[Federal Register Volume 61, Number 225 (Wednesday, November 20, 1996)]
[Notices]
[Pages 59125-59126]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29612]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37944; International Series Release No. 1027; File No. 
SR-PHLX-96-45]


Self-Regulatory Organizations; Philadelphia Stock Exchange, 
Incorporated; Notice of Filing of Proposed Rule Change Relating to 
Minimum Transaction Size for Customized Foreign Currency Options

November 13, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ Notice is hereby given that on November 1, 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.
    \1\ 15 U.S.C. 78s(b)(1).
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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,\2\ proposes to amend 
Exchange Rule 1069(a) to revise the minimum opening and closing 
transaction size and responsive quotation size for customized foreign 
currency options from 100 to 50 contracts.
    \2\ 17 CFR 240.19b-4.
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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
    On November 1, 1994, the Commission approved the Exchange's 
proposal to trade customized foreign currency options.\3\ Users now 
have the ability to customize the strike price and quotation method and 
choose any underlying and base currency combination out of all Exchange 
listed currencies including the U.S. dollar. The product was introduced 
to attract institutional customers who like the flexibility and variety 
offered in the over-the-counter market but would prefer the benefits 
attributed to an exchange auction market to hedge their exchange rate 
risks.
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    \3\ Securities Exchange Act Release No. 34925 (November 1, 
1994), 59 FR 55720.
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    The Exchange originally instituted a 300 contract minimum opening 
transaction size pursuant to Rule 1069(a)(6). A number of mid-sized 
corporations and institutions then told the Exchange that the contract 
value was too large for their purposes. They believed that customized 
currency options would fill a market need for them, but that the 
opening transaction size was prohibitive. The Exchange, thus, 
determined to reduce the transaction size in stages. In March of 1995, 
the Exchange reduced the size of an opening transaction to 200 
contracts \4\ and then reduced it further to 100 contracts in August of 
that year.\5\ That size, however, still remains too large for a 
significant segment of medium sized corporations, especially those that 
are located in Canada and the Pacific basin. Those companies would like 
the opportunity to hedge their currency risk using an exchange traded 
customized option contract in a cost-effective manner. Therefore, the 
Exchange now proposed to reduce the minimum opening transaction size to 
50 contracts which would still allow for an average minimum transaction 
value of between $2 and $3 million as shown below.
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    \4\ Securities Exchange Act Release No. 35464 (March 9, 1995), 
60 FR 14043.
    \5\ Securities Exchange Act Release No. 36176 (August 31, 1995), 
60 FR 46879.

[[Page 59126]]



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                                                                          Underlying                            
                                             Exchange                      contract   Value of 100   Value of 50
                 Currency                    rate \6\     Contract size     value       contracts     contracts 
                                                                          (dollars)     (dollars)     (dollars) 
----------------------------------------------------------------------------------------------------------------
Australian dollar........................     0.878200           50,000       43,910     4,391,000     2,195,500
Canadian dollar..........................     0.823000           50,000       41,150     4,115,000     2,057,500
Swiss franc..............................     0.889700           62,500       55,606     5,560,625     2,780,312
German mark..............................     0.727600           62,500       45,475     4,547,500     2,273,750
French franc.............................     0.215100          250,000       53,775     5,377,500     2,688,750
British pound............................     1.741600           31,250       56,602     5,660,200     2,830,100
Japanese yen.............................     0.008999        6,250,000       56,244     5,624,375     2,812,188
ECU......................................     1.391600           62,500       86,975     4,115,000     2,057,500
Italian lira.............................     0.0007309      50,000,000       36,547     3,654,704     2,812,188
Spanish peseta...........................     0.007779        5,000,000       38,895     3,889,500     1,944,750
                                                                                     ---------------------------
    Averages.............................  ............  ..............  ...........     5,151,790     2,575,895
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\6\ As of October 11, 1996, assuming that the U.S. dollar is the base currency.                                 

    The minimum size of the closing transaction and the minimum 
responsive quote size obligation would also be reduced from 100 
contracts to the lesser of 50 contracts or the remaining contracts.
2. Statutory Basis
    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 promote just and equitable principles of trade, prevent 
fraudulent and manipulative acts and practices, facilitate transactions 
in securities, remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and protect 
investors and the public interest by opening up the market to smaller 
institutional and corporate users who are currently priced out of the 
market yet still keeping the entry requirements high enough to 
discourage smaller less sophisticated users.

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

    The Exchange 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, NW., 
Washington, DC 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-96-45 and should be 
submitted by December 11, 1996.

    For the Commission, by the Division of Market Regulations, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-29612 Filed 11-19-96; 8:45 am]
BILLING CODE 8010-01-M