[Federal Register Volume 60, Number 183 (Thursday, September 21, 1995)]
[Notices]
[Pages 49032-49033]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23473]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36239; International Series Release No. 854; File No. 
SR-Phlx-95-47]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. Relating to Japanese 
Yen Quote Spread Parameters

September 15, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 22, 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 self-regulatory organization. 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 proposes that the quotation spread parameters (bid/ask 
differentials) applicable to Japanese yen options be widened to reflect 
added volatility and appreciation in the market for the underlying 
currency, the Japanese yen. Option quote parameters govern the width of 
market quotations, establishing the maximum widths between the bid and 
the offer for an option contract.
    Specifically, the Exchange proposes to change the parameters in 
Rule 1014(c)(ii) and Floor Procedure Advice (``Advice'') F-6, Option 
Quote Parameters, from $.000004, $.000006, and $.000008 to $.000006, 
$.000009, and $.000012. Under the proposal, the new quote spread 
parameters will be reflected in Rule 1014 as follows: no more than 
$.000006 between the bid and the offer for each option contract for 
which the bid is $.000040 or less; no more than $.000009 where the bid 
is more than $.000040 but does not exceed $.000160; and no more than 
$.000012 where the bid is more than $.000160.

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

    In response to worldwide market conditions respecting the Japanese 
yen, the Exchange proposes to increase the applicable quote spread 
parameters respecting Japanese yen options. During recent years, the 
value of the yen in relation to the U.S. dollar has risen appreciably. 
As a result, employing the current option quote parameters, which are 
too narrow for today's prices, deprives investors from identifying 
price levels from off-floor where liquidity will be available in the 
sizes most often sought by currency option investors.
    Further, because the Japanese yen spot value (in relation to the 
U.S. dollar) has increased, the U.S. dollar value of each yen option 
contract has likewise increased. For instance, 20 contracts previously 
represented $1 million of yen; currently on 16 contracts represent $1 
million of yen. This, in turn, results in greater risk associated with 
each option contract. As contract size increases, the risks of market 
making in these options are amplified. As a result, the Exchange 
believes that the quote spread parameter should be widened to offset 
the greater risk. The existence of high strike prices increases this 
risk.
    The increase in the yen spot value has also resulted in wider 
spreads between the bid and the offer in the spot price. For example, a 
spot market of 101.50 (bid)--.60 (ask) yen in January 1995 represented 
$.009852--.009842 in American terms, which is ten ``ticks'' wide. 
Comparatively, a spot market of 85.10--.20 yen in May 1995 represents 
$.011751--.011737, which is 14 ticks wide. Thus, as the yen spot value 
has increased, a former ten tick wide market in European terms has 
widened to 14 ticks. Similarly, the spreads in Japanese yen futures and 
forward contracts have also widened. Thus, the Exchange believes that 
the wider spreads in the spot and futures markets necessitate wider 
quote spread parameters in yen options for competitive reasons.
    The Exchange notes that the Japanese yen quote spread parameters 
were last amended in 1991\2\ from $.000004, $.000008, and $.000012 to 
$.000004, $.000006, and $.000008. The spot value in American terms was 
68.50 in July 1990 when the proposal was filed and 71.20 when it was 
approved. At that time, the Exchange cited the competitive implications 
of quote spread parameters, which do not exist in the over-the-counter 
market for foreign currency options (``FCOs''). Also, the Commission 
noted that remaining competitive with such markets is important to the 
depth and liquidity of Exchange-traded FCOs.

    \2\Securities Exchange Act Release No. 28937 (March 4, 1991) 56 
FR 10290.
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    The Exchange believes that its proposal is consistent with Section 
6 of the Act in general, and in particular, 

[[Page 49033]]
with Section 6(b)(5), in that it is designed to promote just and 
equitable principals of trade, as well as to protect investors and the 
public interest, by providing a more efficient and competitive market 
for FCOs. Widening the Japanese yen quote spread parameters to reflect 
current volatility and wider spreads in competing markets should 
promote market depth and liquidity by allowing Phlx market makers to 
compete more effectively.

(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

    Written comments on the proposed rule change were neither solicited 
nor received.

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.
    The Exchange has requested that the Commission grant accelerated 
approval of its proposal.

IV. Solicitations 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 above-mentioned 
self-regulatory organization. All submissions should refer to File No. 
SR-Phlx-95-47 and should be submitted by October 12, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\3\

    \3\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-23473 Filed 9-20-95; 8:45 am]
BILLING CODE 8010-01-M