[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