[Federal Register Volume 63, Number 92 (Wednesday, May 13, 1998)]
[Notices]
[Pages 26667-26668]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-12705]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39964; File No. SR-Phlx-98-09]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. To Revise Exchange Rule 
1101A Relating To Index Options Strike Price Intervals

May 6, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on February 5, 1998, the 
Philadelphia Stock Exchange, Inc. (``Exchange'' or ``Phlx'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items, I, II, and III below, which Items 
have been prepared by the Exchange. 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).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed rule Change

    The Exchange seeks to amend Exchange rule 1101A(a), ``Terms of 
Option Contracts,'' to revise the strike (exercise) price intervals for 
index options. The proposal would change the intervals between index 
option strike prices to facilitate the prompt dissemination of quote 
information and to more accurately reflect the strike prices currently 
being listed.
    Currently, Rule 1101A(a) establishes the strike price interval at 
$5, except: (i) where the strike price exceeds $500, the strike price 
interval may be $10; and (ii) where the strike price exceeds $1,000, 
the interval may be $20. The Exchange may also determine to list strike 
prices at wider intervals in ``out-of-the-money'' or far term series, 
generally $25, except: (i) where the strike price exceeds $500, the 
interval may be $50; and (ii) where the strike price exceeds $1,000, 
the interval may be $100. Also, where strike price intervals would be 
greater than $5, the Exchange may list alternative strike prices at $5 
intervals in response to demonstrated customer interest or specialist 
request.
    At this time, the Exchange is proposing an index option strike 
price interval of $5 for the three consecutive near-term months, $10 
for the fourth month, and $30 for the fifth month. However, the 
Exchange will retain the ability to list alternative strike prices at 
$5 intervals in response to demonstrated customer interest or 
specialist request.
    The text of the proposed rule change is available at the Office of 
the Secretary, the Exchange, 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 Exchange 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 Exchange 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
    During recent years, the number of new option products and total 
series listed by the national securities exchanges has increased 
dramatically, thereby increasing the number of continuous quote changes 
disseminated by the exchanges to the Options Price Reporting Authority 
(``OPRA''), and by OPRA to securities information vendors. In an effort 
to curb the growth of strike price dissemination and to more accurately 
reflect the strike prices currently being listed, the Exchange proposes 
to amend Exchange rule 1101A(a) to change the intervals between index 
option strike prices.
    Currently, Exchange Rule 1101A(a) establishes a formula for strike 
price intervals which takes into consideration the index value and time 
remaining until expiration. The Rule establishes a strike price 
interval at $5, except: (i) where the strike price exceeds $500, the 
strike price interval may be $10; and (ii) where the strike price 
exceeds $1,000, the interval may be $20. The Exchange may also 
determine to list strike prices at wider intervals in ``out-of-the-
money''

[[Page 26668]]

or far term series, generally $25, except: (i) where the strike price 
exceeds $500, the interval may be $50; and (ii) where the strike price 
exceeds $1,000, the interval may be $100. Also, where strike price 
intervals would be greater than $5, the Exchange may list alternative 
strike prices at $5 intervals in response to demonstrated customer 
interest or specialist request.
    The Exchange's proposed rule change would establish new strike 
price intervals of: (i) $5 for the three consecutive near-term months; 
(ii) $10 for the fourth month; and (iii) $30 for the fifth month. 
However, the Exchange would retain the ability to list alternative 
strike prices at $5 intervals in response to demonstrated customer 
interest or specialist request, as well as to list strike prices at 
wider intervals. The Exchange believes the continued ability to add 
strike prices at alternative $5 intervals in response to customer 
interest will maintain flexibility in the marketplace and will preserve 
specific trading opportunities.
    The current version of Exchange Rule 1101A(a) was adopted in 
1996,\2\ and was likewise intended to improve the Exchange's strike 
price dissemination policy. Based on its experience implementing Rule 
1101A(a), the Exchange has determined to revise and simplify the Rule 
for easier administration. The Exchange believes the revised Rule will 
more accurately reflect the needs of the marketplace. Specifically, 
basing the strike price interval on an option's value (in the case of 
option greater than $500 or $1000) has not proven useful. The Exchange 
believes that widening the interval in far-term series should continue 
to reduce the number of outstanding series listed.
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    \2\ See Securities Exchange Act Release No. 37003 (Mar. 21, 
1996), 61 FR 13913 (Mar. 28, 1996).
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    The Exchange also believes that listing far-term series and long-
term options at wider strike price intervals should improve the 
efficiency of quotation dissemination and facilitate speedy pricing by 
reducing the number of listed strike prices. The Exchange believes the 
immediate effect should be a reduction in the number of index option 
strike prices. Furthermore, the Exchange believes it will experience a 
reduction in its systems capacity and usage as well as its operational 
burdens. For instance, strike prices currently occupy trading floor 
screen space and consume transmission line traffic to OPRA and outside 
vendors that disseminate Exchange trading information. Further, the 
role of the specialist in monitoring multitudes of strike prices should 
be enhanced.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6 of the Act,\3\ in general, and with Section 6(b)(5),\4\ in 
particular, in that it is designed to promote just and equitable 
principles of trade; foster cooperation and coordination with persons 
engaged in regulating, clearing, settling, processing information with 
respect to, and facilitating transactions in securities; and remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system. The Exchange further believes that the 
proposed rule change will protect investors and the public interest by 
eliminating excess strike prices, thereby improving quotation 
dissemination capabilities, while maintaining investors' flexibility to 
better trailer index option trading to meet their investment 
objectives. According to the Exchange, the proposed rule change strikes 
a reasonable balance between reducing option series and accommodating 
the needs of investors.
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    \3\ 15 U.S.C. 78f.
    \4\ 15 U.S.C. 7f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe the proposed rule change will impose 
any inappropriate burden on completion.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange did not solicit or receive written comments with 
respect to the proposed rule change.

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

    Within 35 days of the date of 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 Exchange 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 date, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. 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 submissions, 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 persons, 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 in the 
Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. 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-98-09 and should be 
submitted by June 3, 1998.

    For the Commission by the Division of Market Regulations, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland
Deputy Secretary.
[FR Doc. 98-12705 Filed 5-12-98; 8:45 am]
BILLING CODE 8010-01-M