[Federal Register Volume 61, Number 2 (Wednesday, January 3, 1996)]
[Notices]
[Pages 211-213]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-00037]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36637; File No. SR-Phlx-95-74]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc. Relating to the Listing
and Trading of Options on the PHLX Big Three Auto Sector Index
December 26, 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 25, 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 Exchange. On
December 20, 1995, the Exchange submitted to the Commission Amendment
No. 1 to the proposed rule change.\3\ The Commission is publishing this
notice, as amended, 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.
\3\ The Exchange proposes to amend its position limit rule to
state that the position limit for options on the Big Three Auto
Index is 5,500 contracts total. Additionally, the Exchange proposes
to amend the filing to change the method of calculating the Index
from equal-dollar weighting to capitalization weighting. See Letter
from Michele Weisbaum, Associate General Counsel, Phlx, to John
Ayanian, Attorney, Office of Market Supervision (``OMS''), Division
of Market Regulation (``Market Regulation''), Commission, dated
December 20, 1995 (``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade options on the Phlx Big
Three Auto Sector Index (``Big Three Auto Index'' or ``Index''), a
capitalization weighted index developed by the Phlx composed of all of
the U.S. automobile manufacturing company stocks. The text of the
proposed rule change is available at the Office of the Secretary, the
Exchange, 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, the Exchange included statements
concerning the purpose of and basis for the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Section (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 proposes to list for trading an European-style option \4\
on the Phlx Big Three Auto Sector Index which is an index representing
the domestic automobile industry. The Phlx believes that the Big Three
Auto Index will appeal to individual investors as well as program and
basket traders because the Index reflects the direction and pricing of
the nation's entire domestic automobile industry. Because the Big Three
Auto Index is based on a small number of actively traded stocks, the
Exchange believes that replication of the Index for hedging purposes
with underlying stocks can be readily accomplished with complete
accuracy. Thus, the Phylx believes that the
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proposed Big Three Auto Index is unique and will fill a current market
void. The Exchange does not believe that the Big Three Auto Index will
be susceptible to manipulation as the stocks comprising the Big Three
Auto Index represent extremely large, liquid, and widely held common
stocks. The Exchange represents that all three underlying component
securities are traded on the New York Stock Exchange and are therefore,
``report securities'' as defined in Rule 11Aa3-1 under the Act.
Further, the Exchange represents that all three underlying component
securities currently meet the Phlx's listing criteria for equity
options contained in Exchange Rule 1009 and are the subject of options
trading on U.S. options exchanges.
\4\ European-style options can be exercised only during a
specific time period prior to expiration of the options.
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The Phlx represents that as of December 19, 1995, the market
capitalization of the individual stocks in the Index ranged from a high
of $37.37 billion (General Motors Corp.) to a low of $20.51 billion
(Chrysler Corporation). The market capitalization of all three of the
stocks in the Index was approximately $88.23 billion. The total number
of shares outstanding on October 31, 1995 for the stocks in the Index
ranged from a high of 1.07 billion shares (Ford Motor Company) to a low
of 382 million shares (Chrysler Corporation). Additionally, the average
monthly trading volume in the U.S. of the stocks in the Index, for the
twelve-month period from November 1, 1995 to October 31, 1995, ranged
from a high of 69 million shares per month (Ford Motor Company) to a
low of 50.9 million shares per month (General Motors Corp.). Lastly, as
of December 19, 1995, no one stock accounted for more than 42.57%
(General Motors Corp.), or less than 23.19% (Chrysler Corporation), of
the Index's total value.\5\
\5\ The weightings of all 3 components of the Big Three Auto
Index as of October 31, 1995 are as follows: General Motors Corp.--
42.57%; Ford Motor Company--34.22%; and Chrysler Corporation--
23.19%.
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The Big Three Auto Index will be calculated using a capitalization-
weighting methodology. The representation of each security in the Index
will be proportional to the security's last sale price multiplied by
the total number of shares outstanding, in relation to the total market
value of all the securities in the Index. The Exchange believes that
this capitalization weighting methodology is appropriate because many
investors who might use this Index as a hedging vehicle own stock
baskets containing shares of each of the three component stocks in
amounts proportionate to their respective market capitalizations. The
Index value was set at a starting value of 200 as of September 29,
1995. The value of the Index as of the close of trading on December 19,
1995 was 199.58. The formula for calculating the ``Current Index
Value'' is as follows:
[GRAPHIC] [TIFF OMITTED] TN03JA96.001
Where:
Total Capitalization = Sum of Market Values (price x shares
outstanding) for all component securities
Divisor = The number which, when divided from the total capitalization
when the Index was initially calculated (on September 29, 1995),
yielded an Index value of 200.
In order to maintain continuity in the value of the Index, the
Index divisor will be adjusted to reflect non-market changes in the
capitalization of the component securities as well as changes in the
composition of the Index. Changes that may result in divisor
adjustments include, but are not limited to, stock splits and
dividends, spin-offs, certain rights issuances, and mergers and
acquisitions. The formula for adjusting the divisor is as follows:
[GRAPHIC] [TIFF OMITTED] TN03JA96.002
Adjustments in the value of the Index which are necessitated by the
addition and/or the deletion of an issue from the Index are made by
adding and/or subtracting the market value (price times shares
outstanding) of the relevant issues.
The Big Three Auto Index value will be updated dynamically at least
once every 15 seconds during the trading day. The Phlx has retained
Bridge Data, Inc. to compute and do all necessary maintenance of the
Index. Pursuant to Phlx Rule 1100A, updated Index values will be
disseminated and displayed by means of primary market prints reported
by the Consolidated Tape Association and over the facilities of the
Options Price Reporting Authority. The Index value will also be
available on broker/dealer interrogation devices to subscribers of the
option information.
In accordance with Phlx Rule 1009A, if any change in the nature of
any stock in the Index occurs as a result of delisting, merger,
acquisition or otherwise, the Exchange will take appropriate steps to
delete that stock from the Index and replace it with another domestic
automobile industry stock. If no replacement is available, the Exchange
will submit a proposed rule change pursuant to Section 19(b) of the Act
and that proposal would have to be specifically approved by the
Commission before the Exchange is able to open any new series of
options on the Index for trading.
The Phlx will evaluate the Index quarterly, following the close of
trading on the third Friday at each March, June, September, and
December to ensure that it is an accurate representation of the
intended market character of the Index. The Exchange represents that
all of the stocks comprising the Index are options eligible \6\ and
have overlying options currently trading. If at any time, any of the
component issues are not options eligible, the Exchange will submit a
new proposed rule change pursuant to
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Section 19(b) of the Act and that proposal would have to be
specifically approved by the Commission before the Exchange is able to
open any new series of options on the Index for trading. Additionally,
if at any time, the Exchange determines to increase or decrease the
number of component issues, the Exchange will submit a new proposed
rule change pursuant to Section 19(b) of the Act.
\6\ The Phlx's options listing standards, which are uniform
among the options exchanges, provide that a security underlying an
option must, among other things, meet the following requirements:
(1) the public float must be at least 7,000,000 shares; (2) there
must be a minimum of 2,000 stockholders; (3) trading volume in the
U.S. must have been at least 2.4 million over the preceding twelve
months; and (4) the U.S. market price must have been at least $7.50
for a majority of the business days during the preceding three
calendar months. See Phlx Rule 1009, Commentary .01.
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The settlement value for the Index options will be based on the
opening values of the component securities on the date prior to
expiration. Index options will expire on the Saturday following the
third Friday of the expiration month, and the last day for trading in
an expiring series will be the second business day (ordinarily a
Thursday) preceding the expiration date.
The Phlx proposes to employ the same position limit applicable to
the Exchange's Super Cap Index pursuant to Phlx Rule 1001A(b).
Specifically, the position and exercise limits for the Big Three Auto
Index options, will be 5,500 contracts on the same side of the
market.\7\ The Big Three Auto Index option will not be subject to a
hedge exemption.
\7\ See Amendment No. 1, supra note 3.
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Exercise price intervals will be set at five point intervals in
terms of the current value of the Index. Additional exercise prices
will be added in accordance with Phlx Rule 1011A(a).
As with the Exchange's other indexes, the multiplier for options on
the Big Three Auto Index will be 100. The Big Three Auto Index options
will trade from 9:30 a.m. to 4:10 p.m. eastern time.
The Phlx will trade consecutive and cycle month series pursuant to
Phlx Rule 1101A. Specifically, there will be three expiration months
from the March, June, September, December cycle plus at least two
additional near-term months so that the three nearest term months will
always be available. LEAPS will also be traded on the Index pursuant to
Phlx Rule 1101A(b)(iii).
Big Three Auto Index options will be traded pursuant to current
Phlx rules governing the trading of index options.\8\ The Exchange
notes that surveillance procedures currently used to monitor trading in
each of the Exchange's other index options will also be used to monitor
the trading of options on the Big Three Auto Index. These procedures
included having complete access to trading activity in the underlying
securities which are all traded on the NYSE via the Intermarket
Surveillance Group Agreement (``ISG Agreement'') dated July 14, 1983,
as amended on January 29, 1990.
\8\ See Phlx Rules 1000A through 1103A, and 1000 through 1070.
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The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act, in general, and furthers the objectives of
Section 6(b)(5),\9\ in particular, in that it is designed to prevent
fraudulent and manipulative acts and practices, to facilitate
transactions in securities, and to remove impediments to and perfect
the mechanism of a free and open market.
\9\ 15 U.S.C. 78f(b)(5).
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(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, 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 will also be available
for inspection and copying at the principal office of the PHLX. All
submissions should refer to SR-Phlx-95-74 and should be submitted by
January 24, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
\10\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 96-00037 Filed 1-2-96; 8:45 am]
BILLING CODE 8010-01-M