[Federal Register Volume 60, Number 250 (Friday, December 29, 1995)]
[Notices]
[Pages 67378-67379]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31504]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36625; File No. SR-Phlx-95-90]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. Relating to Listing 
Standards for Options on Equity Securities Issued in a Reorganization 
Transaction Pursuant to a Public Offering or a Rights Distribution

December 21, 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 December 19, 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 Phlx. 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).
    \2\ 17 CFR 240.19b-4.
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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 its listing standards in respect of 
options on equity securities issues in a spin-off, reorganization, 
recapitalization, restructuring or similar transaction where the 
issuance is made pursuant to a public offering or a rights 
distribution. 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, 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 purpose of the proposed rule change is to amend the special 
listing standards set forth in Phlx Rule 1009, Commentary .05 that 
apply to options on equity securities issued in certain spin-offs, 
reorganizations, recapitalizations, restructurings or similar 
transactions (referred to herein as ``restructuring transactions'') so 
as to also include securities issued pursuant to a public offering or a 
rights distribution that is part of a restructuring transaction.
    The proposed amendment to Rule 1009, Commentary .05 is intended to 
facilitate the listing of options on equity securities issued in 
restructuring transactions (referred to as ``Restructure Securities'') 
by permitting the Exchange to base its determination as to the 
satisfaction of certain of the listing standards set forth in Exchange 
Rule 1009 and Commentary .01 thereunder by reference to (1) specified 
characteristics of the ``Original Security'' in respect of which the 
Restructure Security was issued or distributed; (2) the trading market 
of the Original Security; (3) the number of shares of the Restructure 
Security issued and outstanding; or (4) to the listing standards of the 
exchange on which the Restructure Security is listed. Rule 1009, 
Commentary .05 would permit the Exchange to certify a Restructure 
Security as options eligible sooner than if it had to wait until it 
could base its certification on characteristics of the Restructure 
Security itself, but only in circumstances where the factors relied 
upon make it reasonable to conclude that the Restructure Security will 
in fact satisfy applicable listing criteria.
    As recently approved by the Commission, Phlx Rule 1009, Commentary 
.05 does not extend to restructuring transactions involving the 
issuance of a Restructure Security in a public offering or a rights 
distribution.\3\ The questions raised by the proposed extension of 
Commentary .05 to Phlx Rule 1009 to reorganization transactions 
involving public offering or rights distributions reflect that when a 
Restructure Security is issued in a public offering or pursuant to a 
rights distribution, it cannot automatically be assumed that the 
shareholder population of the Restructure Security and the Original 
Security will be the same. Instead, the holders of a Restructure 
Security issued in a public offering will be those persons who 
subscribed for and purchased the security in the offering, and the 
holders of a Restructure Security issued in a rights distribution will 
be those persons who elected to exercise their rights. Even in the case 
of a distribution of nontransferable rights to shareholders of the 
Original Security, not all such shareholders may choose to exercise 
their rights. As a result, it cannot be assumed that the Restructure 
Security will necessarily satisfy listing criteria pertaining to 
minimum number of holders, minimum public float and trading volume 
simply because the Original Security satisfied these criteria.

    \3\ See Securities Exchange Act Release No. 36020 (July 24, 
1995), 60 FR 39039 (July 31, 1995) (order approving Commentary .05 
to Phlx Rule 1009).
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    On the other hand, the Exchange believes that the same reasons for 
wanting to make an options market available without delay to holders of 
securities issued in reorganizations that do not involve public 
offerings or rights distributions apply with equal force to securities 
issued in reorganizations that do involve public offerings or rights 
distributions, so long as there can be reasonable assurance that the 
securities satisfy applicable options listing standards. That is, 
holders of an Original Security who utilize options to manage the risks 
of their stock positions may well find themselves to be holders of both 
the Original Security and the Restructure Security following a 
reorganization because they chose to purchase the Restructure Security 
in a public offering or to exercise rights in order to maintain the 
same investment position they had prior to the reorganization. Such 
holders may want to continue to use options to manage the risks of 
their combined stock position after the reorganization, but they can do 
so only if options on the Restructure Security are available. The 
Exchange believes that it is important to avoid any undue delay in the 
introduction of options trading in such a Restructure Security in 
circumstances where there is sound reason to believe that the 
Restructure Security does in fact satisfy options listing standards.
    Accordingly, the Phlx proposes to add new paragraph (d) to 
Commentary .05 of Rule 1009, to address situations where a Restructure 
Security is issued pursuant to a public offering or rights 
distribution. Pursuant to the proposed rule change, the Exchange may 
certify the Restructure Security as satisfying minimum shareholder and 
minimum public float requirements on the basis provided for in approved 
Commentary .05(c), only after at least five days of ``regular way'' 
trading. Moreover, after due diligence, the Exchange must have no 
reason to believe that the Restructure 

[[Page 67379]]
Security does not satisfy these requirements. Additionally, in order to 
base certification on Commentary .05 of Rule 1009, the closing prices 
of the Restructure Security on each of the five or more trading days 
prior to the selection date must be at least $7.50. Finally, as is 
required for all underlying securities selected for options trading, 
trading volume in the Restructure Security must be at least 2,400,000 
shares during a period of twelve months or less up to the time the 
security is so selected.
    The effect of the proposed rule change is that a Restructure 
Security issued pursuant to a public offering or a rights distribution 
that is part of a reorganization will be eligible for options trading 
only if it satisfies all of the existing standards applicable to the 
selection of underlying securities generally, except that (A) the 
Exchange may assume the satisfaction of the minimum public ownership 
requirement of 7,000,000 shares and the minimum 2,000 shareholders 
requirement if (i) either the percentage of value tests of subparagraph 
(a)(1) of Commentary .05 are met or the aggregate market value 
represented by the Restructure Security is at least $500,000,000; and 
if (ii) the Restructure Security is listed on an exchange or an 
automatic quotation system having equivalent listing requirements or at 
least 40,000,000 shares of the Restructure Security are issued and 
outstanding, and if (iii) after the Restructure Security has traded 
``regular way'' for at least five trading days and after having 
conducted due diligence in the matter, the Exchange has no reason to 
believe that these requirements are not met, and (B) subject to the 
same percentage of value or aggregate market value requirements, the 
Restructure Security may be deemed to satisfy the minimum market price 
per share requirement if it has a closing market price per share of at 
least $7.50 during each of the five or more trading days preceding the 
date of selection, instead of having to satisfy this requirement over a 
majority of days over a period of three months. (In the event the 
Restructure Security has a closing price that is less than $7.50 on any 
of the trading days preceding its selection, it will have to satisfy 
this requirement on a majority of trading days over a period of three 
months before it can be certified as eligible for options trading.) For 
any Restructure Security issued in a public offering or a rights 
distribution that does satisfy these requirements, the effect of the 
proposed rule change will be to permit its certification of options 
trading to take place as early as on the sixth day after trading in the 
stock commences, instead of having to wait for three months of trading.
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 in general, 
and furthers the objectives of Section 6(b)(5) in particular, by 
removing impediment to a free and open market in options covering 
securities issued in public offerings or pursuant to rights 
distributions as part of restructuring transactions and other similar 
corporate reorganizations.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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.

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, 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, NW., 
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 the File No. SR-Phlx-95-90 and should be 
submitted by January 19, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\

    \4\ 17 CFR 200.30-(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-31504 Filed 12-28-95; 8:45 am]
BILLING CODE 8010-01-M