[Federal Register Volume 69, Number 40 (Monday, March 1, 2004)]
[Notices]
[Pages 9672-9673]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-4507]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49312; File No. SR-Phlx-2004-13]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to the Phlx/KBW Bank Index 10-for-1 Split

February 24, 2004.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on February 17, 2004, 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 
Exchange. The Phlx has submitted the proposed rule change under section 
19(b)(3)(A) of the Exchange Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ 
which renders the proposal effective upon filing with the Commission. 
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\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 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 proposes to reduce the value of its Phlx/KBW Bank Index 
(``Index'') option (``BKX'') to one-tenth its present value by 
multiplying by ten the base market divisor used to calculate the Index. 
In addition, the position and exercise limits applicable to the BKX 
(currently 24,000 contracts) will be increased to 44,000 contracts. The 
Index is a cash-settled, capitalization-weighted, narrow-based, A.M. 
settled index composed of 24 geographically diverse stocks representing 
national money center banks and leading regional institutions.\5\
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    \5\ The Index is currently composed of the following stocks: 
Citigroup, Inc., Bank of America Corp., Wells Fargo and Co., JP 
Morgan Chase & Co., Wachovia Corp., Bank One Corporation, U.S. 
Bancorp, Washington Mutual, Fifth Third Bancorp, FleetBoston 
Financial Corp., MBNA Corp., National City Corp., Bank of New York 
Company, SunTrust Banks, Inc., BB&T Corp., PNC Financial Services, 
Golden West Financial Corp., State Street Corp., Keycorp, Mellon 
Financial Corporation, SouthTrust Corp., Northern Trust Corp., 
Comerica, Inc., and Zion Bancorporation.
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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, Amex 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 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 purpose of the proposed rule change is to attract additional 
liquidity to the BKX. A ten-for-one split, which reduces the value of 
the Index, should have a positive effect on overall transaction volumes 
by making the option premiums more attractive for retail investors. By 
reducing the value of the Index, investors will be able to utilize the 
BKX as a 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.
    The Exchange began trading the BKX in 1992.\6\ As of January 30, 
2004, the Index value was 992.69 and the near-month at-the-money call 
premium was $16.25 per contract. The Exchange proposes to conduct a 
``ten-for-one split'' of the Index, such that the Index value would be 
reduced to one-tenth of its current value, or 99.27. In order to 
maintain economic equivalence, the number of BKX contracts will be 
increased ten-fold, such that for each BKX contract currently held, the 
holder would receive ten contracts at the reduced value, each with a 
strike price equal to one-tenth of the original strike price. For 
example, the holder of one BKX 990 call with a premium of $16.25 will 
receive ten BKX 99 calls with a premium of $1.63.
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    \6\ See Securities Exchange Act Release No. 31145 (September 3, 
1992), 57 FR 41531 (September 10, 1992) (File No. SR-Phlx-91-27).
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    In addition, the position and exercise limits applicable to BKX 
will be increased from 24,000 contracts to 44,000 contracts in order to 
accommodate the increased number of contracts outstanding. With the 
exception of the position limit change, this procedure is similar to 
the one employed respecting equity options where the underlying 
security is subject to a ten-for-one stock split.\7\ The trading symbol 
will remain BKX.
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    \7\ Customarily, the position and exercise limits would also be 
increased ten-fold in a ten-for-one split until the expiration of 
the then-furthest-out expiration month, after which time the 
position and exercise limits would revert back to their pre-split 
levels. See, e.g., Securities Exchange Act Release No. 42814 (May 
23, 2000), 65 FR 35152 (June 1, 2000) (File No. SR-Phlx-00-11) (two-
for-one split of index value resulted in a doubling of the 
applicable position and exercise limits). In the present case, the 
position and exercise limits will not revert back to pre-split 
levels.
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    In conjunction with the proposed split, the Exchange will list 
strike prices surrounding the new lower Index value, pursuant to Phlx 
Rule 1101A. The Exchange will announce the effective date by way of an 
Exchange memorandum to the membership, which will also serve as notice 
of the strike price and position limit changes.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \8\ in general, and furthers the objectives of Section 
6(b)(5)\9\ in particular, in that it is designed to promote just and 
equitable principles of trade, 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 by establishing a lower 
Index value, which should, in turn, facilitate trading in BKX, creating 
a more liquid trading environment. 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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    \8\ 15 U.S.C. 78f(b).
    \9\ 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 inappropriate burden on competition.

[[Page 9673]]

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

    The Phlx has filed the proposed rule change pursuant to section 
19(b)(3)(A) of the Act \10\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\11\ 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) is not proposed to become operative for 30 days, or such 
shorter time as the Commission may designate, and the Phlx provided the 
Commission with written notice of its intent to file the proposed rule 
change at least five business days prior to the filing date, the 
proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Phlx has requested that the 
Commission waive the 30-day operative delay to allow the proposed Index 
split and corresponding increases in the position and exercise limits 
applicable to BKX options to occur without delay.
    The Commission finds that waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\12\ Specifically, the Commission believes that allowing the 
Phlx to implement the proposed ten-for-one split of the Phlx/KBW Bank 
Index will facilitate a more liquid trading environment and make the 
BKX product more accessible to investors. Waiving the 30-day operative 
delay will permit the Exchange community (specialists, broker-dealers, 
and retail customers) a full expiration month's notice before the 
changes specified in the proposal take effect following the March 2004 
expiration date, and will assist Phlx in implementing the proposed 
Index split in an orderly manner. Accordingly, the Commission 
designates the proposal to be operative immediately.
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    \12\ For purposes only of waiving the operative date of this 
proposal, 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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    At any time within 60 days of the filing of such 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.\13\
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    \13\ 15 U.S.C. 78s(b)(3)(C).
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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 proposal 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. Comments 
may also be submitted electronically at the following e-mail address: 
[email protected]. All comment letters should refer to File No. SR-
Phlx-2004-13. The file number should be included on the subject line if 
e-mail is used. To help the Commission process and review your comments 
more efficiently, comments should be sent in hardcopy or by e-mail but 
not by both methods.
    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 
Exchange. All submissions should refer to the File No. SR-Phlx-2004-13 
and should be submitted by March 22, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR.200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-4507 Filed 2-27-04; 8:45 am]
BILLING CODE 8010-01-P