[Federal Register Volume 64, Number 75 (Tuesday, April 20, 1999)]
[Notices]
[Pages 19396-19397]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-9815]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41277; File No. SR-Phlx-99-02]


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

April 13, 1999.

I. Introduction

    On January 19, 1999, the Philadelphia Stock Exchange, Inc. 
(``Phlx'' or ``Exchange'') submitted to the Securities and Exchange 
Commission (``Commission''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to reduce the required minimum 
value size for an opening transaction in FLEX Equity Options. The 
Federal Register published the proposed rule change for comment on 
March 11, 1999.\3\ The Commission received no comments on the proposal. 
This order approves the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Exchange Act Release No. 41136 (March 3, 1999), 64 FR 12203 
(March 11, 1999).
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II. Description of Proposal

    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, under Exchange Rule 1079 the minimum value size for these 
opening transactions is 250 contracts. The Exchange is proposing 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\ 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 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

[[Page 19397]]

91 contracts or more since the underlying equivalent value would be 
$1,001,000.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the objectives of section 6(b) of the Act.\6\ In particular, the 
Commission finds that the proposed rule change furthers the objectives 
of section 6(b)(5) \7\ which requires an exchange's rules to be 
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, and to protect 
investors and the public interest.\8\ Specifically, the Commission 
believes that the proposed rule change will increase liquidity and 
trading interest in FLEX equity options on higher priced securities. 
The Commission also believes that limiting the minimum value size for 
opening transactions in FLEX equity options to the lesser of 250 
contracts or $1 million of underlying equivalent value is an 
appropriate level to prevent investors who do not have adequate 
resources from trading such options.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 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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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-PHLX-99-02) is approved.

    \9\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 99-9815 Filed 4-19-99; 8:45 am]
BILLING CODE 8010-01-M