[Federal Register Volume 62, Number 99 (Thursday, May 22, 1997)]
[Notices]
[Pages 28092-28093]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13457]



[[Page 28092]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38641; File No. SR-NYSE-97-02]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of the Proposed Rule Change by the New 
York Stock Exchange, Inc. Relating to the Establishment of a 4:02 p.m. 
Closing Time for Equity and Narrow-Based Index Options Trading

May 14, 1997.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\  and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on January 29, 1997, 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. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons 
and to grant accelerated approval of the proposed rule change.
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    \1\ 15 U.S.C. Sec. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing: (1) to change the time pursuant to which 
a member organization may tender an index stock group option exercise 
notice to five minutes after the close of trading; and (2) to change 
the closing time for the trading of equity options and industry index 
stock group options on the Exchange from 4:10 p.m. to 4:02 p.m. 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

1. Purpose
(a) Exercise Notice Cut-Off Time
    Supplementary Material .10 of Exchange Rule 780 (Exercise of Option 
Contracts) provides that in connection with the exercise of industry 
index stock group options:
    (i) A member organization may not tender an exercise notice unless 
a memorandum has been prepared by no later than 4:15 p.m.;
    (ii) In the case of exercise of 25 or more contracts, an exercise 
advice must be delivered to the Exchange by 4:15 p.m.; and
    (iii) Member organizations must accept exercise instructions until 
4:15 p.m.

Because the changes to Exchange Rule 792 (Days and Hours for Options 
Trading) that the Exchange proposes would change the closing time for 
trading in industry index stock group options from 4:10 p.m. to 4:02 
p.m., the Exchange proposes to reduce the three 4:15 deadlines set 
forth above by a commensurate amount (that is, from 4:15 p.m. to 4:07 
p.m.). The Exchange feels that it is appropriate to make generic the 
three deadlines (that is, the Exchange prefers ``five minutes after the 
close of trading'' to ``4:07 p.m.'') in light of the fact that trading 
in the underlying equities need not always close at 4:00 p.m., and 
similarly, trading in industry index stock group options need not 
always close at 4:02 p.m. For instance, a day's trading may trigger a 
``circuit breaker'' that ends the trading day early or the Exchange may 
exercise its discretion to close trading early (as it sometimes does on 
the eve of holidays).
(b) Equity Option and Industry Index Options Closing Time
    Paragraph (a) of Exchange Rule 792 specifies that members may 
effect equity options transactions on the Exchange Floor on each 
trading day until ten minutes after the close of equities trading on 
the Floor and may effect transactions on the Exchange Floor in options 
on industry or broad index stock groups until fifteen minutes after 
that close of equities trading. (Equities trading currently closes at 
4:00 p.m.)
    The Exchange proposes to amend the closing time for both equities 
option trading and trading in industry index stock group options to two 
minutes after the close of equities trading. (The Exchange does not 
propose to amend the closing time for broad index stock group options 
at this time.)
    The original purpose for the ten-minute differential for equities 
options and the fifteen minute differential for industry index stock 
group options was to allow options traders an appropriate opportunity 
in which to respond to equity trading that might take place just before 
the close. That opportunity to respond is important because pre-closing 
equity trades may result in post-closing reports of trades in an equity 
security. Ten minutes (in the case of equities options) and fifteen 
minutes (in the case of industry index stock group options) were 
thought to be necessary because it sometimes took several minutes after 
the close of equity trading for the tape to display some of those latet 
trades. However, technological improvements in the time it takes to 
process transactions and to report them over the tape make it no longer 
necessary to maintain the 10-minute differential for equity options and 
the 15-minute differential for industry index stock group options.
    Shortening the differential to two minutes moves the closing time 
for options trading much closer to the closing time for equity trading, 
while maintaining an appropriate opportunity for options traders to 
respond to last-minute trading on the equity floor.
2. Statutory Basis
    The proposed rule changes further the objectives of section 6(b)(5) 
of the Act, in that they are designed to promote just and equitable 
principles of trade, and 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 Exchange states that the proposed rule change 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

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

[[Page 28093]]

III. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    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, Section 6(b)(5).\3\ Section 6(b)(5) requires, among other 
things, that the rules of an exchange be designed to promote just and 
equitable principles of trade, perfect the mechanism of a free and open 
national market, and in general, to further investor protection and the 
public interest.
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    \3\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that it is reasonable for the Exchange to 
amend its rules to close trading in equity and narrow-based index 
options at 4:02 p.m., versus the existing 4:10 p.m. close. Changing the 
closing time for these options to 4:02 p.m. preserves the Exchange's 
\4\ stated need to continue trading options for some period of time 
after the close of trading in the underlying securities. The Exchange 
has stated that this two minute extension from the close of the stock 
markets will allow options traders to respond to late reports of 
closing prices over the consolidated tape, thereby bringing options 
quotes into line with the closing price of the underlying security. Due 
to improvements in the processing and reporting of transactions, the 
Exchange believes that two minutes of options trading after the 
underlying equities close is sufficient to bring options quotes into 
line with the closing prices of the underlying securities.
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    \4\ The Commission notes that the NYSE has recently ceased all 
equity and index options trading on its floor, transferring its 
options business to the Chicago Board Options Exchange, Inc. 
(``CBOE''). Release No. 34-38542 (April 23, 1997) (Order approving 
NYSE-97-05). Nevertheless, the Commission believes it is appropriate 
to approve the current rule change, particularly since NYSE may 
reenter the options business at a later date.
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    As discussed in similar rule filings submitted to the Commission, 
the CBOE and the American Stock Exchange, Inc. (``Amex'') state that a 
number of issuers have adopted the practice of disseminating important 
corporate news after the close of trading on the primary equity 
exchange in order to minimize the short-term disruptive effect of the 
news on the market price of the stock by allowing investors the 
opportunity to digest the significance of the news after the markets 
have closed.\5\ These announcements, if made while options markets are 
still trading, impact narrow-based index options, as well as equity 
options, because a significant news announcement on one component of a 
narrow-based index may have substantial impact on that index. As a 
result, the exchanges are often deluged with option orders as a result 
of such significant news announcements after 4:00 p.m. The exchanges 
state that these orders may have a disruptive effect on the options 
market at a time when the exchanges are attempting to close in a fair 
and orderly fashion.
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    \5\ See SR-CBOE-96-71 and SR-AMEX-96-45.
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    Accordingly, the Commission finds that a closing time of 4:02 p.m. 
for equity and narrow-based index options is a reasonable means to 
address the Exchange's desire to balance the need for some extended 
trading period with the need to prevent negative impact from issuers' 
major news announcements made while only the options markets remain 
open.
    The Commission also finds that it is reasonable for the Exchange to 
amend its rules to remove the reference to the closing time and instead 
to specify that index stock group option exercise notices must be given 
five minutes after the close of trading.
    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice thereof in the Federal Register. The Commission notes that it is 
approving this proposal on the same date that it is approving nearly 
identical rule change proposals submitted by the Amex, CBOE, and 
Pacific Exchange, Inc. (``PCX''). These rule filings have been 
published in the Federal Register \6\ and were subject to a full notice 
and comment period. No comments were received on the proposals. 
Accordingly, the Commission believes, consistent with Section 6(b)(5) 
of the Act, that good cause exists to approve the proposed rule change 
on an accelerated basis.
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    \6\ See SR-AMEX-96-45, Release No. 34-38123 (January 6, 1997), 
62 FR 1786 (January 13, 1997); SR-CBOE-96-71, Release No. 34-37988 
(November 26, 1996), 61 FR 64405 (December 4, 1996); and SR-PSE-96-
41, Release No. 34-37920 (November 4, 1996), 61 FR 58434 (November 
14, 1996).
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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. Sec. 552, will be available for inspection and copying in 
the Commission's Public Reference Room. 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-NYSE-97-02, and 
should be submitted by June 12, 1997.

V. Conclusion

    For the reasons discussed above, the Commission finds that the 
proposal is consistent with the Act, and, in particular, Section 6 of 
the Act.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\7\ that the proposed rule change (SR-NYSE-97-02) is approved.

    \7\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 97-13457 Filed 5-21-97; 8:45 am]
BILLING CODE 8010-01-M