[Federal Register Volume 61, Number 155 (Friday, August 9, 1996)]
[Notices]
[Pages 41673-41675]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20309]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37520; File No. SR-NYSE-96-15]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the New York 
Stock Exchange, Inc., Relating to Members' Compliance With Position and 
Exercise Limits for Non-NYSE Listed Options

August 2, 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 June 28, 
1996, the New York Stock Exchange, Inc. (``NYSE'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization.\1\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ The NYSE requested accelerated approval of the proposed rule 
change. See Letter from James E. Buck, Senior Vice President and 
Secretary, NYSE, to Yvonne Fraticelli, Office of Market Supervision 
(``OMS''), Division of Market Regulation (``Division''), Commission, 
dated July 9, 1996 (``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NYSE proposes to amend NYSE Rules 704, ``Position Limits,'' and 
705, ``Exercise Limits,'' to require NYSE members who trade non-NYSE-
listed option contracts and who are not members of the exchange where 
the options are traded to comply with the option position and exercise 
limits set by the exchange where the transactions are effected.\2\
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    \2\ Position limits impose a ceiling on the number of option 
contracts in each class on the same side of the market (i.e., 
aggregating long calls and short puts or long puts and short calls) 
that can be held or written by an investor or group of investors 
acting in concert. Exercise limits prohibit an investor or group of 
investors acting in concert from exercising more than a specified 
number of puts or calls in a particular class within five 
consecutive business days.
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    The text of the proposed rule change is available at the Office of 
the Secretary, NYSE, 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 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

(a) Purpose
    Currently, NYSE Rule 704 limits the size of options positions that 
opening transactions in NYSE-listed options may create. Exchange Rule 
705 prohibits a member or member organization from exercising NYSE-
listed option contracts in amounts that exceed the NYSE's position 
limits. The purpose of the proposal is to expand the scope of those 
position and exercise limits to include opening transactions and 
exercises that are not dealt in on the Exchange, but that are dealt in 
on other options exchanges. The proposal applies to both equity options 
and index options.
    As a result, the NYSE will gain the authority to exercise 
jurisdiction over its members and member organizations for activity in 
options that are not dealt in on the NYSE. The NYSE could thereby 
discipline members and member organizations for violations of position 
and exercise limits in option contracts, regardless of the exchange on 
which the contracts trade.\3\
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    \3\ The Commission notes that, generally, the options exchanges 
have adopted uniform options position and exercise limits.
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    The Exchange will exercise this authority only when the NYSE member 
or member organization is not a member of the other option exchange. 
That is, the proposal is intended to provide authority to discipline 
violations where no such authority currently exists. That authority 
currently is absent because (1) the NYSE's rules currently do not grant 
that authority to the NYSE and (2) the NYSE member or member 
organization that is in violation of another options exchange's rules 
is not a member or member organization of the other options exchange 
and therefore is not subject to the rules of that exchange.

[[Page 41674]]

    In expanding the scope of the position and exercise limit 
authority, the proposal would apply the position and exercise limit 
rules of the options exchange on which the NYSE member or member 
organization effects the transaction or exercise, including the other 
exchange's relevant exemptions, including the other exchange's relevant 
exemptions, interpretations, and policies.
(b) Statutory Basis
    The NYSE believes that the proposal is consistent with Section 6(b) 
of the Act, in general, and with Section 6(b)(5), in particular, in 
that it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating 
transactions in securities, 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 NYSE does not believe that the proposed rule change imposes 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 Others

    The NYSE has not solicited, and does not intend to solicit, comment 
on this proposed rule change. The NYSE has not received any unsolicited 
written comments from members or other interested parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    The NYSE has requested that the proposed rule change be given 
accelerated effectiveness pursuant to Section 19(b)(2) of the Act.\4\
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    \4\ See Amendment No. 1, supra note 1.
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    The Commission finds that the proposed rule change is 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) thereunder \5\ in that 
it is designed to prevent fraudulent and manipulative acts and 
practices and to protect investors and the public interest. 
Specifically, the NYSE has noted that Exchange rules do not currently 
prohibit NYSE members from exceeding the position and exercise limits 
set by another exchange for non-NYSE listed option contracts. Thus, if 
the NYSE member is not a member of the exchange which lists the 
options, then neither the NYSE nor the exchange that limits the options 
is able to enforce its position and exercise limits against the NYSE 
member. The proposal eliminates this loophole and strengthens the 
Exchange's rules by requiring an NYSE member who trades non-NYSE listed 
option contracts on another exchange, and who is not a member of that 
exchange, to comply with the options position and exercise limits set 
by the exchange where the transactions are effected.\6\
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    \5\ 15 U.S.C. 78f(b)(5) (1982).
    \6\ In applying the position and exercise limits of another 
options exchange, the NYSE will also follow any applicable 
exemptions, interpretations, and policies of that exchange.
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    As the Commission has noted in the past,\7\ options position and 
exercise limits are intended to prevent the establishment of large 
options positions that can be used or might create incentives to 
manipulate or disrupt the underlying market so as to benefit the 
options position. In particular, position and exercise limits are 
designed to minimize the potential for mini-manipulations\8\ and for 
corners or squeezes of the underlying market. In addition, they serve 
to reduce the possibility for disruption of the options market itself, 
especially in illiquid options classes. The proposal extends the 
benefits of the position and exercise limit rules to include all 
options transactions entered into by NYSE members.
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    \7\ See, e.g., Securities Exchange Act Release No. 33283 
(December 3, 1993), 58 FR 65204 (December 13, 1993) (order approving 
File No. SR-CBOE-93-43).
    \8\ Mini-manipulation is an attempt to influence, over a 
relatively small range, the price movement in a stock to benefit a 
previously established derivatives position.
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    As noted above, the proposed amendments will extend NYSE Rules 704 
and 705 to apply to option contracts dealt in on any exchange (rather 
than only to option contracts dealt in on the NYSE) by requiring an 
NYSE member who effects transactions in non-NYSE-listed option 
contracts on another exchange, of which he or she is not a member, to 
comply with the position and exercise limits set by the exchange on 
which the transaction is effected. Such violations will be subject to 
disciplinary action by the Exchange pursuant to the NYSE's rules.
    The Commission finds good cause for approving the proposed rule 
change and Amendment No. 1 to the proposed rule change prior to the 
thirtieth day after the date of publication of notice of filing thereof 
in the Federal Register because the proposal is identical to approved 
proposals submitted by the Chicago Board Options Exchange, Inc. 
(``CBOE''), Philadelphia Stock Exchange, Inc. (``PHLX''), the Pacific 
Stock Exchange, Inc. (``PSE''), and the American Stock Exchange, Inc. 
(``Amex'').\9\ The CBOE and PHLX proposals were subject to the full 
notice and comment period and the Commission received no comments on 
those proposals. Therefore, the Commission believes it is consistent 
with Sections 6(b)(5) and 19(b)(2) of the Act to approve the NYSE's 
proposal on an accelerated basis.
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    \9\ See Securities Exchange Act Release Nos. 36242 (September 
18, 1995), 60 FR 49305 (September 22, 1995) (order approving File 
No. SR-CBOE-95-22); 36257 (September 20, 1995), 60 FR 50228 
(September 28, 1995) (order approving File No. SR-PHLX-95-31); 36350 
(October 6, 1995), 60 FR 53654 (October 16, 1995) (order approving 
File No. SR-PSE-95-17); and 36567 (December 8, 1995) 60 FR 64463 
(December 15, 1995) (order partially approving File No. SR-Amex-95-
35).
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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 at 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 file 
number in the caption above and should be submitted August 30, 1996.
    It is therefore ordered, pursuant to Section 19(   )(2) of the 
Act,\10\ that the proposed rule change (File No. SR-NYSE-96-15), as 
amended, is approved on an accelerated basis.

    \10\ 15 U.S.C. 78s(b)(2) (1982).

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[[Page 41675]]

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12) (1995).
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Jonathan G. Katz,
Secretary.
[FR Doc. 96-20309 Filed 8-8-96; 8:45 am]
BILLING CODE 8010-01-M