[Federal Register Volume 65, Number 149 (Wednesday, August 2, 2000)]
[Notices]
[Pages 47551-47553]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-19501]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43070; File No. SR-Phlx-00-69]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the 
Philadelphia Stock Exchange, Inc. Relating to Modifying the 
Concentration Requirements for the Gold/Silver Index

July 25, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19-b thereunder,\2\ notice is hereby given that 
on July 18, 2000, 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 and II, below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons and to grant accelerated 
approval to the proposed rule change.
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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 adopt Rule 1009A(b)(6)(i) as a maintenance 
standard that establishes a concentration requirement for the Gold/
Silver Index (``Index''). The rule is stated below. Additions to the 
rule are in italics.
* * * * *

Rule 1009A. Designation of the Index

    (a) No change
    (b) No change.
    (1)-(5) No change.
    (6) No single component security represents more than 25% of the 
weight of the index, and the five highest weighted components do not 
in aggregate account for more than 50% (60% for an index consisting 
of fewer than 25 component securities) of the weight of the index;
    (i) With respect to the Gold/Silver Index, no single component 
shall account for more than 35% of the weight of the Index and the 
three highest weighted components shall not account for more than 
65% of the weight of the Index. If the Index fails to meet this 
requirement, the Exchange shall reduce position limits to 8,000 
contracts on the Monday following expiration of the farthest-out, 
then trading, non-LEAP series.
    (c) No change.
    In the event a class of index options listed on the Exchange 
fails to satisfy the maintenance listing standards set forth herein, 
the Exchange shall not open for trading any additional series of 
options of that class unless such failure is determined by the 
Exchange not to be significant and the Commission concurs in that 
determination, or unless the continued listing of that class of 
index options has been approved by the Commission under section 
19(b)(2) of the Exchange Act.
* * * * *

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 Exchange 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 III below. The Exchange 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The proposed rule change would amend the concentration requirements 
of the maintenance standards for the Gold/Silver Index to provide the 
same concentration requirements as are adopted for the Computer Box 
Maker Index.\3\ The Gold/Silver Index is a capitalization weighted 
index composed of the stocks of widely held U.S. companies that mine 
gold and silver. Options on the Index have an American style expiration 
and the settlement value is based on the closing values of the 
component stocks on the day

[[Page 47552]]

exercised, or on the last trading day prior to expiration (P.M. 
settled).
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    \3\ See Securities Exchange Act Release No. 39895 (April 21, 
1998), 63 FR 23327 (April 28, 1998).
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    The Gold/Silver Index was the first narrow-based index option 
approved for trading on the Exchange.\4\ In 1996, the Exchange revised 
the composition of the Gold/Silver Index and adopted procedures to 
address replacements, additions, and deletions of component stocks.\5\ 
In addition, the Exchange received approval to apply to the Index all 
the maintenance criteria of Phlx Rule 1009A(c), which applies to 
options on indexes listed pursuant to the ``Generic Index Approval 
Order,'' \6\ except the requirement that an index option be designated 
as A.M.-settled.\7\ Thus, the Gold/Silver Index is currently required 
to comply with the concentration requirements set forth in Phlx Rule 
1009A(b)(6). This requirement states that no one component may account 
for more than 25% of the weight of the Index and the five highest 
weighted components should not account for more than 60% of the Index. 
The concentration requirement must be satisfied on January 1 and July 1 
each year.
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    \4\ See Securities Exchange Act Release No. 20437 (December 2, 
1983), 48 FR 55229 (December 9, 1983).
    \5\ See Securities Exchange Act Release No. 37334 (June 19, 
1996), 61 FR 33162 (June 26, 1996).
    \6\ See Securities Exchange Act Release No. 34157 (June 3, 
1994), 59 FR 30062-01 (June 10, 1994) (order approving File Nos. SR-
Amex-92-35; SR-CBOE-93-59; SR-NYSE-94-17; SR-PSE-94-07; and SR-Phlx-
94-10).
    \7\ See supra note 5.
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    The Exchange now proposes to adopt concentration requirements 
similar to that approved for the Exchange's Computer Box Maker 
Index.\8\ Specifically, the Exchange proposes to adopt new Rule 
1009A(b)(6)(i), which provides that no one component shall account for 
more than 35% of the weight of the Index and the three highest weighted 
components shall not account for more than 65% of the weight of the 
Index. If the Index fails to satisfy this criteria, the Exchange 
proposes to reduce the position limits to 8,000 contracts.\9\ In 
implementing this decrease, all series of Index options would be 
scheduled for a position limit decrease effective the Monday following 
expiration of the farthest-out, then trading, non-LEAP option series. 
If prior to the scheduled position limit decrease, the Index complied 
with the proposed 35%/65% concentration requirements, the position 
limit would not be reduced. All other maintenance requirements 
contained in Rule 1009A(c) would continue to apply to this Index.\10\ 
Thus, if the Index fails to meet other maintenance criteria, the 
Exchange will not open for trading any additional series of options 
unless such failure is determined by the Exchange not to be significant 
and the Commission concurs in that determination.
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    \8\ See supra note 3.
    \9\ The position limits for the Gold/Silver Index are set under 
Phlx Rule 1001A(b)(i). The Phlx represents that the Gold/Silver 
Index would currently fall under the 18,000 position limit criteria. 
However, if the Index fails to satisfy the concentration 
requirements of the maintenance criteria the position limit will be 
set at 8,000. Telephone conversation between Marla Chidsey, 
Attorney, Division of Market Regulation (``Division''), Commission, 
and Nandita Yagnik, Attorney, Phlx (July 25, 2000).
    \10\ See supra note 5.
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    In addition, the Exchange is adding two components to the Index in 
an effort to reduce the weightings of the already existing components 
consistent with the proposed rule change.\11\ The Exchange will add 
Goldfields, Lpd. (ticker ``GOLD'') and Phelps Dodge Corp. (ticker 
``DP'') to the Index.
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    \11\ See Letter to Elizabeth King, Associate Director, Division, 
Commission, and Nancy Sanow, Assistant Director, Division, 
Commission, from Edith Hallahan, Deputy General Counsel, Phlx, dated 
July 17, 2000 (``July 17, 2000 Letter''); and telephone conversation 
between Heather Traeger, Attorney, Division, Commission, Marla 
Chidsey, Attorney, Divsion, Commission, and Nandita Yagnik, 
Attorney, Phlx (July 24, 2000).
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    The Exchange believes that this is the most effective method of 
continuing to list an active product,\12\ while ensuring that the Index 
contains components that are highly capitalized, actively traded, and 
reported securities, and thus, are appropriate for index option 
trading. The Exchange further believes that the concentration 
requirements approved respecting the Computer Box Maker Index are 
appropriate for this Index because they would deter investors from 
using the Gold/Silver Index options as a method of increasing their 
position in the highest weighted stocks in the Index, while preserving 
the Index in similar form as an investment tool.
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    \12\ The Gold/Silver Index option had open interest of 31,090 
contracts on July 7, 2000.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\13\ in general, and with Section 
6(b)(5),\14\ in particular, in that it is designed to promote just and 
equitable principles of trade; to facilitate transactions in 
securities; 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. The Exchange believes that 
the proposed rule change would allow investors to continue to trade 
options on the Gold/Silver Index, without interruption, as a hedging 
vehicle respecting mining stocks; is consistent with other indexes that 
impose concentration standards aimed at preventing the use of the index 
as a surrogate to trade options on individual stocks contained in the 
Index; and at the same time provides standards to prevent the 
manipulation of components of the Index.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule imposes no burden on 
competition.

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

    The Exchange neither solicited nor received written comments on the 
proposal.

III. 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 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-00-69 and should 
be submitted by August 23, 2000.

IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    After careful consideration, the Commission finds, for the reasons 
set forth below, that the Phlx's proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder.\15\ 
Specifically, the Commission finds that the proposal is

[[Page 47553]]

consistent with Section 6(b)(5) of the Act \16\ because it is designed 
to promote just and equitable principles of trade, facilitate 
transactions in securities, remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and 
protect investors and the public interest.
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    \15\ In approving this rule, the Commission has considered its 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that the Gold/Silver Index is currently traded 
under Phlx Rule 1009A, which requires that no single component security 
represents more than 25% of the weight of the Index, and the five 
highest weighted components do not in the aggregate account for more 
than 50% of the weight of the Index. Based on the Phlx's 
representations, the Index is one of the Phlx's most actively-traded 
index options with an average daily trading volume of 1,559 contracts 
from January to June 2000.\17\ The Phlx proposes to change the 
concentration requirement to make it similar to that of the Exchange's 
Box Maker Index. Under the Box Maker Index, no single component 
security may represent more than 35% of he weight of the Index, and the 
three highest weighted components cannot in the aggregate account for 
more than 65% of the weight of the index.\18\ The Commission finds that 
changing the Gold/Silver Index to adopt the requirements that no single 
component security represents more than 35% of the weight of the Index, 
and that the three highest weighted components do not in the aggregate 
account for more than 65% of the weight of the index, comports with the 
standards in the Box Maker Index, which were previously approved by the 
Commission.\19\ Thus, the Commission finds that the proposed amendment 
to Phlx Rule 1009(a)(6) relating to the Gold/Silver Index is consistent 
with the Act.
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    \17\ See July 17, 2000, supra note 11.
    \18\ See supra note 3.
    \19\ See supra note 3.
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    The Commission also finds that by adopting the proposed rule change 
to provide that no one component shall account for more than 35% of the 
weight of the Index and the three highest weighted components shall not 
account for more than 65% of the weight of the Index is an effective 
way to continue listing the Index, while still protecting against 
material changes in the composition and design of the Index that might 
adversely affect the Exchange's obligations to protect investors and to 
maintain fair and orderly markets in options based on the Index.
    The Commission finds that the trading of options on the Index may 
facilitate transactions in securities, help remove impediments to a 
free and open securities markets, and promote the interest of investors 
by providing investors with a means of hedging exposure to market risks 
associated with the securities issued by the companies in the Gold/
Silver index. The proposed rule change will allow investors 
uninterrupted use of the Index as an additional trading and hedging 
mechanism.
    The Commission also finds good cause for approving the proposed 
rule change prior to the 30th day after the date of publication of 
notice thereof in the Federal Register. The Commission finds that in 
the interest of the public and for the protection of investors the 
proposed rule change should be given accelerated approval to allow for 
the uninterrupted trading of the Index and to continue listing 
additional series in the options following the July expiration.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-Phlx-00-69) is hereby 
approved on an accelerated basis.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-19501 Filed 8-1-00; 8:45 am]
BILLING CODE 8010-01-M