[Federal Register Volume 61, Number 142 (Tuesday, July 23, 1996)]
[Notices]
[Pages 38234-38235]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18563]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37441; File Nos. SR-Amex-96-24; SR-CBOE-96-41; SR-NYSE-
96-19; SR-PSE-96-18; and SR-Phlx-96-22]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Changes by the American 
Stock Exchange, Inc., Chicago Board Options Exchange, Inc., New York 
Stock Exchange, Inc., Philadelphia Stock Exchange, Inc., and Pacific 
Stock Exchange, Inc., Relating to an Extension of the 2\1/2\ Point 
Strike Price Pilot Program

July 15, 1996.
    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 June 3, 1996, the Philadelphia Stock Exchange, Inc. (``Phlx''); on 
June 11, 1996, the Pacific Stock Exchange, Inc. (``PSE''); on June 28, 
1996, the Chicago Board Options Exchange, Inc. (``CBOE''); on July 3, 
1996, the American Stock Exchange, Inc. (``Amex''); and on July 12, 
1996, the New York Stock Exchange, Inc. (``NYSE'') (collectively the 
``Exchanges'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule changes as described in Items I and 
II below, which Items have been prepared by the Exchanges. The PSE 
submitted to the Commission Amendment No. 1 to its proposal on July 2, 
1996.\3\ The Phlx submitted to the Commission Amendment No. 1 to its 
proposal on July 9, 1996.\4\ The Commission is publishing this notice 
to solicit comments on the proposed rule changes from interested 
persons, and to grant accelerated approval of the proposed rule 
changes.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, PSE withdraws its request for permanent 
approval of the pilot program, and requests a one-year extension of 
the pilot program, so that it will continue through July 18, 1997. 
See Letter from Michael Pierson, Senior Attorney, PSE, to John 
Ayanian, Attorney, Office of Market Supervision (``OMS''), Division 
of Market Regulation (``Market Regulation''), Commission, Dated July 
1, 1996 (``PSE Amendment No. 1'').
    \4\ In Amendment No. 1, the Phlx indicated that the pilot period 
extension will expire on July 18, 1997. See Letter from Edith 
Hallahan, Special Counsel, Regulatory Services, Phlx, to John 
Ayanian, Attorney, OMS, Market Regulation, Commission, dated July 9, 
1996 (``Phlx Amendment No. 1'').
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I. Self-Regulatory Organizations' Statement of the Terms of 
Substance of the Proposed Rule Changes

    The Exchanges propose to extend for one-year (i.e., July 18, 1997) 
the Exchanges' pilot program whereby the Exchanges may select a certain 
number of their listed options for inclusion in a pilot program for the 
listing of strike prices at 2\1/2\ point intervals. The text of the 
proposed rule changes is available at the Office of the Secretary, the 
Exchanges, and at the Commission.

II. Self-Regulatory Organizations' Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

    In their filings with the Commission, the Exchanges included 
statements concerning the purpose of and basis for the proposed rule 
changes. The text of these statements may be examined at the places 
specified in Item IV below. The Exchanges have prepared summaries, set 
forth in Sections (A), (B), and (C) below, of the most significant 
aspects of such statements.

(A) Self-Regulatory Organizations' Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

    The Commission has previously approved a pilot program proposed by 
the Exchanges to list selected options trading at a strike price 
greater than $25 but less than $50 at 2\1/2\ point intervals (i.e., 
27\1/2\, 32\1/2\, 37\1/2\, 42\1/2\ and 47\1/2\).\5\ Pursuant to the 
pilot program, the Exchanges are permitted to use such 2\1/2\ point 
strike price intervals for a joint total of up to 100 option issues. 
Each exchange may select 10 options plus a percentage of the remaining 
50 options equal to that exchange's pro rata share of the total number 
of equity options listed by the Exchanges.\6\
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    \5\ See Securities Exchange Act Release No. 35993 (July 19, 
1995), 60 FR 38073 (July 25, 1995) (File Nos. SR-Phlx-08, SR-Amex-
95-12, SR-PSE-95-07, SR-CBOE-95-19, SR-NYSE-95-12) (``2\1/2\ Point 
Strike Price Approval Order'').
    \6\ The actual allotment of option issues for each exchange is: 
CBOE (28), Amex (22), Phlx (18), PSE, PSE (18), and NYSE (14).
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    When more than one exchange selects a multiply-traded option for 
its allotment, the Options Clearing Corporation (``OCC'') will 
determine which exchange will be deemed to have selected the option 
according to the procedures agreed upon by the Exchanges. They have 
agreed that an exchange (``Selecting Exchange'') intending to list 2\1/
2\ point strikes on an option will inform OCC of its selection by 
submitting a notice (``Selection Notice'') to OCC between the hours of 
8:30 a.m. and 12:00 Noon (Central Time). In the event that more than 
one exchange submits a Selection Notice to the OCC for the same 
multiple-traded option, the exchange which first submits a Section 
Notice to the OCC will be deemed to be the Selecting Exchange for that 
option. Such option will count toward the allotment of the Selecting 
Exchange, but not toward the allotment of any other exchange submitting 
a Selection Notice under the terms of the pilot program.
    Each of the Exchanges has also submitted a report to the Commission 
that includes data and written analysis regarding the operation of the 
pilot program during the previous year, as required in the 2\1/2\ 
Strike Price Approval Order.\7\ The Exchanges generally believe that 
the pilot program has provided customers greater opportunities and 
flexibility to tailor their options positions, while enhancing the 
depth and liquidity of the markets in the selected options classes.
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    \7\ In the 2\1/2\ Point Strike Price Approval Order, the 
Commission required that each Exchange submit a report before the 
Commission would review a proposal to extend the pilot program 
beyond the initial twelve-month period.
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    Each exchange has stated that it believe its respective proposed 
rule change is consistent with Section 6(b) of the Act in general and 
furthers the objectives of Section 6(b)(5) in particular in that the 
joint proposal is designed to prevent fraudulent and manipulative acts 
and practices, to promote just and equitable principles of trade, and 
is not designed to permit unfair discrimination between customers, 
issuers, brokers or dealers.

(B) Self-Regulatory Organizations' Statement on Burden on Competition

    The Exchanges believe that the proposed rule changes will impose no 
burden on competition.

[[Page 38235]]

(C) Self-Regulatory Organizations' Statement on Comments on the 
Proposed Rule Changes Received From Members, Participants or Others

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

III. Commission's Findings and Order Granting Accelerated Approval

    The Commission finds that the proposed rule changes are consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and, in 
particular, the requirements of Section 6(b)(5) of the Act.\8\ 
Specifically, the Commission believes that the proposed extension of 
the pilot program providing for the listing of 2\1/2\ point strike 
price intervals in selected equity options will continue to provide 
investors with more flexibility in the trading of equity options with a 
strike price greater than $25 but less than $50, thereby furthering the 
public interest by allowing investors to establish equity options 
positions that are better tailored to meet their investment objectives. 
The Commission also believes that the Exchanges' proposal strikes a 
reasonable balance between the Exchanges' desire to accommodate market 
participants by offering a wide array of investment opportunities and 
the need to avoid excessive proliferation of options series. The 
Commission expects the Exchanges to continue to monitor the applicable 
equity options activity closely to detect any proliferation of illiquid 
options series resulting from the narrower strike price intervals and 
to act promptly to remedy this situation should it occur.
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    \8\ 15 U.S.C. 78f(b)(5).
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    In the event the Exchanges propose to (1) extend the pilot program 
beyond the twelve month period, (2) expand the pilot program beyond the 
initial 100 option classes, or (3) seek permanent approval of the pilot 
program, they should submit a report to the Commission with such 
proposal. The report should cover the period from May 20, 1996 to one 
expiration month prior to the filing of the proposal, and should 
include data and written analysis on the open interst and trading 
volume in affected series, and delisted options series (for all strike 
price intervals) on the selected pilot program option classes. The 
report should also discuss any capacity problems that may have arisen 
during the pilot program and any other data relevant to the analysis of 
the pilot program, including an assessment of the appropriateness of 
the 2\1/2\ point strike price intervals for the options selected by the 
reporting exchange.
    The Commission finds good cause for approving the proposed rule 
changes and Phlx Amendment No. 1 and PSE Amendment No. 1 prior to the 
thirtieth day after the date of publication of notice of filing thereof 
in the Federal Register. As mentioned above, the Exchanges submitted 
separate reports to the Commission that include data and written 
analysis regarding the operation of the pilot program as required in 
the 2\1/2\ Strike Price Approval Order. The Commission notes that the 
Exchanges have not reported any significant problems with the pilot 
program since its inception and that the Exchanges will continue to 
monitor the pilot program to ensure that no problems arise. Finally, no 
adverse comments have been received by the Exchanges or the Commission 
concerning the pilot program. Based on the above, the Commission 
believes good cause exists to approve the extension of the pilot 
program through July 18, 1997, on an accelerated basis. Accordingly, 
the Commission believes that granting accelerated approval of the 
proposals is appropriate and consistent with Sections 6(b)(5) and 
19(b)(2) of the Act.

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. 20549. Copies of such filing will also be available 
for inspection and copying at the principal office of the Exchanges. 
All submissions should refer to File Nos. SR-Amex-96-24; SR-CBOE-96-41; 
SR-NYSE-96-19; SR-PSE-96-18; and SR-Phlx-96-22 and should be submitted 
by August 13, 1996 the date of this publication.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the pilot program proposed by the Exchange (File Nos. SR-
Amex-96-24; SR-CBOE-96-41; SR-NYSE-96-19; SR-PSE-96-18; and SR-Phlx-96-
22) is approved through July 18, 1997, on an accelerated basis.

    \9\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursaunt to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-18563 Filed 7-22-96; 8:45 am]
BILLING CODE 8010-01-M