[Federal Register Volume 64, Number 47 (Thursday, March 11, 1999)]
[Notices]
[Pages 12203-12204]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-6045]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41136; File No. SR-Phlx-00-02]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc., Relating to Changing 
the Required Minimum Value Size for an Opening Transaction in FLEX 
Equity Options

March 3, 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 19, 1999, the Philadelphia Stock Exchange, Inc. (``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 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 amend Exchange Rule 1079 to change the 
required minimum value size for an opening transaction in any FLEX 
equity option series which has no open interest to the lesser of 250 
contracts or the number of contracts overlying $1 million of the 
underlying securities. Below is the text of the proposed rule change. 
Deletions are in brackets; additions are italicized.
    Rule 1079.
    (a)(1)-(7) No change.
    (8) Minimum size--
    (A) Opening--If there is no open interest in the particular series 
when an RFQ \3\ is submitted, the minimum size of an RFQ is:
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    \3\ Exchange Rule 1079(a)(7) defines an RFQ as a Request-for-
Quote.
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    (i) $10 million underlying equivalent value, respecting FLEX market 
index options, and $5 million underlying equivalent value respecting 
FLEX industry options; and
    (ii) [250 contracts, respecting FLEX equity options;] the lesser of 
250 contracts or the number of contracts having $1 million of 
underlying equivalent value, with respect to FLEX equity options.
* * * * *

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.

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 change the minimum value size for 
opening transactions, other than FLEX Quotes responsive to a FLEX 
Request for Quotes, in any FLEX equity option series in which there is 
no open interest at the time the Request for Quotes is submitted. 
Currently, Exchange Rule 1079 states that the minimum value size for 
these opening transactions shall be 250 contracts. The Exchange is 
proposing to amend this rule to change the minimum value size for these 
transactions to the lesser of 250 contracts or the number of contracts 
overlying $1 million of the underlying securities.
    The Exchange is proposing this change because it believes the 
current rule is unduly restrictive. The rule was originally put in 
place to limit participation in FLEX equity options to sophisticated, 
high net worth individuals.\4\ The Exchange believes, however, that 
limiting participation in FLEX equity options based solely on the 
number of contracts purchased may diminish liquidity and trading 
interest in FLEX equity options on higher priced equities. The Exchange 
believes the value of the securities underlying the FLEX equity options 
is an equally valid restraint as the number of contracts and, if set at 
the appropriate limit, can also prevent the participation of investors 
who do not have adequate resources. In fact, the limitation on the 
minimum value size for opening transactions in FLEX market index 
options and FLEX industry index options is tied to the same type of 
standard, the underlying equivalent value.\5\ The Exchange believes the 
number of contracts overlying $1 million in underlying securities is 
adequate to provide the requisite amount of investor protection. An 
opening transaction in a FLEX equity option series on a stock priced at 
$40.01 or more would reach this $1 million limit before it would reach 
the contract size limit, i.e., 250 contracts times the multiplier (100) 
times the stock price ($40.01) totals $1,000,250 in underlying value.
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    \4\ Securities Exchange Act Release No. 37691 (September 17, 
1996), 61 FR 50060 (September 24, 1996) (adopting SR-Phlx-96-38).
    \5\ See Exchange Rule 1079(a)(8)(A)(i).
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    Currently, an investor can purchase 250 contracts in a FLEX equity 
series on lower priced stocks, meeting the minimum requirement without 
reaching

[[Page 12204]]

an underlying equivalent value of $1 million. For example, a purchase 
of FLEX equity options overlying a $10 stock is permitted although the 
underlying value for the options would be $250,000, i.e., 250 contracts 
times the multiplier (100) times the stock price ($10). Conversely, 
under the proposed amendment, a participant could open a new FLEX 
equity option series overlying a $110 stock with a trade of 91 
contracts or more since the underlying equivalent value would be 
$1,001,000.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the objectives of Section 6(b) of the Act,\6\ in general, and furthers 
the objectives of Section 6(b)(5),\7\ in particular, in that it is 
designed to promote just and equitable principles of trade, prevent 
fraudulent and manipulative acts and practices, foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, as well as to 
protect investors and the public interest.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Phlx 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 either solicited or received.

III. Date of Effectiveness of the 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 Phlx consents, the Commission will:
    (A) by order approve such 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 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, N.W., Washington, D.C. 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 in Washington, D.C. 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-99-02 and should 
be submitted by April 1, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-6045 Filed 3-10-99; 8:45 am]
BILLING CODE 8010-01-M