[Federal Register Volume 61, Number 118 (Tuesday, June 18, 1996)]
[Notices]
[Pages 30932-30933]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15348]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37287; File No. SR-Phlx-96-13]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change Relating to Trading Hours and
Expiration Times for Customized Foreign Currency Options
June 7, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on May 7,
1996, the Philadelphia Stock Exchange, Inc. (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'' or
``SEC'') 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.
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Phlx proposes to amend certain Exchange rules to: (1) adjust
the time that all customized FCOs cease trading on expiration day from
9:00 a.m. and 2:30 p.m. until 8:00 a.m.; (2) adopt a uniform expiration
time for all customized FCOs of 10:15 a.m. (instead of 11:59 p.m.) (all
time references are to eastern standard time); and (3) make all
customized FCOs subject to pro-rata assignment.
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. 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 Exchange has different expiration times and procedures and
trading hours for both regular and customized FCOs. Regular non-
customized FCOs cease trading at 2:30 p.m., expire at 11:59 p.m. on
their expiration date, and are subject to a random assignment process.
Customized FCOs which expire on any trading day except a regular mid-
month or end-of-month expiration are referred to as ``custom dated
FCOs.'' Custom dated FCOs currently cease trading at 9:00 a.m., expire
at 10:15 a.m. on their expiration date, and are subject to a pro-rata
assignment process.
The third type of FCO (which is the subject of this rule filing) is
the customized FCO which does not have a custom date (i.e., the option
expires on a mid-month or end-of-month expiration date).\1\ These
option contracts are treated the same as regular expiring FCOs, i.e.,
they cease trading at 2:30 p.m., expire at 11:59 p.m., and are subject
to random assignment. The Exchange proposes to change this scheme to
correspond with custom dated FCOs. Accordingly, Phlx proposes to alter
the expiration times for customized FCOs with mid-month or end-of-month
expirations so that they cease trading at 8:00 a.m.,\2\ expire at 10:15
a.m. on their expiration date, and are subject to pro-rata assignment.
As a result, all customized FCOs will have the same expiration process
regardless of when they expire.
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\1\ An example of this would be an FCO which has a custom strike
price or is quoted as an inverse option.
\2\ Although custom-dated FCOs currently cease trading at 9:00
a.m., the Phlx, as discussed below, proposes to amend this time such
that all customized FCOs cease trading at 8:00 a.m.
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According to Phlx, customized FCOs are mainly traded by
institutional customers who often by the options as a hedge against
over-the-counter contracts. Because the over-the-counter options
typically expire at 10:00 a.m., these customers cannot effectively
hedge their risk with customized FCOs unless they know their assignment
exposure at the same time. Thus, custom dated options have been a very
useful trading vehicle for the institutional market due to their 10:15
a.m. expiration (with pro-rata exercise notification at 10:00 a.m.).
Customized FCOs with mid-month or end-of-month expirations, however,
have not been as useful for offsetting purposes since customers do not
know their assignment exposure until the following day. The Exchange
therefore believes that by having all customized FCOs expire at 10:15
a.m., it will add liquidity to the market and encourage institutions to
take advantage of all types of exchange traded FCOs. Furthermore, the
Phlx believes that by revising the expiration times on the mid-month
and end-of-month expiration days, it will increase the volume for
customized FCOs and thereby reduce the amount of paperwork at
expiration.
The Exchange proposes to implement this change as of the August
1996 mid-month expiration. Currently, open interest exists in
customized FCO contracts expiring on September 13, 1996 (mid-month
expiration), December 13 1996 (mid-month expiration) and March 27, 1997
(end-of-month expiration). If this open interest still exists at the
time that this rule change is approved, the Exchange will exempt these
expirations from the new procedure (i.e., they will continue to cease
trading at 2:30 p.m., expire at 11:59 p.m., and be subject to random
assignment). This exemption will be noted in Phlx Rule 1000(b)(21)(iv),
which defines the term Expiration Date and will be publicized in
numerous memoranda to the membership.\3\
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\3\ This transitional process will be similar to the one used
when the Exchange changed the expiration from the Saturday preceding
the third Wednesday of the expiration month to the Friday preceding
the third Wednesday. See Securities Exchange Act Release No. 32452
(July 13, 1993).
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[[Page 30933]]
Second, in order to facilitate back office processing, the Exchange
proposes to extend by one hour the amount of time between the period
when an option ceases trading and expiration. Accordingly, Phlx
proposes to have all customized FCOs cease trading at 8:00 a.m. (rather
than at 9:00 a.m.) on the day of expiration. Presently, member firms
only have one hour (between 9:00 a.m. and 10:00 a.m.) to prepare and
accept exercise instructions and submit them to the Option Clearing
Corporation (``OCC''), which then processes and disseminates a
preliminary indication of the percent of contracts exercised for each
series. The contracts then expire at 10:15 a.m. and a pro-rata
assignment process is used. By ceasing trading one hour earlier (8:00
a.m.), the firms and OCC would double the amount of time in which they
have to process these instructions.
Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) that an exchange have rules that are
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposed rule change will not result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Other
Comments were neither solicited nor received.
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, 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. 552, will be available for inspection and copying in the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. Copies of such filing will also be available for
inspection and copying at the principal office of the above-mentioned
self-regulatory organization. All submissions should refer to the rule
number SR-Phlx-96-13 and should be submitted by July 9, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
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\4\ 17 CFR Sec. 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-15348 Filed 6-17-96; 8:45 am]
BILLING CODE 8010-01-M