[Federal Register Volume 62, Number 178 (Monday, September 15, 1997)]
[Notices]
[Pages 48332-48333]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24304]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39030; File No. SR-PHLX-97-25]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change and Notice of Filing
and Order Granting Accelerated Approval of Amendment No. 1 Thereto,
Relating to Elimination of the Enhanced Parity Split for the Specialist
in the 3D German Mark Foreign Currency Options
September 8, 1997.
I. Introduction
On May 29, 1997, the Philadelphia Stock Exchange, Inc. (``Phlx'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to eliminate from Exchange Rule
1014(h) (``Rule'') the enhanced parity split for the specialist in the
dollar denominated delivery German Mark (``3D'') foreign currency
options (``FCOs'').
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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The proposed rule change was published for comment in the Federal
Register on July 10, 1997.\3\ No comments were received on the
proposal. On August 6, 1997, the Phlx submitted Amendment No. 1 to the
proposed rule change.\4\ This order approves the proposal as amended.
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\3\ Securities Exchange Act Release No. 38808 (July 1, 1997), 62
FR 37111 (July 10, 1997).
\4\ See letter from Michele R. Weisbaum, Vice President and
Associate General Counsel, Phlx to David Sieradzki, Attorney, SEC,
dated August 6, 1997 (``Amendment No. 1''). In Amendment No. 1, the
Phlx proposed to amend Option Floor Procedure Advice B-7, Time
Priority of Bids/Offers in Foreign Currency Options, to delete text
describing the enhanced specialist split for 3D options.
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II. Description of the Proposal
In January, 1995, the Exchange amended the Rule to adopt an
enhanced split for its specialist in 3D FCOs \5\ in order to encourage
the specialist to make deeper markets to attract order flow.\6\ The
Rule provides that the Foreign Currency Option Committee (``the
Committee'') would conduct a review of the entitlement to the enhanced
parity split at the end of the first year and then every 6 months
thereafter. Pursuant to the most recent review, the Committee
determined to eliminate the enhanced split which was only applicable to
this one product traded on the Foreign Currency Option Floor of the
Exchange. The specialist in the product has not objected to the
elimination of the enhanced split. In fact, the specialist firm trading
this product has indicated that enhanced split is not particularly
useful to the firm and that the firm does not generally take advantage
of it.\7\ In addition, the Exchange has represented that the order size
in this product is generally not large enough to trigger the enhanced
split.\8\ Although the Exchange is proposing to eliminate the
enhancement at this time, it represents it is continuing to study the
potential use of enhanced splits for the Foreign Currency Option Floor
on a broader basis.\9\ By eliminating the current enhanced split,
parity and priority will be determined in accordance with Exchange Rule
119 and the remainder of section (h) to Rule 1014.
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\5\ 3D FCOs are cash-settled, European-style, cash/spot FCO
contracts on the German mark that trade in one-week and two-week
expirations. See Securities Exchange Act Release No. 33732 (Mar. 8,
1994), 59 FR 12023 (Mar. 15, 1994).
\6\ See Securities Exchange Act Release No. 35177 (Dec. 29,
1994), 60 FR 2419 (Jan 9, 1995) (``Original Split Approval Order'').
\7\ See letter from Michele R. Weisbaum, Vice President and
Associate General Counsel, Phlx to David Sieradzki, Attorney, SEC,
dated June 30, 1997 (``Phlx Letter'').
\8\ Telephone conversation between Michele R. Weisbaum, Vice
President and Associate General Counsel, Phlx, James T. McHale,
Special Counsel, SEC and David Sieradzki, Attorney, SEC (June 19,
1997). Rule 1014(h) provides that ``[t]his enhanced split will not
apply where a customer bid/offer for under 100 contracts has time
priority.''
\9\ The Exchange represents that it is in the process of
considering new and different types of parity splits that, if
adopted, would be applicable to all products traded by specialists
on the foreign currency option floor or at least to a broader range
of specialist traded products. See Phlx Letter, supra note 7.
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III. Discussion
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, with the requirements of Section 6(b).\10\ Specifically,
the Commission believes the proposal is consistent with the Section
6(b)(5) \11\ requirements that the
[[Page 48333]]
rules of an exchange be designed to promote just and equitable
principles of trade, to prevent fraudulent and manipulative acts, and,
in general, to protect investors and the public interest.\12\
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
\12\ In approving this rule, the Commission has considered the
proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
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The Exchange has represented that the enhanced parity split for 3D
FCOs is not frequently used and has not served as an effective means of
attracting order flow to the Exchange. When the enhanced parity split
for 3D FCOs was initially approved, the Commission stated that it was
reasonable for the Exchange to grant these benefits to specialists as
long as they did not unreasonably restrain competition or harm
investors. In addition, the Commission believed that granting these
benefits to specialists was within the business judgement of the
Exchange.\13\ Similarly, the Commission believes that it is within the
business judgement of the Exchange to eliminate these benefits to
specialists, provided that competition is not unreasonably restrained
nor investors harmed. Accordingly, the Commission believes that it is
reasonable for the Exchange to rescind the enhanced parity split and
examine other potential methods of attracting order flow to the
Exchange.
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\13\ See Original Split Approval Order, supra note 6.
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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 filing thereof in the Federal Register.
Amendment No. 1 does not change the nature of the proposal, but merely
conforms Options Floor Procedure Advice B-7 to reflect the elimination
of the enhanced specialist split for 3D FCOs. Further, the Commission
notes that the original proposal was published for the full 21-day
comment period and no comments were received by the Commission.
Accordingly, the Commission believes it is appropriate to approve
Amendment No. 1 to the Exchange's proposal on an accelerated basis.
IV. Solicitation of Comments
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. 552, will be available for inspection and
copying at the Commission's Public Reference Room. Copies of such
filing will also be available for inspection and copying at the
principal office of the above-mentioned self-regulatory organization.
All submissions should refer to File No. SR-Phlx-97-25 and should be
submitted by October 6, 1997.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\14\ that the proposed rule change (SR-Phlx-97-25) is approved, as
amended.
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\14\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-24304 Filed 9-12-97; 8:45 am]
BILLING CODE 8010-01-M