[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