[Federal Register Volume 60, Number 177 (Wednesday, September 13, 1995)]
[Notices]
[Pages 47634-47637]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-22654]



-----------------------------------------------------------------------

[[Page 47635]]


SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36193; File No. SR-PHLX-95-56]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc., Relating to the Listing of Options on the PHLX Forest 
and Paper Products Sector Index

September 6, 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 August 
15, 1995, the Philadelphia Stock Exchange, Inc. (``PHLX'') or 
``Exchange'') file with the Securities and Exchange Commission (``SEC'' 
or ``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 PHLX proposes to list for trading cash-settled, European-style 
\1\ options on the PHLX Forest and Paper Products Sector Index 
(``Index''), a new index developed by the Exchange. The Index is 
comprised of the stocks of 14 domestic forest and paper product 
companies which, the PHLX represents, effectively represent the 
available forest and paper products industry.

    \1\ A European-style option can be exercised only during a 
specified period immediately prior to the expiration of the option.
---------------------------------------------------------------------------

    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 self-regulatory organization 
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 self-regulatory organization 
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 purpose of the proposed rule change is to list for trading 
cash-settled, European-style options on the Index. The Index is 
comprised of the stocks of 14 domestic forest and paper product 
companies which, the PHLX represents, effectively represent the 
available forest and paper products industry.\2\ The Exchange also 
represents that the Index meets the generic criteria for listing 
options on narrow-based indexes as set forth in PHLX Rule 1009A, 
``Designation of the Index,'' as approved by the Commission.\3\ 
Accordingly, the PHLX is submitting this proposed rule change pursuant 
to and in accordance with the procedures set forth in the Commission's 
Generic Index Approval Order.\4\ The PHLX proposes to list and trade 
options on the Index no sooner than 30 days after August 15, 1995, the 
filing date of this proposed rule change. The contract specifications 
for the options on the proposed Index are as follows:

    \2\ The components of the Index are: Boise Cascade; Bowater 
Inc.; Champion International Corporation; Federal Paper Board 
Company; Georgia Pacific Corporation; International Paper Company; 
James River Corporation; Louisiana Pacific Corporation; Mead 
Corporation; Stone Container Corporation; Temple Inland, Inc.; Union 
Camp Corporation; Westvaco Corporation; and Weyerhauser Company.
    \3\ See Securities Exchange Act Release No. 34157 (June 3, 
1994), 59 FR 30062 (June 10, 1994) (``Generic Index Approval 
Order'').
    \4\ See note 3, supra.
---------------------------------------------------------------------------

    Underlying Index: The Index is an equal-dollar weighted index 
comprised of stocks from 14 domestic forest and paper products 
companies. All 14 stocks in the Index are traded on the New York Stock 
Exchange (``NYSE'') and are therefore ``reported securities'' as 
defined in Rule 11Aa3-1 under the Act. The PHLX represents that all of 
the Index's component stocks presently meet the listing criteria for 
equity options contained in PHLX Rule 1009, ``Criteria for Underlying 
Stocks,'' and are currently the subject of standardized options trading 
in the U.S.
    According to the PHLX, as of August 4, 1995, the market 
capitalization of all of the stocks in the Index exceeded $60 billion 
and the individual capitalizations of the Index's component stocks 
ranged from $1.6 billion to $10.8 billion. The PHLX states that all 14 
of the Index's component stocks had monthly trading volumes in excess 
of one million shares over each of the past six months from February 
through July 1995. Accordingly, the Exchange represents that, with 
respect to the criteria for market capitalization and trading volume, 
the Index satisfies the generic listing standards as stated in PHLX 
Rule 1009A.
    Index Calculation: The methodology used to calculate the Index is 
an equal dollar-weighting method, meaning that each of the Index's 
component stocks is represented in approximately equal dollar amounts. 
The Exchange believes that this method of calculation is important 
because it will provide each component issue with equivalent influence 
on the movement of the Index value instead of allowing one highly 
capitalized stock to dominate the movement of the Index. To determine 
the initial dollar weighting of the stocks, the Exchange calculated the 
number of shares of each stock that would represent an investment of 
approximately $10,000 in each of the stocks comprising the Index based 
on closing prices on August 4, 1995. The value of the Index equals the 
current market value of the sum of the assigned number of shares of all 
of the stocks in the Index divided by the current Index divisor. The 
Index value was set at 250 at the close on January 31, 1995.
    Index Maintenance: The Exchange will rebalance the Index quarterly, 
following the close of trading on the third Friday of each March, June, 
September, and December by changing the number of shares of each 
component stock so that each company is again represented in 
approximately $10,000 ``equal'' dollar amounts. If it becomes 
necessary, a divisor adjustment will be made when rebalancing occurs to 
ensure the continuity of the Index's value. The newly adjusted 
portfolio will then become the basis for the Index's value on the first 
trading day following the quarterly adjustment.
    The number of shares of each component stock in the Index will 
remain fixed between quarterly reviews, except in the event of certain 
types of corporate action, such as the payment of a dividend (other 
than an ordinary cash dividend), stock distribution, stock split, 
rights offering, recapitalization, reorganization or similar event with 
respect to the component stocks. In the case of a merger or 
consolidation of the issuer of a component stock, if the stock remains 
in the Index, the number of shares of that security in the portfolio 
may be adjusted to the nearest whole share to maintain the component's 
relative weight in the Index prior to the merger. Should a stock 
replacement occur, the average dollar value of the remaining portfolio 
components will be calculated and that amount invested in the stock of 
the new component, to the nearest whole share.

[[Page 47636]]

    In selecting replacement components for the Index, the PHLX will 
take into account the capitalization, liquidity, volatility and name 
recognition of any proposed replacement stock and assure that the Index 
continues to meet the maintenance criteria in PHLX Rule 1009A(c). In 
each of the above cases, the divisor will be adjusted, if necessary, to 
ensure the continuity of the Index. If the Index fails at any time to 
satisfy the maintenance criteria set forth in the Generic Index 
Approval Order,\5\ the Exchange will notify the Commission immediately 
and will not open for trading any additional series of options on the 
Index unless the Exchange determines such failure is not significant 
and the Commission concurs in that determination or unless the 
continued listing of options of the Index has been approved by the 
Commission under Section 19(b)(2) of the Act.

    \5\ See note 3, supra.
---------------------------------------------------------------------------

    Pursuant to the Generic Index Approval Order, \6\ the PHLX will not 
increase to more than 19, or decrease to fewer than 9, the number of 
stocks in the Index, nor will the PHLX make any change in the 
composition of the Index that would cause fewer than 90% of the stocks, 
by weight, or fewer than 80% of the total number of stocks in the Index 
to qualify as stocks eligible for equity options trading under PHLX 
Rule 1009, ``Criteria for Underlying Stocks.'' \7\

    \6\See note 3, supra.
    \7\ In addition, the Generic Index Approval order requires that 
at all time, at least 90% of the stock in the Index, by weight, and 
80% of the total number of stocks comprising the Index, 
individually, must satisfy the Exchange's rules governing the 
listing and maintenance of listing of options thereon. See Generic 
Index Approval Order, supra note 3.
---------------------------------------------------------------------------

    The Index will be updated dynamically and disseminated every 15 
seconds during the trade day. The PHLX has retained Bridge Data, Inc. 
to compute and perform all necessary maintenance of the Index. Pursuant 
to PHLX Rule 1100A, ``Dissemination of Information,'' 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 (``OPRA'').\8\ The 
Index value also will be available on broker/dealer interrogation 
devices to subscribers of the option information.

    \8\ The PHLX represents that the PHLX and OPRA have the 
necessary systems capacity to support the new series of options that 
will result from the introduction of options and long-term options 
on the Index. See Letter from Joseph Corrigan, Executive Director, 
OPRA, to Murray Ross, Secretary, PHLX, dated August 17, 1995; and 
Letter from William H. Morgan, Vice President, Trading Systems, 
PHLX, to Michael Walinskas, Branch Chief, Office of Market 
Supervision, Commission, dated August 22, 1995.
---------------------------------------------------------------------------

    Unit of Trading; Each options contract will represent $100, the 
Index multiplier, times the Index value. For example, an Index value of 
200 will result in an option contract value of $20,000 ($100 x 200).
    Exercise Price: The exercise price will be set at 5 point intervals 
in terms of the current value of the Index. The PHLX will list 
additional exercise prices in accordance with PHLX Rule 1101A(a), 
``Terms of Option Contracts.''
    Aggregate Exercise Price: The aggregate exercise price is found by 
multiplying the Index multiplier ($100) by the exercise price.
    Settlement Price Determination: The Index option settlement value 
will be determined by using the opening prices of the component stocks 
on the third Friday of each month.
    Settlement Value: Based upon the operating prices of the component 
stocks on the last day prior to expiration.
    Last Trading Day: The Thursday prior to the third Friday of the 
month for options which expire on the Saturday following the third 
Friday of that month.
    Trading Hours: 9:30 a.m. to 4:10 p.m. EST.
    Position and Exercise Limits: The Index is an industry index and 
the PHLX will apply position and exercise limits pursuant to PHLX Rules 
1001A(b) (i), ``Position Limits,'' and 1002A, ``Exercise Limits,'' 
respectively.
    Expiration Cycles: Three months from the March, June, September, 
December cycle plus at least two additional near-term months. The PHLX 
also will trade long-term Index options having up to 36 months to 
expiration pursuant to PHLX Rule 1101A(b) (iii).
    Issuer and Guarantor: The Options Clearing Corporation (``OCC'').
    Premium Quotations: Premiums will be expressed in terms of dollars 
and fractions of dollars pursuant to PHLX Rule 1033A, ``Meaning of 
Premium Bids and Offers.'' For example, a bid or offer of 1\1/2\ will 
represent a premium per options contract of $150 (1\1/2\ x 100). The 
minimum change in a premium under $3 will be \1/16\ and \1/8\ for a 
quote of $3 or greater.
    The Index options will be traded pursuant to current PHLX rules 
governing the trading of index options.\9\ In addition, the Exchange 
represents that surveillance procedures currently used to monitor 
trading in each of the Exchange's other index options will also be used 
to monitor trading in Index options. These procedures include having 
complete access to trading activity in the underlying securities, which 
are all traded on the NYSE. In addition, the Intermarket Surveillance 
Group Agreement (``ISG Agreement''), dated July 14, 1983, as amended on 
January 29, 1990, will be applicable to the trading of Index options.

    \9\ See PHLX Rules 1001A through 1102A, ``Limitation of Exchange 
Liability,'' and 1000, ``Applicability, Definitions, and 
References,'' through 1072, ``Reporting Requirements Applicable to 
Short Sales in NASD/NM Securities.''
---------------------------------------------------------------------------

    The PHLX believes that the proposal is consistent with Section 6(b) 
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, 
prevent fraudulent and manipulative acts and practices, foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, as well as to protect investors and the public interest.

(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 and Comments on the 
Proposed Rule Change Received from Members, Participants or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing rule change complies with the standards set 
forth in the Generic Index Approval Order,\10\ it has become effective 
pursuant to Section 19(b)(3)(A) of the Act and subparagraph (e) of Rule 
19b-4 thereunder. Pursuant to the Generic Index Approval Order, the 
Exchange may not list Index options for trading prior to 30 days after 
August 15, 1995, the date the proposed rule change was filed with the 
Commission. At any time within 60 days of the filing of such proposed 
rule change, the Commission may summarily abrogate such rule change if 
it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

    \10\ See note 3, supra.

[[Page 47637]]

---------------------------------------------------------------------------

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. Copies of such filing will also be available for 
inspection and copying at the principal office of the above-mentioned 
self-regulatory organization. All submissions should refer to the file 
number in the caption above and should be submitted by October 4, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\

    \11\ 17 CFR 200.30-3(a)(12) (1994).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-22654 Filed 9-12-95; 8:45 am]
BILLING CODE 8010-01-M