[Federal Register Volume 63, Number 159 (Tuesday, August 18, 1998)]
[Notices]
[Pages 44298-44299]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-22207]



[[Page 44298]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40318; File No. SR-Phlx-98-32]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to an Extension of the Permissible Maturity for 
FLEX Equity Options

August 11, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 24, 1998, the 
Philadelphia Stock Exchange (``Phlx'' or ``Exchange'') 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 self-regulatory organization. The Exchange has 
designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (e)(6) of Rule 19b-4 under 
the Act \2\ which renders the proposal effective upon receipt of this 
filing by the Commission.\3\ 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).
    \2\ 17 CFR 240.19b-4(e)(6).
    \3\ The Exchange has represented that the proposed rule change: 
(i) will not significantly affect the protection of investors or the 
public interest; (ii) will not impose any significant burden on 
competition; and (iii) will not become operative for 30 days after 
the date of this filing, unless otherwise accelerated by the 
Commission. The Exchange also have provided at least five business 
days notice to the Commission of its intent to file this proposed 
rule change, as required by Rule 19b-4(e)(6) under the Act. Id.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Exchange Rule 1079(a)(6)(B), FLEX 
Index and Equity Options, to permit flexible (``FLEX'') equity options 
\4\ to have a term of up to five years when requested by a Requesting 
Member, if the Regulatory Services Post personnel determines that 
sufficient liquidity exists among FLEX equity participants.
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    \4\ FLEX equity options are flexible exchange-traded options 
contracts which overlie equity securities. In addition, FLEX equity 
options provide investors with the ability to customize basic option 
features including size, expiration date, exercise style, and 
certain exercise prices.
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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
    The Exchange is proposing to allow FLEX equity options traded on 
the Exchange to have a maturity beyond three years and up to five years 
in certain circumstances. Currently, FLEX equity options, by operation 
of Rule 1079(a)(6)(B), are limited to a maturity of three years.
    When the Exchange filed to list and trade FLEX equity options \5\ 
it determined to limit the maturity of these options to three years 
because, unlike FLEX Index options which could have a maturity of up to 
five years, there was concern that there would not be sufficient 
liquidity in many equity options to support series with a longer term 
to expiration. Since it has traded FLEX equity options, however, the 
Exchange has had numerous requests to extend the maturity of FLEX 
equity options to five years. Among the reasons in seeking an extension 
in the allowable maturity is that these longer expiration FLEX equity 
options might be used to hedge the longer term issuances of structured 
products linked to the returns of an individual stock. Thus, the 
proposed rule change would permit the longer term FLEX equity options 
to be listed when requested by the Requesting Member if the Regulatory 
Services Post personnel determined that sufficient liquidity existed 
among FLEX equity participants.\6\ By allowing for the extension of the 
maturity of FLEX equity options to five years in situations where there 
is demand for a longer term expiration and where there is sufficient 
liquidity to support the request, the proposed rule change will better 
serve the needs of Phlx's customers and the Exchange members who make a 
market for such options.\7\
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    \5\ See Exchange Act Release No. 39549 (January 14, 1998), 63 FR 
3601 (January 23, 1998) (SR-Phlx-96-38).
    \6\ The Exchange has represented that Regulatory Services Post 
personnel refer to the two Regulatory Services employees who work at 
the Surveillance Post on the options floor. The Exchange has also 
provided that, if the Regulatory Services Post personnel are 
unavailable, the Exchange may designate other qualified Exchange 
employees as substitutes. These ``other qualified Exchange 
employees'' include persons from the Market Surveillance group, such 
as the Vice President of Market Surveillance or his or her designee, 
or persons from the Regulatory Services group, such as the Vice 
President of Regulatory Services or his or her designee. The 
Exchange has also represented that it will seek approval from the 
Commission prior to any deviation from the above method of selecting 
Regulatory Services Post personnel. Telephone Call between Linda 
Christie, Phlx, and Christine Richardson, Commission, August 10, 
1998.
    \7\ The Commission has previously approved substantially similar 
proposals by the American Stock Exchange (``Amex'') and Chicago 
Board Options Exchange (``CBOE''). See Exchange Act Release Nos. 
39706 (March 2, 1998), 63 FR 11469 (March 9, 1998) (SR-Amex-98-07); 
and 39524 (January 8, 1998), 63 FR 3009 (January 20, 1998) (SR-CBOE-
97-57).
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2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with Section 6(b) \8\ of the Act in general and further the objectives 
of Section 6(b)(5) \9\ in particular in that it is designed to promote 
just and equitable principles of trade by providing longer expiration 
FLEX equity options that may be used by investors to hedge the longer 
term issuance of structured products linked to returns of an individual 
stock.\10\
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 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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B. Self-Regulatory Organization's Statement on Burden on Competition

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

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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    This proposed rule filing has been filed by the Exchange as a 
``non-controversial'' rule change pursuant to Section 19(b)(3)(A)(i) of 
the Act \11\ and subparagraph (e)(6) of Rule 19b-4

[[Page 44299]]

thereunder.\12\ Consequently, because the foregoing proposed rule 
change: (1) does not significantly affect the protection of investors 
or the public interest; (2) does not impose any significant burden on 
competition; and (3) does not become operative until August 24, 1998, 
more than 30 days from July 24, 1998, the date on which it was filed, 
and the Exchange provided the Commission with written notice of its 
intent to file the proposed rule change at least five days prior to the 
filing date, it has become effective pursuant to Section 19(b)(3)(A) of 
the Act and Rule 19b-4(e)(6) thereunder.
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    \11\ 15 U.S.C. 78s(b)(3)(A)(i).
    \12\ 17 CFR 240.19b-4(e)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submission 
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 also will be 
available for inspection and copying at the principal office of the 
Phlx. All submissions should refer to File No. SR-Phlx-98-32 and should 
be submitted by September 8, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-22207 Filed 8-17-98; 8:45 am]
BILLING CODE 8010-01-M