[Federal Register Volume 61, Number 126 (Friday, June 28, 1996)]
[Notices]
[Pages 33789-33791]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16575]


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[[Page 33790]]


SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37355; File No. SR-Phlx-96-18]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. to Trade a European-
style National Over-the-Counter Index Option

June 24, 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 28, 
1996, 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. 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, pursuant to Rule 19b-4 under the Act,\1\ proposes to 
change the exercise style of the National Over-the-Counter Index 
(``Index'') option, currently trading with the symbol XOC, from 
American-style \2\ to European-style. A European-style option, pursuant 
to Phlx Rule 1000(b)(35), means an option contract that can be 
exercised only on the day it expires. The new European-style option 
will trade with the current symbol XOC. The Exchange also will convert 
the existing American-style XOC options to the symbol XOV.\3\ American-
style options will continue to trade until expiration or until no open 
interest remains, at which time the series will be delisted. No new 
American-style series will be opened after the European-style index 
option begins trading.
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    \1\ 17 CFR 240.19b-4.
    \2\ An American-style option, pursuant to Phlx Rule 1000(b)(34), 
means an option contract that may be exercised at any time from the 
opening of the position until its expiration.
    \3\ The Exchange notes that certain wrap-around symbols are 
utilized respecting the Index, such that XOC and XOV will not be the 
only symbols in use. A wrap-around situation occurs when the strike 
price codes A-T indicating the strike price of an option (from 5 to 
100) have been used and additional strike prices require listing the 
option with a different root symbol. For example, XOX and XOW are 
currently used for wrap-around situations respecting the Index.
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    In order to effectuate this change, an amendment to Floor Procedure 
Advice G-1, Exercise Requirements, is required. Advice G-1 governs the 
exercise of index options, requiring that a memorandum to exercise any 
American-style index option must be received or prepared by the Phlx 
member organization no later than 4:30 p.m. Because the Index is 
presently an American-style index option, this Advice must be amended 
to delete reference to the Index. The corresponding Exchange rule, Rule 
1042(a), will also apply, but does not require an amendment.

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 self-regulatory organization 
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 self-regulatory organization 
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
    The Phlx began trading the Index in 1985.\4\ The Index is a 
capitalization-weighted market (broad-based) index composed of the 100 
largest capitalized stocks trading over-the-counter. The Index has 
traded on the Phlx for over ten years, generally garnering steady 
volume and open interest. At this time, the Exchange seeks to improve 
upon the success of the Index by changing one contract specification, 
relating to the ability to exercise the Index option.
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    \4\ See Securities Exchange Act Release No. 22044 (May 17, 
1985), 50 FR 21532 (May 24, 1985) (File Nos. SR-Phlx-84-28 and SR-
Phlx-85-110.
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    The purpose of this proposal is to allow the Exchange to offer a 
European-style option based on the Index. The Exchange has received 
requests to change the expiration style, indicating that many investors 
prefer to trade index options that cannot be exercised except on the 
day they expire. European-style index options have certain advantages, 
including the elimination of the risk of early exercise. For instance, 
investors holding spread positions would not have to be concerned that 
one leg of a short position can be exercised prior to expiration. In 
general, sellers will benefit from the European exercise feature, 
because absent concern about early exercise, they can engage in long-
range planning and strategies.
    However, the Exchange has proposed to continue trading the 
American-style option until the listed series expire or no longer have 
open interest. Thus, the contract terms of existing American-style XOC 
options will not suddenly be changed, keeping intact their ability to 
exercise early. The Exchange also proposes to provide adequate notice 
of the new European-style option by way of memoranda to the Exchange 
membership. Except during the wind-down period explained above, the 
Exchange does not intend to continue trading American-style options 
side-by-side with European-style options on the Index. In order to 
prevent a proliferation of strike prices respecting a similar product, 
it has determined instead to trade only the European-style option.
    In order to preserve the investment community's familiarity with 
the symbol XOC, the Exchange proposes to retain the use of this symbol 
for the new European-style options on the Index and convert the 
existing American-style options on the Index from the symbol XOC to 
XOV. The Exchange intends to effectuate this conversion as soon as is 
practicable in order to allow a period of time for Index traders and 
investors to become accustomed to the new symbol. Upon approval of the 
proposed rule change, the Exchange will list European-style options on 
the Index utilizing the symbol XOC.
2. Statutory Basis
    The proposed rule change is consistent with Section 6 of the 
Act,\5\ and, in particular, with Section 6(b)(5) of the Act, in that it 
is designed to promote just and equitable principals of trade and 
facilitate transactions in securities, while protecting investors and 
the public interest, by providing a European-style index option on the 
Index, which will permit exercise only on the day it expires. 
Specifically, the Exchange believes that the benefits of the European-
style exercise feature combined with the interest in the Index during 
the past ten years of trading on the Exchange should foster a deep and 
liquid market for the Index option, thus facilitating transactions. At 
the same time, the Exchange believes that Index investors should not be 
disadvantaged by the proposal, because the Exchange will provide 
adequate notice and an orderly procedure, as American-style options are 
phased out and the new European-style options are introduced.
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    \5\ 15 U.S.C. 78f(b)(5).

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[[Page 33791]]

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

    The Phlx does not believe that the proposed rule change will impose 
any inappropriate 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 either solicited or 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, 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. 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 Exchange. All 
submissions should refer to File No. SR-Phlx-96-18 and should be 
submitted by July 19, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland
Deputy Secretary.
[FR Doc. 96-16575 Filed 6-27-96; 8:45 am]
BILLING CODE 8010-01-M