priced out of 
the market while keeping the entry requirements high enough to 
discourage smaller, less sophisticated FCO users.

(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-95-43 and should be 
submitted by August 2, 1995.

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

    \8\ 17 CFR 200.30-3(a)(12) (1994).
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Jonathan G. Katz,
Secretary.
[FR Doc. 95-16994 Filed 7-11-95; 8:45 am]
BILLING CODE 8010-01-M