[Federal Register Volume 65, Number 225 (Tuesday, November 21, 2000)]
[Notices]
[Pages 69982-69983]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-29712]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43539; International Series Release No. 1234; File No. 
SR-Phlx-00-66]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. Relating to the 
Narrowing of the Exercise Strike Price Interval for Foreign Currency 
Options on the Euro

November 9, 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 July 12, 2000, the Philadelphia Stock Exchange, Inc. (``Phlx'') 
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 Phlx. On October 20, 2000, the Phlx 
submitted Amendment No. 1 to the proposed rule change.\3\ 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    \3\ Amendment No. 1 superseded the original filing in its 
entirety. See letter from Richard S. Rudolph, Counsel, Phlx, to 
Nancy J. Sanow, Assistant Director, Division of Market Regulation, 
Commission, dated October 19, 2000.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx proposes to revise its exercise strike price policy with 
respect to foreign currency options on the Euro denominated in U.S. 
dollars (``Euro FCOs'').\4\ The Phlx proposes to reduce the exercise 
strike price interval of American and European style, standardized Euro 
FCOs from 2 cents to 1 cents in all six expiration months.
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    \4\ The underlying currency is the Euro. The trading currency, 
in which the strike price and premium are quoted, is the U.S. 
dollar.
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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, 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 reduce the exercise strike price 
interval of American and European style, standardized Euro FCOs from 
2 cents to 1 cents in all six expiration months. The Exchange's 
exercise strike price interval policies are administered in accordance 
with Phlx Rule 1012 (Series of Options Open for Trading). Pursuant to 
Phlx Rule 1012, there are regular and month-end Euro FCO contracts 
listed, with one, two, three, six, nine and twelve months until 
expiration. Euro FCO contracts are currently listed at 2 cents 
intervals, and have strike prices of 80, 82, 84, 86, 88 and 90 in all 
of the six expiration months, as specified above. Under the proposal, 
strike prices of 80, 81, 82, 83, 84, 85, 86, 87, 88, 89, and 90 could 
become available for trading.
    The Exchange proposes to reduce the exercise strike price interval 
of all Euro FCO series from 2 cents to 1 cents, due to the decrease in 
the spot price of the Euro in terms of the U.S. dollar. In 1999, the 
Euro was worth $1.18738. As of the date of this filing, the Euro was 
worth only $.8544, a dramatic decline in the value of the Euro in terms 
of the U.S. dollar.\5\
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    \5\ The Phlx previously traded options on the European Currency 
Unit (``ECU''), but delisted the product in July 1997 due to lack of 
open interest and trading activity. The Phlx reintroduced the ECU 
options in May 1998 with a 2 cents strike price interval. See 
Securities Exchange Act Release No. 39940 (April 30, 1998), 63 FR 
25258 (May 7, 1998) (SR-Phlx-98-17). This provided investors with an 
investment vehicle during the conversion from the ECU to the Euro, 
which occurred in January 1999. The Phlx began trading the Euro FCO 
in January 1999. Securities Exchange Act Release No. 40953 (Jan. 15, 
1999), 64 FR 3734 (Jan. 25, 1999) (SR-Phlx-99-01).
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    The Phlx represents that the purpose of the proposed rule change is 
to respond to customer demand for a narrower strike price interval due 
to the decrease in the underlying price of the Euro. The Exchange 
believes that the proposed rule change makes economic sense because a 
narrower strike price interval in Euro FCOs would provide investors and 
traders of the options with the ability to more closely tailor 
investment strategies to the precise movement of the underlying 
currency (i.e., the Euro). The Exchange notes that the Commission has 
permitted narrower exercise strike price intervals with respect to 
foreign currency options based on the market value of the respective 
underlying security.\6\
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    \6\ See Securities Exchange Act Release No. 25685 (May 10, 
1988), 53 FR 17524 (May 17, 1988) (Order approving narrower strike 
price intervals with respect to foreign currency options on the 
British pound denominated in U.S. dollars) (SR-Phlx-88-13); 
Securities Exchange Act Release No. 35631 (April 20, 1995), 60 FR 
20544 (April 26, 1995) (Order approving narrower strike price 
interval with respect to foreign currency options on the French 
franc denominated in U.S. dollars) (SR-Phlx-95-06).
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    Although the proposal makes available more foreign currency option 
series, the Phlx's Options Floor Procedure Advice F-18, Selective 
Quoting Facility (``SQF''), continues to apply. The Commission notes 
that, based on the application of the SQF, generally only a foreign 
currency option series that is designated by the Exchange as having an 
``update strike'' would have its quotes made available for continuous 
dissemination to the public throughout the trading day.\7\ The Phlx 
represents that the SQF, implemented in 1994, was intended to reduce 
the number of strike prices continuously being updated and 
disseminated, thus resulting in more timely and accurate foreign 
currency options quote displays. Therefore, the Exchange believes that 
with the use of the SQF, the predicted increase in the number of Euro 
FCO series should not adversely affect the Exchange's quote traffic and 
computer processing capacity. The Exchange represents that it will 
distribute a memorandum to all of its members and foreign currency 
options participants notifying them of the change in the exercise 
strike price interval for Euro FCO contracts,

[[Page 69983]]

effective as of the date of Commission approval of the proposed rule 
change.\8\
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    \7\ See Phlx Rule 1012, Commentary .04.
    \8\ Telephone conversation between Richard Rudolph, Counsel, 
Phlx, and Hong-Anh Tran, Special Counsel, Division of Market 
Regulation, Commission, October 25, 2000.
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2. Statutory Basis
    The Phlx believes that the proposed rule change is consistent with 
Section 6 of the Act,\9\ and in particular Section 6(b)(5) thereof,\10\ 
in that it is designed to promote just and equitable principles of 
trade by enabling investors and traders of Euro FCO contracts to manage 
the foreign currency risks with respect to the Euro more effectively.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(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

    The Phlx neither solicited nor received any written comments.

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, 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-00-66 and should 
be submitted by December 12, 2000.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\11\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-29712 Filed 11-20-00; 8:45 am]
BILLING CODE 8010-01-M