[Federal Register Volume 61, Number 160 (Friday, August 16, 1996)]
[Notices]
[Pages 42671-42673]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20929]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37551; File No. SR-Phlx-96-30]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. Respecting Index 
Exercise Settlement Values

August 9, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on 
July 29, 1996, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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 of the Act, proposes to amend Rule 
1000A respecting procedures for affixing index option exercise 
settlement prices. Specifically, Rule 1000A(b)(8), which defines 
``closing index value,'' is proposed to be amended to state that in 
certain situations such value will be determined by the By-Laws and 
Rules of the Options Clearing Corporation (``OCC''). First, if OCC 
determines that the current index value is unreported or otherwise 
unavailable for purposes of calculating the closing index (exercise 
settlement) value, an OCC panel shall fix such value. Second, this 
panel shall also fix such value in the event that OCC determines that 
the primary market for securities representing a substantial part of 
the value of an underlying index is not trading at the time when the 
current index value would ordinarily be determined.
    Currently, paragraph (b)(8) defines ``closing index value'' as the 
current index value calculated at the close of business on the day of 
exercise. If the day of exercise is not a trading day, the value is 
calculated on the last trading day before exercise. If the index is not 
P.M.-settled, but rather A.M.-settled, the closing value is the current 
index value as determined by the opening price of each component issue 
on the primary market on the last day of trading prior to expiration.
    At this time, the Exchange proposes to adopt a second Commentary to 
Rule 1000A to provide reference to OCC By-Laws and Rules. The Exchange 
also proposes to recognize decisions of OCC panels, acting pursuant to 
OCC By-laws and Rules, that set the index value where securities 
comprising a substantial portion of the index are not open for trading 
when the value is being derived, as well as where the current index 
value is unreported or otherwise unavailable.
    In addition, the Exchange proposes several minor amendments to Rule 
1000A(b)(8) to clarify that the closing index value respecting A.M.-
settled index options is not determined after the close of business. 
Further, the first Commentary to Rule 1000A is proposed to be amended 
by providing an example of settlement methods other than a

[[Page 42672]]

closing value, and specifically naming A.M.-settlement. The provisions 
will state that the closing index value respecting A.M.-settled index 
options is based on the opening price of each component issue on the 
primary market on the last day of trading prior to expiration. 
Moreover, deletion of the language prefacing this Commentary addressing 
series opened after March 30, 1987 is also proposed, because all index 
option series are now eligible for A.M.-settlement. The text of the 
proposed rule change is available at the Office of the Secretary, Phlx 
and at the Commission.

II. Self-Regulatory Organization's Statement of the Purposes 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

    This proposal is in response to the Options Clearing Corporation 
(``OCC'') rule change recently approved by the Commission in Release 
No. 37315 (File No. SR-OCC-95-18), amending the definition of current 
index value contained in OCC By-Law Article XVII, Section 1(C)(5). 
Specifically, the change permits a panel to affix exercise settlement 
prices for index options not only where the current index value is 
unreported or otherwise unavailable (as OCC's rules previously 
provided), but also where OCC determines that the primary market(s) for 
component stocks representing a substantial portion of the index value 
were not open for trading at the time when the current index value 
would ordinarily be determined. The OCC by-law change expressly allows, 
but does not require, this panel to utilize the previous day's closing 
index value. The value, in the judgment of the panel, must be 
appropriate for the protection of investors and the public interest.
    Thus, to accommodate this change to OCC procedures, Phlx proposes 
to adopt a second Commentary to Rule 1000A(b)(8) to state that OCC 
provisions will determine the exercise settlement value in certain 
instances, including where the value is unreported or unavailable as 
well as where a substantial portion of the underlying securities are 
not open for trading on the primary market.
    The Exchange believes that the proposal serves to clarify the 
responsibilities of the Exchange in both situations--in the event that 
the primary market for securities representing a substantial part of 
the value of an underlying index is not trading at the time when the 
current index value would normally be determined as well as in the 
event that the index value is unreported or otherwise unavailable for 
purposes of calculating the exercise settlement amount. The Exchange 
expects that the proposal should help ensure that Phlx member 
organizations are aware of the index value determination procedures. In 
this regard, the Exchange believes that the proposal will assist 
investors by providing reference to OCC's policies in Phlx rules.
    In addition, the Exchange proposes several minor amendments to Rule 
1000A(b)(8) to clarify that the closing index value respecting A.M.-
settled index options is not determined after the close of business. 
Further, the first comment to Rule 1000A is proposed to be amended by 
providing an example of settlement methods other than a closing value, 
and specifically naming A.M.-settlement. The provisions will state that 
the closing index value respecting A.M.-settled index options is based 
on the opening price of each component issue on the primary market on 
the last day of trading prior to expiration. Moreover, deletion of the 
language prefacing this comment addressing series opened after March 
30, 1987 is also proposed, because all index option series are now 
eligible for A.M.-settlement. The text of the proposed rule change is 
available at the Office of the Secretary, Phlx and at the Commission.
    For these reasons, the Exchange believes that the proposed rule 
change is consistent with Section 6 of the Act in general, and in 
particular, with Section 6(b)(5), in that it is designed to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, as well as to protect 
investors and the public interest, by coordinating Exchange policy 
respecting index values determinations with that of OCC. This, in turn, 
should provide more notice and certainty respecting the exercise 
settlement process, and promote prompt and accurate settlement of 
affected transactions.

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 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 or such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Phlx 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, 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. Sec. 552, will be available for inspection and copying in 
the Commission's Public Reference Room, 450 Fifth Street, NW, 
Washington, DC 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 File No. SR-Phlx-96-30 and should be 
submitted by September 6, 1996.


[[Page 42673]]


    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-20929 Filed 8-15-96; 8:45 am]
BILLING CODE 8010-01-M