[Federal Register Volume 65, Number 104 (Tuesday, May 30, 2000)]
[Notices]
[Pages 34520-34521]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-13415]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42805; File No. SR-PHLX-00-10]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. To Reduce the Value of the Over-the-Counter Prime Index 
(``OTX'')

May 22, 2000.
    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 March 31, 2000, the Philadelphia Stock Exchange, (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The proposed rule change has been filed by the Phlx as a 
``non-controversial'' rule change under Rule 19b-4(f)(6) \3\ of the 
Act. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx, pursuant to Rule 19b-4 of the Act,\4\ proposes to reduce 
the value of its Over-The-Counter prime Index (``Index'') option 
(``OTX'') to one-fourth its present value by quadrupling the base 
market divisor used to calculate the Index. In addition, the position 
and exercise limits applicable to OTX will be quadrupled until the last 
expiration then trading. The Index is a price weighted, A.M. settled 
index composed of fifteen stocks which are considered to be the ``most 
active'' stocks traded on the Nasdaq market.
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    \4\ 17 CFR 240.19b-4
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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, 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. 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 purpose of this proposed rule change, as discussed more fully 
below, is to attract additional liquidity to OTX.
    a. Background. The Exchange began trading OTX in 1998.\5\ As of 
March 21, 2000, the index value was 714 and the near-month in-the-money 
call premium was $57.75 per contract. The Exchange proposes to conduct 
a ``four-for-one split''of the Index, such that the value would be 
reduced to one-quarter of the current value. The number of OTX 
contracts will be quadrupled, such that for each OTX contract currently 
held, the holder would receive four contracts at the reduced value with 
a strike price one quarter of the original strike price. For instance, 
the holder of an OTX 800 call will receive four OTX 200 calls. In 
addition to the strike price being reduced by one-quarter, the position 
and exercise limits applicable to OTX will be quadrupled, from 25,000 
contracts to 100,000 contracts until the last expiration then trading. 
The result would be an index value of 178.50 and a near-month at-the-
money call premium of $14.44. This procedure is similar to the one 
employed respecting equity options where the underlying security is 
subject to a four-for-one stock split. The trading symbol will remain 
as OTX.
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    \5\ See Securities Exchange Act Release No. 40058 (June 2, 
1998), 63 FR 31543 (June 9, 1998).
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    In conjunction with the split, the Exchange will list strike prices 
surrounding the new, lower index

[[Page 34521]]

value, pursuant to Phlx Rule 1101A. The Exchange will announce the 
effective date by way of an Exchange memorandum to the membership, also 
serving as notice of the strike price and position exercise limit 
changes.
    b. Purpose. As stated above, the purpose of the proposal is to 
attract additional liquidity to OTX. A four-for-one split, thus 
reducing the value of the Index, should have a positive effect on 
overall transaction volumes by making the option premiums more 
attractive for retail investors. A reduced value should thus encourage 
additional investor interest. By reducing the value of the Index, 
investors will be able to utilize this trading vehicle while extending 
a smaller outlay of capital. This should attract additional investors, 
and, in turn, create a more active and liquid trading environment.
2. Statutory Basis
    For these reasons, Phlx believes that the proposed rule change is 
consistent with Section 6 of the Act \6\ in general, and in particular, 
with Section 6(b)(5),\7\ in that it is designed to promote just and 
equitable principles of trade, as well as to protect investors and the 
public interest, by establishing a lower index value, which should, in 
turn, facilitate trading in OTX options. The Exchange believes that 
reducing the value of the Index should not raise manipulation concerns 
and should not cause adverse market impact, because the Exchange will 
continue to employ its surveillance procedures and has proposed an 
orderly procedure to achieve the index split, including adequate prior 
notice to market participants.
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    \6\ 15 U.S.C. 78f.
    \7\ 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 burden on competition.

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

    Written comments were neither solicited nor received.

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

    The proposed rule change has been filed by the Exchange as a ``non-
controversial'' rule change pursuant to Section 19(b)(3)(A) of the Act 
\8\ and Rule 19b-4(f)(6) thereunder.\9\ 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) by its terms does not become operative 
for 30 days after the date of this filing, or such shorter time as the 
Commission may designate,\10\ it has become effective pursuant to 
Section 19(b)(3)(A) \11\ of the Act and Rule 19b-4(f)(6) \12\ 
thereunder. The Exchange has requested that the Commission accelerate 
the operative date of the rule change to permit the Exchange to 
implement it immediately. The Commission has determined, consistent 
with the protection of investors and the public interest, to make the 
proposed rule change operative upon filing, pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(6)(iii). Under Rule 19b-
4(f)(6)(iii), a proposed ``non-controversial'' rule change does not 
become operative for 30 days after the date of filing, unless the 
Commission designates a shorter time. The Commission believes that it 
is consistent with the protection of investors and the public interest 
to make the proposed rule change operative upon filing because reducing 
the value of the Index should enable more investors to participate in 
the market, thereby promoting liquidity in the marketplace. 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.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ The Exchange provided the Commission with the five business 
day notice required by Rule 19b-4(f)(6) of the Act on March 3, 2000.
    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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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 20549-0609. 
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-00-10 and should 
be submitted by June 20, 2000.

    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. 00-13415 Filed 5-26-00; 8:45 am]
BILLING CODE 8010-01-M