[Federal Register Volume 60, Number 143 (Wednesday, July 26, 1995)]
[Notices]
[Pages 38387-38388]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18340]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35999; File No. SR-Phlx-95-41]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of a Proposed Rule Change by Philadelphia 
Stock Exchange, Inc. Relating to Reducing the Value of the 
Semiconductor Index

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on 
June 5, 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 and 
II 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 Phlx proposes to reduce the value of its Semiconductor Index 
(``Index'') option (``SOX'') to one-half its present value.\1\ The 
Index is a price-weighted industry index designed by the Exchange, 
composed of 16 highly capitalized and widely held stocks representing 
the semiconductor industry. The other contract specifications for the 
SOX remain unchanged.

    \1\ The Exchange will accomplish this reduction in value by 
doubling the divisor used in calculating the Index. Telephone 
conversation between Edith Hallahan, Special Counsel, Regulatory 
Services, Phlx, and James T. McHale, Attorney, Office of Market 
Supervision (``OMS''), Division of Market Regulation (``Division''), 
Commission, on July 12, 1995.
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    The text of the proposed rule change is available at the Office of 
the Secretary, 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 
Statutory Basis for, the Proposed Rule Change

    The Exchange began trading the SOX in September , 1994.\2\ The 
Index value was created with a value of 200 on its base date of 
December 1, 1993, which rose to 237 in July, 1994, shortly before the 
time it began trading on the Phlx. Currently, the index value is 427 
(on May 31, 1995). Thus, the value has doubled over the course of less 
than two years. Consequently, the premium for SOX options has also 
risen.

    \2\ Securities Exchange Act Release No. 34546 (August 18, 1994), 
59 FR 43881 (August 25, 1994).
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    As a result, the Exchange proposes to conduct a ``two-for-one 
split'' of the Index, such that the value would be reduced by one-half. 
The number of SOX contracts will be doubled, such that for each SOX 
contract currently held, the holder would receive two contracts at the 
reduced value, with a strike price one-half of the original strike 
price. For instance, the holder of a 290 SOX call will receive two 145 
SOX calls. In addition to the strike price being reduced by one-half, 
the position and exercise limits applicable to the SOX will be doubled, 
from 7,500 contracts to 15,000 contracts until the last expiration then 
trading.\3\ This procedure is similar to the one employed respecting 
equity options where the underlying security is subject to a two-for-
one stock split. The trading symbol will remain as SOX.

    \3\ According to the Exchange, this will be in March, 1996. 
Telephone conversation between Edith Hallahan, Special Counsel, 
Regulatory Services, Phlx, and James T. McHale, Attorney, MOS, 
Division, Commission, on July 19, 1995.
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    In conjunction with the split, the Exchange will list strike prices 
surrounding the new, lower index value, pursuant to Phlx Rule 1101A. 
The Exchange will announce the effective date by way of an Exchange 
memorandum to the membership, also serving as notice of the strike 
price and position limit changes.
    The purpose of the proposal is to attract additional liquidity to 
the product in those series that public customers are most interested 
in trading. For example, a near-term, at-the-money call option series 
currently trades at approximately $1,200 per contract. The Exchange 
believes that certain investors and traders may currently be impeded 
from trading at such levels. With the Index split, that same option 
series (once adjusted), with all else remaining equal, could trade at 
approximately $600 per contract. The Exchange believes that this 
reduced premium value should encourage additional investor interest.
    The Exchange believes that SOX options provide an important 
opportunity for investors to hedge and speculate upon the market risk 
associated with the underlying semiconductor stocks. By reducing the 
value of the Index, such investors will be able to utilize this trading 
vehicle, while extending a smaller outlay of capital.
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act in general, and in particular, with Section 
6(b)(5), in that it is designed to promote just and equitable 
principles of trade, as well as 

[[Page 38388]]
to protect investors and the public interest, by establishing a lower 
index value, which should, in turn, facilitate trading in SOX options. 
The Exchange believes that reducing the value of the Index does not 
raise manipulation concerns and would not cause adverse market impact, 
because the Exchange will continue to employ its surveillance 
procedures and has proposed an orderly procedure to achieve the index 
split.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes the proposed rule change will impose no 
inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Phlx has requested that the proposed rule change be given 
accelerated effectiveness pursuant to Section 19(b)(2) of the Act in 
order to implement the change for the July expiration.
    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and, in 
particular, the requirements of Section 6(b)(5) of the Act.\4\ 
Specifically, the Commission believes that reducing the value of the 
Index will serve to promote the public interest and help to remove 
impediments to a free and open securities market, by providing a 
broader range of investors with a means of hedging exposure to market 
risk associated with securities representing the semiconductor 
industry. Further, the Commission notes that reducing the value of SOX 
contracts should help attract additional investors, thus creating a 
more active and liquid trading market. The Commission also notes that 
the Phlx proposes to provide market participants with adequate prior 
notice of the Index level change in order to avoid investor confusion. 
Moreover, the Commission believes that the Phlx's position and exercise 
limits and strike price adjustments are appropriate and consistent with 
the Act. In this regard, the Commission notes that the position and 
exercise limits and strike price adjustments are identical to the 
approach used to adjust outstanding options on stocks that have 
undergone a two-for-one stock split.

    \4\ 15 U.S.C. 78f(b)(5).
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    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of the 
notice thereof in the Federal Register to allow the Phlx to reduce the 
value of the Index without further delay. The Commission notes that the 
Index has increased in value dramatically over the last two years, 
which has caused a resulting increase in the SOX contract premium. The 
high contract premium could adversely affect liquidity in the SOX. The 
Commission believes that because the only change to be made to the 
actual Index is the adjustment in its value, it is appropriate to allow 
the Phlx to quickly address its SOX liquidity concerns, and accordingly 
finds that it is consistent with Section 19(b)(2) of the Act \5\ to 
approve the proposed rule change on an accelerated basis.

    \5\ 15 U.S.C. 78s(b)(2).
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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 at the 
Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. 20549. 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-95-41 and should be 
submitted by August 16, 1995.
    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\6\ that the proposed rule change (SR-Phlx-95-41), is approved.

    \6\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\

    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-18340 Filed 7-25-95; 8:45 am]
BILLING CODE 8010-01-M