[Federal Register Volume 60, Number 219 (Tuesday, November 14, 1995)]
[Notices]
[Pages 57256-57257]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27993]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36460; File No. SR-Phlx-95-61]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc., Relating to a 
Reduction of the Value of the Phlx National Over-the-Counter Index

November 6, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 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. Sec. 78s(b)(1) (1988).
    \2\ 17 CFR 240.19b-4 (1994).
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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 reduce the 
value of its National Over-the-Counter Index (``Index'') option 
(``XOC'') to one-half of its present value by doubling the divisor used 
in calculating the Index. The Index is a capitalization-weighted market 
index composed of the 100 largest capitalized stocks trading over-the-
counter. The other contract specifications for the XOC remain 
unchanged.

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 Phlx began trading the XOC in 1985.\3\ The Index was created 
with a value of 150 on its base date of September 28, 1984, which rose 
to 548 in June 1994, and to 700 in June 1995. On September 14, 1995, 
the Index value was 868. Thus, the value has increased significantly, 
especially during the last year. Consequently, the premium for XOC 
options has also risen.

    \3\ See Securities Exchange Act Release Nos. 21576 (January 18, 
1985), 50 FR 3445 (January 24, 1985); and 22044 (May 17, 1985), 50 
FR 21532 (May 24, 1985) (File No. SR-Phlx-84-28).
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    As a result, the Phlx proposes to conduct a ``two-for-one split'' 
of the Index, such that the value will be reduced by one-half. The 
number of XOC contracts will be doubled, such that for each XOC 
contract currently held, the holder will receive two contracts at the 
reduced value, with a strike price of one-half the original strike 
price. For instance, the holder of an XOC 800 call will receive two XOC 
400 calls. In addition to the strike price being reduced by one-half, 
the position and exercise limits applicable to the XOC will be doubled, 
from 17,000 contracts to 34,000 contracts until the last expiration 
then trading.\4\ Currently, the last expiration month trading in 

[[Page 57257]]
March 1996.\5\ This procedure is similar to that employed with equity 
options where the underlying security is subject to a two-for-one stock 
split, as well as the recent split of the Phlx's Semiconductor 
Index.\6\ The trading symbol will remain as XOC (plus any necessary 
wrap symbols).

    \4\ Separately, the Exchange is proposing to increase the XOC 
position and exercise limits to 25,000 contracts. See SR-Phlx-95-
38).
    \5\ The Exchange notes that following September expiration, June 
1996 options are listed.
    \6\ See Securities Exchange Act Release No. 35999 (July 20, 
1995), 60 FR 38387 (July 26, 1995) (File No. SR-Phlx-95-41).
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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 Phlx will announce the effective date by way of an Exchange 
memorandum to the membership, which will also serve 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. With the Index 
split, the same option series (once adjusted), with all else remaining 
equal, could trade at approximately $600 per contract. Thus, certain 
investors and traders may currently be impeded from trading at such 
levels. A reduced value should, therefore, encourage additional 
investor interest.
    The Phlx believes that XOC options provide an important opportunity 
for investors to hedge and speculate upon the market risk associated 
with the underlying over-the-counter 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. This should attract 
additional investors, and, in turn, create a more active and liquid 
trading environment.
    For these reasons, the Phlx believes that the proposed rule change 
is consistent with Section 6(b) of the Act in general, and with Section 
6(b)(5) in particular,\7\ in that it is designed to promote just and 
equitable principles of trade, as well as to protect investors and the 
public interest. The Exchange believes that reducing the value of the 
Index does not raise manipulation concerns and will 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, including adequate prior notice to market 
participants.

    \7\ 15 U.S.C. Sec. 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

    The Phlx received one comment letter opposing the proposed rule 
change from a financial planner at Smith Barney Shearson.\8\ According 
to the commenter, one of the primary inducements to trading the XOC 
Index is its volatility. If the Index is split in half, however, the 
commenter believes that investors will be unnecessarily forced to trade 
twice as many contracts in order to maintain their current degree of 
leverage. The commenter also opposes the proposed rule change because 
he believes that splitting the Index will reduce its value to an 
inappropriately low level. The commenter also suggests alternative 
split levels (e.g., a 4 for 3 split, or a 3 for 2 split) as a less 
problematic approach. In this manner, according to the commenter, the 
Index will retain a greater percentage of its current value. Finally, 
the commenter suggests that the Exchange postpone the splitting of the 
Index to provide investors with a reasonable amount of time to adjust 
their positions as a result of the proposed rule change.

    \8\ See Letter from Barry J. Weisberg, Vice President, Smith 
Barney Shearson, to Andy Kolinsky, Vice President, Phlx, dated 
August 1, 1995.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the 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 Phlx consents, the Commission will:
    (A) By order approve the 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. Sec. 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 also will be available 
for inspection and copying at the principal office of the Phlx. All 
submissions should refer to File No. SR-Phlx-95-61 and should be 
submitted by December 5, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\

    \9\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-27993 Filed 11-13-95; 8:45 am]
BILLING CODE 8010-01-M