[Federal Register Volume 62, Number 12 (Friday, January 17, 1997)]
[Notices]
[Pages 2707-2708]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-1217]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38157; File No. SR-PHLX-96-46]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to the Listing and Trading of European-Style Options on the 
Philadelphia Stock Exchange Semiconductor Index

January 10, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),1 notice is hereby given that on December 18, 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, III below, which Items have 
been prepared by PHLX. On December 30, 1996, and January 6, 1997, PHLX 
amended the filing (``Amendment No. 1'' and ``Amendment No. 2,'' 
respectively).2 The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Letters from Nandita Yagnik, Esq., New Product Development, 
PHLX, to Margaret Blake, Office of Supervision, Division of Market 
Regulation, Commission (December 23, 1996 and January 2, 1997).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    PHLX proposes to list and trade European-style index options 3 
and LEAPS4 on the PHLX Semiconductor index. The European-style 
index options would trade side-by-side with the existing American-style 
Semiconductor index options.5 With the exception of the exercise 
style, the two indices are otherwise identical.6
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    \3\ A European-style option may be exercised only during a 
specified period before the option expires.
    \4\ LEAPS are long-term index options having up to 36 months to 
expire.
    \5\ See Securities Exchange Act Release No. 34546 (August 4, 
1994) 59 FR 43881 (order approving the listing and trading of 
options and long term options on the PHLX Semiconductor Index).
    \6\ A list of the specific stocks together with their price, 
market value, and weight in the index is attached as Exhibit B to 
the filing and is available for review in the Public Reference 
Section of the Commission, or the principal office of the PHLX.
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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, PHLX included statements 
concerning the purpose of and basis for the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. PHLX 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

    PHLX proposes to list and trade European-style options on PHLX's 
Semiconductor index.7 This index would trade side-by-side with the 
American-style Semiconductor index options presently listed and trading 
on the Exchange. The proposed index options would have the same 
specifications as the American-style index options with the exception 
of the exercise style.8 PHLX would differentiate the proposed 
European-style Semiconductor index options by using the symbol SXE, 
while the symbol for the American-style index options would remain SOX. 
The Exchange will provide notice to its membership and the public prior 
to the effectiveness of this filing emphasizing the difference between 
the symbols and the exercise style of both index options. Following 
Commission approval, the Exchange agrees that on a quarterly basis, it 
will notify its membership of the differentiation between the two index 
options, their exercise styles, and the aggregation of position limits 
for European-style and American-style options on PHLX's Semiconductor 
index.
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    \7\ The Semiconductor index is a price weighted index consisting 
of 16 stocks of companies listed on the New York or NASDAQ stock 
exchanges which are primarily involved in the design, manufacture, 
sale and distribution of Semiconductors used in computer and other 
electronic device manufacturing. As of the close of trading on 
October 14, 1996 the index had a value at 195.70. The Semiconductor 
index had a two for one split on July 24, 1995.
    \8\ The European-style options on PHLX's Semiconductor index 
will be a.m. settled like the American-style options currently 
trading on the Semiconductor index.
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    The Exchange received numerous customer requests for a European-
style Semiconductor Index option indicating that many investors prefer 
to trade index options that cannot be exercised except on the last 
trading day prior to expiration. European-style index options have 
certain advantages, including the elimination of the risk of early 
exercise. For example, investors holding spread positions would not 
have to be concerned that one leg of a short position can be exercised 
prior to expiration. The elimination of the early exercise also allows 
the investor to engage in long range planning and long range 
strategies. However, the Exchange also recognizes the great success of 
the existing American-style option which allows those investors who 
like the early exercise feature to have that ability.
    The exercise price of the options will be set at 5 point intervals. 
Additional exercise prices will be added in accordance with PHLX Rule 
1101A(a). The last trading day for expiring contracts will be the 
Thursday before the third Friday of the expiration month. PHLX will 
trade consecutive and cycle month series of the options pursuant to 
Rule 1101A. Specifically, there will be three expiration months from 
the March, June, September, December cycle plus at least two additional 
near term months. LEAPS will also be traded on the Index pursuant to 
Exchange Rule 1101A(b)(iii). The Semiconductor index is an industry 
index, and therefore the PHLX will employ position limits and exercise 
limits pursuant to PHLX Rules 1001A(b)(i) and 1002A respectively. The 
position and exercise limits will be aggregated with the American-style 
index options presently trading on the Semiconductor index. Therefore, 
the aggregated position limit will be 15,000 contracts.9 The 
options will trade during the hours of 9:30 a.m. and 4:10 p.m. eastern 
time.
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    \9\ See Securities Exchange Act Release No. 37863 (October 28, 
1996), 61 FR 56599 (order approving an increase in Narrow-Based 
index option position and exercise limits).
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    The options will be traded pursuant to current PHLX rules governing 
the trading of the index options, particularly PHLX Rules 1000A through 
1102A and generally, PHLX Rules 1000 to 1072. The Exchange also 
represents that surveillance procedures currently used to monitor the 
trading in each of the Exchange's other index options will also be used 
to monitor trading in options on the Index. These procedures include 
having complete access to the trading activity in the underlying 
securities which are all traded on either the NYSE or NASDAQ. In 
addition, the Intermarket Surveillance Group Agreement (``ISG 
Agreement'') dated July 14, 1983, as amended on January 29, 1990, will 
be applicable to the trading of options on the index.
    PHLX believes the proposed rule change is consistent with Section 6 
of the Act in general, and in particular, with Section 6(b)(5),10 
in that it is designed to promote just and equitable principles of 
trade, facilitate transactions in securities, while protecting 
investors and the public

[[Page 2708]]

interest. Specifically the Exchange believes that the proposal provides 
investors with a choice that allows the investor to choose the exercise 
style most suitable to their investment needs. In addition, the 
Exchange believes that the proposal will not create investor confusion 
regarding the two indices because of the difference in the symbols 
representing the two index options.
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    \10\ 15 U.S.C. Sec. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    PHLX believes that the proposal does not impose 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

    Comments were neither solicited nor received.

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

    The foregoing rule change shall become operative 30 days after the 
date of filing the amended proposal,\11\ or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest pursuant to section 19(b)(3) of the Securities 
Exchange Act of 1934 and subparagraph (e) of Securities Exchange Act 
Rule 19b-4. At any time within 60 days of the filing of such proposed 
rule change, the Commission may summarily abrogate such rule change if 
it appears to the Commission that such action is necessary or 
appropriate in the public interest for the protection of investors or 
otherwise in furtherance of the purposes of the Securities Exchange Act 
of 1934.
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    \11\ PHLX submitted the last amendment on January 6, 1997 and 
therefore the 30 days will be calculated from this date.
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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, 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 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 PHLX. All submissions 
should refer to File No. SR-PHLX-96-46 and should be submitted by 
February 7, 1997.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12) (1996).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-1217 Filed 1-16-97; 8:45 am]
BILLING CODE 8010-01-M