[Federal Register Volume 62, Number 106 (Tuesday, June 3, 1997)]
[Notices]
[Pages 30365-30366]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14353]



[[Page 30365]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38679; International Series Release No. 1086; File No. 
SR-PHLX-97-07]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change And Notice of Filing and Order Granting Accelerated Approval of 
Amendment No. 1 of the Philadelphia Stock Exchange, Inc. Regarding 3D 
Foreign Currency Option Holiday Expirations

May 27, 1997.
    On March 14, 1997, the Philadelphia Stock Exchange, Inc. (``PHLX'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ a proposed rule change 
not to list any 3D foreign currency options (``3D FCOs'') that would 
expire during the period December 20 through and including January 2 of 
each year.
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    \1\ 15 U.S.C. Sec. 78s(b)(1).
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    Notice of the proposed rule change, together with the substance of 
the proposal, was published in the Federal Register.\2\ No comment 
letters were received. The Exchange subsequently filed Amendment No. 1 
to the proposal on April 18, 1997.\3\ This order approves the proposed 
rule change, as amended.
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    \2\ Securities Exchange Act Release No. 38527 (April 18, 1997), 
International Series Release No. 1075, 62 FR 20055 (April 24, 1997).
    \3\ Amendment No. 1 states that the Exchange will provide notice 
to its membership that it is not listing any 3D FCOs that would 
expire during the period December 20 through and including January 2 
of each year: (1) upon approval of this proposed rule change; (2) in 
any marketing literature respecting the 3D FCOs which is printed in 
the future; (3) in early November of each year to remind the 
membership; and (4) in a circular at the time when the 3D FCO 
contracts that are not being listed, would have been listed 
(approximately early in December). Letter from Michele R. Weisbaum, 
Vice President and Associate General Counsel, PHLX, to Karl Varner, 
Staff Attorney, Office of Market Supervision, Division of Market 
Regulation, SEC, dated April 18, 1997.
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I. Background

    The Exchange proposes not to list any 3D FCOs that would expire 
during the period December 20 through and including January 2 of each 
year. 3D FCOs are presently traded on the PHLX on the German mark and 
the Japanese yen.\4\ These are cash settled options that have an 
expiration every Monday at 11:59 p.m. Eastern Time (or the following 
business day if Monday is a holiday). The settlement value is based on 
a formula which averages random samples of bids and offers from 
contributor banks. The Exchange's experience with the 3D FCO on the 
German mark over the last two years has shown that it is often 
difficult to gather enough updated quotes during the Christmas and New 
Year's weeks each year. Thus, the Exchange believes the integrity of 
the derived settlement value may be called into question. Accordingly, 
the Exchange has determined not to list for trading any series of 3D 
FCOs which would expire between December 20 each year and January 2 of 
the following year. As a result of approval of this change, in 1997 the 
last expiration date of 3D FCOs would occur on December 15, 1997. After 
the December 15 expiration, the next 3D FCO expiration would occur on 
January 5, 1998.
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    \4\ The Exchange has traded 3D German marks since September of 
1994. See Securities Exchange Act Release No. 33732 (March 8, 1994), 
59 FR 12023 (March 15, 1994). The Exchange recently started trading 
3D options on the Japanese yen on February 24, 1997. See Securities 
Exchange Act Release No. 36505 (Nov. 22, 1995), International Series 
Release No. 889, 60 FR 61277 (Nov. 29, 1995).
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    The Exchange also proposed to adopt a permanent list of holidays 
which, if they fall on a Monday, would cause the 3D FCOs scheduled to 
expire that day to expire the next business day pursuant to Exchange 
Rule 100(b)(21)(iii).\5\ The holidays are: Martin Luther King, Jr. Day; 
Memorial Day; Presidents Day; Independence Day; Easter Monday; Labor 
Day; May Day; Columbus Day and Veterans Day.
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    \5\ The rule originally required expirations to fall back to the 
preceding business day (usually Friday) when Monday was a holiday 
but was changed so that the options would still capture weekend 
risk. See Securities Exchange Act Release No. 35097 (Dec. 13, 1994), 
59 FR 65559 (Dec. 20, 1994).
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II. Discussion

    The Commission finds 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 promote just and equitable principles 
of trade and to protect investors and the public interest in that it 
allows the Exchange to forego or postpone expirations of 3D FCOs on 
days when the integrity of the settlement value may be questionable. As 
noted above, the Exchange's experience with the 3D FCO on the German 
mark over the last two years has shown that it is often difficult to 
gather enough updated bids and offers from contributor banks during the 
Christmas and New Year's weeks each year. Although the Exchange does 
not have any trading experience with expiring 3D FCOs on the Japanese 
yen during the month of December, the Commission believes that, based 
on PHLX's experience with the German mark, it is reasonable for the 
Exchange to conclude that the same problems in obtaining updated quotes 
would occur for FCOs in the Japanese yen.\6\ As a result of these 
concerns, the Commission believes that the Exchange's decision not to 
list 3D FCOs during the Christmas and New Year's weeks each year will 
help to maintain the integrity of the settlement values by ensuring 
that 3D FCOs will not be expiring when the available pool of bids and 
offers may be stale.
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    \6\ See note 4 supra.
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    Further, to avoid confusion, the Exchange has committed to notify 
members in early November of each year that 3D FCOs expiring between 
December 20 and January 2 will not be available and again in early 
December when the PHLX announces 3D FCOs about to be listed. The PHLX 
has also committed to include in any marketing information on 3D FCOs 
the unavailability of expirations during the holiday period. These 
modifications should provide members and investors with adequate 
information far enough in advance to make any desired adjustments to 
their trading strategies due to the lack of 3D FCOs expiring during the 
holiday period.
    The Commission also finds that by adopting a permanent schedule of 
holidays, the Exchange and investors will know for certain, in advance, 
when a holiday expiration will occur.\7\ The holidays on the schedule 
were chosen because they are either U.S. bank holidays or European bank 
holidays (May Day). On those days, the interbank foreign exchange 
participants which provide quotations for the settlement value are not 
open for business so it would be very difficult to obtain enough 
updated quotations to provide a random sample. The Commission also 
believes that publishing the list of holidays to the Exchange's 
membership in a circular each year and through weekly expiration memos 
that note when certain options expire on a day other than a Monday due 
to a holiday should adequately inform Exchange members of the 3D FCOs 
that will not be listed during the holidays.
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    \7\ See note 5 and accompanying text.
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    The Commission finds good cause for approving Amendment No. 1 to 
the proposed rule change prior to the thirtieth day after the date of 
publication of notice of the filing of the proposed rule change in the 
Federal Register to require the Exchange to begin providing notice to 
its membership of the dates when 3D FCOs will not be listed, without 
further delay. Amendment No. 1 ensures that members will have adequate 
notice that 3D FCOs will not be listed if their

[[Page 30366]]

expirations would occur during the period December 20 through and 
including January 2 of each year. The Exchange will provide additional 
notices to their membership: (1) Upon approval of this proposed rule 
change; (2) in any marketing literature respecting the 3D FCOs which is 
printed in the future; (3) in early November of each year to remind the 
membership; and (4) in a circular at the time when the 3D FCO contracts 
that are not being listed, would have been listed (approximately early 
in December). These additional notices serve to minimize the potential 
for confusion concerning the application of the Exchange's rules 
regarding the dates of listing of 3D FCOs, and will ensure investors 
have adequate time to adjust their trading strategies if they so 
desire.
    The Commission also believes that Amendment No. 1 does not raise 
any significant new issues that require public notice prior to 
approval, because Amendment No. 1 only addresses the notification 
provided to the Exchange's membership concerning the dates the dates 
when 3D FCOs will not be listed and no comments were received on the 
substance of the original proposal. Accordingly, the Commission 
believes it is consistent with Section 6(b)(5) of the Act to approve 
Amendment No. 1 to the proposed rule change on an accelerated basis.
    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 1. 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. 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-97-07 and should be submitted by June 24, 1997.

III. Conclusion

    For the reasons discussed above, the Commission finds that the 
proposed rule change, as amended, is consistent with the Act and 
Section 6 of the Act in particular.
    It is therefore Ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change, SR-PHLX-97-07 be, and hereby is, 
approved.

    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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-14353 Filed 6-2-97; 8:45 am]
BILLING CODE 8010-01-M