[Federal Register Volume 60, Number 234 (Wednesday, December 6, 1995)]
[Notices]
[Pages 62521-62522]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29687]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36524; File No. SR-Phlx-95-76]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 to Proposed Rule Change by the Philadelphia 
Stock Exchange, Inc. Relating to Uniform Listing and Trading Guidelines 
for Narrow-based Stock Index Warrants

November 29, 1995.
    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 
October 27, 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. On November 22, 1995, the Phlx submitted Amendment No. 1 
(``Amendment No. 1'') to the proposal to establish a maintenance 
requirement with respect to the minimum number of securities that must 
comprise an index underlying a warrant issuance, to clarify issues 
relating to settlement values for both narrow-based and broad-based 
index warrants, and to amend certain position limit levels applicable 
to narrow-based index warrants.\1\ The Commission is publishing this 
notice to solicit comments on the proposed rule change and Amendment 
No. 1 from interested persons.

    \1\Letter from Michele R. Weisbaum, Associate General Counsel, 
Phlx, to Michael Walinskas, SEC, dated November 22, 1995.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule change

    The Phlx proposes to amend Exchange Rules 722, 803, 1000A, and 
1001A to establish uniform listing and trading guidelines applicable to 
narrow-based stock index warrants. The text of the proposed rule change 
and Amendment No. 1 thereto 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 Proproposed 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

1. Purpose
    In view of the recent approval of the regulatory framework for 
stock index warrants on broad-based stock indexes,\2\ the Exchange now 
proposes to establish uniform listing and trading guidelines for 
warrants based on narrow-based indexes. To accommodate the trading of 
warrants on narrow-based indexes, the Exchange proposes to modify the 
recently approved regulatory framework for broad-based index 
warrants.\3\ Thus, the Exchange proposes to conform the rules 
applicable to warrants on narrow-based indexes to those applicable to 
options on narrow-based indexes.

    \2\See Securities Exchange Act Release No. 36167 (Aug. 29, 
1995).
    \3\The Exchange notes that a substantially similar regulatory 
scheme generally applies to broad-based index options and warrants.

[[Page 62522]]

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    The Commission approved the trading of options on narrow-based 
indexes in 1982 and it approved the trading of stock index warrants in 
1988.\4\ Because the Commission has experience regulating warrants, the 
Phlx does not believe that the listing of warrants on narrow-based 
stock indexes will present any novel regulatory issues and, therefore, 
should be permitted on the same basis as warrants overlying broad-based 
indexes.

    \4\See Securities Exchange Act Release Nos. 19264 (Nov. 22, 
1982) and 26152 (Oct. 3, 1988).
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    To conform the trading of warrants on narrow-based indexes to the 
rules applicable to options on narrow-based indexes, the Exchange 
proposes that the same margin requirements applicable to short sales of 
narrow-based index options apply to warrants overlying the same index. 
In addition, the Exchange proposes to apply a position limit structure 
similar to that which is applicable to narrow-based index options. 
Accordingly, the Exchange proposes to establish position limits for 
narrow-based index warrants at three separate, fixed-tier amounts 
(4,500,000, 6,750,000, and 9,000,000), the applicable level being 
determined by the level of index component concentration.\5\ These 
levels are equivalent to 75% of the position limits currently 
applicable to narrow-based index options. Because broad-based index 
warrant position limit levels were established at approximately 75% of 
the corresponding levels for broad-based index options, the Exchange 
believes it is appropriate to establish narrow-based index warrant 
position limits at the corresponding level applicable to narrow-based 
index options.\6\

    \5\See Amendment No. 1.
    \6\The position limit tiers have been established at levels that 
represent 75% of the levels recently approved by the SEC in 
connection with a Phlx proposal to increase position limits for 
narrow-based index options. See Securities Exchange Act Release No. 
36194 (Sept. 6, 1995). Accordingly, the Exchange proposes that 
position limits for narrow-based index warrants be set at roughly 
75% of the 6,000, 9,000 and 12,000 position limit levels.
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    Also consistent with the existing regulatory framework for broad-
based warrants, the issuer may elect to use closing prices for the 
securities underlying the index to determine settlement values at all 
times other than the day on which the final settlement valued is to be 
determined (``valuation date''), as well as during the two business 
days preceding valuation date.\7\ Finally, the Exchange represents that 
it will not list a warrant on an index consisting of fewer than nine 
stocks unless the SEC separately approves such index for warrant 
trading. In addition, the Phlx will impose a maintenance standard that 
requires an index to have at least nine stocks at all times, unless 
separately approved by the SEC.\8\

    \7\See Amendment No. 1. The Commission notes that although the 
recently approved regulatory framework for broad-based index 
warrants establishes uniform settlement provisions for all 
exchanges, the Phlx in this filing proposes to amend Section 
803(e)(3) to clarify its rule language.
    \8\See Amendment No. 1.
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    In all other respects, the Exchange represents that the rules 
applicable to the trading of broad-based and narrow-based index options 
are the same. Accordingly, it proposes that all other rules applicable 
to broad-based index warrants apply equally to warrants on narrow-based 
indexes. Finally, the Exchange represents that it will surveil trading 
in narrow-based index warrants in a similar manner to the surveillance 
of trading in broad-based index warrants.
    Upon approval of this filing, the Exchange proposes that additional 
Commission review of a specific narrow-based warrant issuance will be 
required only for warrants overlying narrow-based indexes that have not 
previously been approved by the SEC for option or warrant trading. 
Thus, upon approval of this filing, the Exchange proposes it be 
permitted to list a warrant on any narrow-based index that the SEC has 
already approved for option trading.\9\

    \9\In order to expedite SEC review of a particular warrant 
issuance, the Exchange may file for approval of the index underlying 
the proposed warrants pursuant to the procedures and criteria set 
forth in Rule 1009A. These criteria establish streamlined procedures 
for listing options on stock industry groups (i.e., narrow-based). 
Accordingly, the Exchange proposes that the same criteria apply to 
subsequent proposals to establish narrow-based indexes which 
underlie proposed warrant issuances.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act in general and furthers the objectives of 
Section 6(b)(5) in particular in that it is designed to prevent 
fraudulent and manipulative acts and practices and to promote just and 
equitable principles of trade, and is not designed to permit unfair 
discrimination between customers, issuers, brokers and dealers.

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

    The Exchange believes the proposed rule change will reduce or 
eliminate a burden on competition by allowing the listing of warrants 
on narrow-based indexes in the same manner as options on narrow-based 
indexes.

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

    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 self-regulatory organization 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, NW., Washington, DC 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, NW., 
Washington, DC 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-95-76 and should be 
submitted by December 27, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\

    \10\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-29687 Filed 12-5-95; 8:45 am]
BILLING CODE 8010-01-M