[Federal Register Volume 64, Number 15 (Monday, January 25, 1999)]
[Notices]
[Pages 3734-3735]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-1606]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40953; File No. SR-Phlx-99-01]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. to Modify Existing Rules Relating to Trading of the New 
European Currency, the Euro

January 15, 1999.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 6, 1999, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the Phlx. 
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.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx proposes to change the references to the European Currency 
Unit (``ECU'') to the New European currency (``Euro'') in the Phlx 
rules in response to the European Council's decision to convert the ECU 
to the Euro on a one-to-one basis as of January 1, 1999.
    The text of the proposed rule change is available at the Office of 
the Secretary, the Phlx, 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 Phlx 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 Phlx has prepared summaries, set forth in Sections 
A, B, and C below, of the most significant aspects of such statements.

[[Page 3735]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On May 11, 1998, the Exchange re-introduced the ECU for trading in 
the non-customized environment anticipating the advent of the Euro.\3\ 
Subsequently, the European Council agreed in the Maastrict Treaty to 
have a single European currency, the Euro. On January 1, 1999, the ECU 
converted to the Euro on a one-to-one basis. Accordingly, Phlx foreign 
currency options (``FCO'') contracts on the ECU converted to the Euro 
pursuant to Phlx Rule 1009(c).\4\ Phlx Rule 1009(c) states, in the 
event that any of the sovereign governments of the European Economic 
Community's European Monetary System issuing any of the above mentioned 
currencies should issue a new currency intended to replace the one of 
the above mentioned currencies as a standard unit of the official 
medium of exchange of such government. Such new currency also may be 
approved as an underlying currency for options transactions by the 
Exchange, subject to any approval criteria the Exchange may deem 
necessary or appropriate for the protection of investors.
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    \3\ See Securities Exchange Act Release No. 39940 (April 30, 
1998) 63 FR 25258 (May 7, 1998) (File No. SR-Phlx-98-17).
    \4\ The Commission notes that it was consulted by the Phlx prior 
to the conversion of the ECU to the Euro. On these facts, the 
Commission believes that the Euro replaces the previously approved 
ECU as the standard unit of the official medium of exchange of the 
European Council as required by Phlx Rule 1009(c). On different 
facts, however, the Exchange may need to submit a filing to the 
Commission, pursuant to Section 19(b)(2) of the Act, prior to 
trading an option on a new foreign currency intended to replace an 
existing foreign currency option.

Pursuant to Phlx Rule 1009(c), the Exchange believes that it is 
necessary and appropriate for investors that the Exchange recognize the 
conversion of the ECU to the Euro on a one-to-one basis and implement 
such changes to its FCO contracts, including options trading pursuant 
to Phlx Rule 1069. Because the ECU/Euro conversion was on a one-to-one 
basis, the Euro FCO contract size would be 62,500 Euros. The premium 
will be $.0044, per unit or $275 for an option contract having a unit 
of trading of 62,500, pursuant to Phlx Rule 1033. Pursuant to Rule 
1014, the bid-ask differential for the Euro options will be $.0005 
between the bid and the offer for each option contract for which the 
bid is $.0050 or less; no more than $.0010 where the bid is more than 
$.0050 but does not exceed $.0200; and no more than $.0015 where the 
bid is more than $.0200. The initial margin for the Euro would be 3%, 
the same margin as the ECU.\5\ According to Phlx Rule 1034, the minimum 
trading increments for the Euro will be the same as the ECU, $.0001.
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    \5\ The Exchange submitted to the Commission a correlation 
analysis between the ECU and the Euro, which demonstrated nearly a 
one-to-one correlation. Thus, the Exchange proposes not to change 
the customer margin level for the Euro at this time. Subject to Phlx 
Rule 722, Commentary .15, the Exchange will re-examine the margin 
levels for the Euro on January 15, 1999.
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    As a result of the conversion, the Exchange proposes to replace all 
references to the ECU with the Euro in the text of the various Phlx 
rules. Therefore, the Phlx is proposing to amend the text of Phlx Rules 
1000(b)(15), 1009, 1014, 1033, 1034 and Options Floor Procedure Advice 
F-6 to reflect the proposed change.
2. Statutory Basis
    The Phlx believes the proposed rule change is consistent with the 
requirements of Section 6(b)(5) of the Act \6\ that an exchange have 
rules that are designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest. Specifically, the Phlx notes that the conversion of 
the ECU to the Euro was a major event in world financial markets. This 
conversion was adopted by the Exchange in order to provide investors 
with a continuous, uninterrupted market to hedge their currency risk 
using options on the Euro.
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    \6\ 15 U.S.C. 78f(b)(5).
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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

    No written comments were solicited or received at the time of this 
filing.

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

    The foregoing rule change constitutes a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule of the Exchange and therefore, has 
become effective pursuant to Section 19(b)(3)(A)(i) of the Act,\7\ and 
subparagraph (e) of Rule 19b-4 thereunder.\8\
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    \7\ 15 U.S.C. 78s(b)(3)(A)(i).
    \8\ 17 CFR 240.19b-4.
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    At any time within 60 days of the filing of such 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 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 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-99-01 and should 
be submitted by February 16, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-1606 Filed 1-22-99; 8:45 am]
BILLING CODE 8010-01-M