[Federal Register Volume 59, Number 111 (Friday, June 10, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14096]
[[Page Unknown]]
[Federal Register: June 10, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34157; File Nos. SR-Amex-92-35, SR-CBOE-93-59, SR-NYSE-
94-17, SR-PSE-94-07, and SR-Phlx-94-10]
Self-Regulatory Organizations; Order Approving Proposed Rule
Changes and Notice of Filing and Order Granting Accelerated Approval of
Proposed Rule Changes and Amendments Thereto by the American Stock
Exchange, Inc., Chicago Board Options Exchange, Inc., New York Stock
Exchange, Inc., Pacific Stock Exchange, Inc., and Philadelphia Stock
Exchange, Inc., Relating to Narrow-Based Index Options Listing
Standards.
June 3, 1994.
I. Introduction
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ on September 23, 1992,
December 22, 1993, May 4, 1994, March 3, 1994, and January 31, 1994,
the American Stock Exchange, Inc. (``Amex''), the Chicago Board Options
Exchange, Inc. (``CBOE''),\3\ the New York Stock Exchange, Inc.
(``NYSE''),\4\ the Pacific Stock Exchange, Inc. (``PSE''),\5\ and the
Philadelphia Stock Exchange, Inc. (``Phlx''),\6\ respectively (each
individually referred to herein as an ``Exchange'' and two or more
collectively referred to as ``Exchanges''), submitted to the Securities
and Exchange Commission (``Commission'') proposed rule changes to
establish generic listing standards for options on narrow-based
indexes, and to adopt streamlined procedures for introducing trading in
options that satisfy these listing standards.
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1993).
\3\On December 14, 1992, the CBOE submitted a filing (SR-CBOE-
92-39) covering the same subject matter of the present filing. The
CBOE withdrew the filing on April 1, 1994.
\4\On January 22, 1993, the NYSE submitted a filing (SR-NYSE-93-
05) covering the same subject matter of the present filing. The NYSE
withdrew SR-NYSE-93-05 on May 4, 1994, upon its submission of the
present filing.
\5\On June 15, 1993, the PSE submitted a filing (SR-PSE-93-11)
covering the same subject matter of the present filing. The PSE
withdrew SR-PSE-93-11 on April 20, 1994. See Letter from David P.
Semak, Vice President, Regulation, PSE, to Sharon Lawson, Assistant
Director, Division of Market Regulation, Commission, dated April 20,
1994.
\6\On June 21, 1993, the Phlx submitted a filing (SR-Phlx-93-01)
covering the same subject matter of the present filing. The Phlx
withdrew SR-Phlx-93-01 on January 31, 1994, upon its submission of
the present filing.
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On January 5, 1994 and May 25, 1994, the Amex filed Amendment Nos.
1\7\ and 2,\8\ respectively; on April 8, 1994, the CBOE filed Amendment
No. 1;\9\ on April 19, 1994, the PSE filed Amendment No. 1;\10\ and on
April 22, 1994, the Phlx filed Amendment No. 1,\11\ to their respective
proposals (collectively, ``Exchange Amendments'').
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\7\In Amendment No. 1, the Amex substantially amended the
substance of its original filing to conform its proposal to the
CBOE's proposal.
\8\In Amendment No. 2, the Amex provided the proposed text of
the rule change, and amended its proposal: (1) To provide that a
narrow-based index that is calculated using an equal-dollar weighted
methodology will be rebalanced quarterly; and (2) to provide that if
a narrow-based index is maintained by a broker-dealer, the index
will be calculated by a third party that is not a broker-dealer.
\9\In Amendment No. 1, the CBOE: (1) Clarified in the text of
the proposed rule change that its proposal would apply to options on
narrow-based indexes only; and (2) stated that the procedures
proposed in its filing pertaining to the listing of new narrow-based
index options would apply to all narrow-based index options
permitted under the CBOE's rules, including options with terms from
12 to 36 months (``long-term options'') that satisfy the
requirements of CBOE Rule 24.9(b). See Letter from Michael L. Meyer,
Schiff Hardin & Waite, to Michael A. Walinskas, Chief, Options
Branch, Division of Market Regulation, Commission, dated April 7,
1994.
\10\In Amendment No. 1, the PSE stated that the procedures in
its proposal pertaining to the listing of new, narrow-based index
options would apply to all narrow-based index options permitted
under the PSE's rules, including long-term options that satisfy the
requirements of PSE Rule 7.8. See Letter from Michael D. Pierson,
Senior Attorney, Market Regulation, PSE, to Thomas N. McManus,
Division of Market Regulation, Commission, dated April 11, 1994.
\11\In Amendment No. 1, the Phlx: (1) Amended the proposed rule
text to clarify that the proposed rule would apply to options on
narrow-based indexes only; and (2) to state that if the Phlx
determines to list long-term options or reduced-value long-term
options on any new indexes filed pursuant to the proposed rule, they
would be listed in accordance with existing Phlx rules governing
long-term options. See Letter from Michele R. Weisbaum, Associate
General Counsel, Phlx, to Michael Walinskas, Branch Chief, Division
of Market Regulation, Commission, dated April 19, 1994.
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The Amex and CBOE proposals were published for comment in the
Federal Register on November 25, 1992 and February 25, 1994,
respectively.\12\ No comments were received on these proposed rule
changes. This order approves the Exchanges' proposals and the Exchange
Amendments.
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\12\See Securities Exchange Act Release Nos. 31474 (November 17,
1992), 57 FR 55605 (November 25, 1994) (Amex); and 33636 (February
17, 1994), 59 FR 9262 (February 25, 1994) (CBOE).
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II. Description of Proposals
The Exchanges have submitted substantively identical proposals to
the Commission to amend their respective rules\13\ to establish generic
listing standards for options on narrow-based indexes (also known as
sector or industry indexes) and procedures designed to expedite the
approval of trading of such products. Currently, an Exchange must
submit a proposed rule change to the Commission for review in
accordance with section 19(b)(2) of the Act (``section 19(b)(2)''), and
Rule 19b-4 thereunder, in order to list for trading options on a
particular index. The Exchanges' proposed rule changes would permit an
Exchange to list classes of options on a particular narrow-based
index\14\ that satisfy specified generic listing standards, pursuant to
a filing submitted to the Commission for effectiveness immediately upon
filing under section 19(b)(3)(A) of the Act (``section
19(b)(3)(A)'').\15\ Under the streamlined procedures, trading in
options on the narrow-based index could commence 30 days from the date
of filing of the proposal to list such options.
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\13\Amex Rule 901C; CBOE Rule 24.2; NYSE Rule 715; PSE Rule 7.3;
and Phlx Rule 1009A.
\14\This order approves generic listing standards and
streamlined procedures for approval with respect to options on
narrow-based indexes only. The proposed rule changes approved herein
do not pertain to the listing of options on broad-based indexes.
\15\In the event that proposed narrow-based index options do not
qualify for expedited approval under these new standards, the
Exchanges will not be foreclosed from filing a proposed rule change
for Commission review pursuant to section 19(b)(2).
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A. Listing and Maintenance Listing Standards
In order to qualify for the streamlined listing procedures, the
particular narrow-based index underlying the proposed narrow-based
index options must satisfy all of the following initial listing
standards, and continue to satisfy the following maintenance listing
criteria.\16\
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\16\These standards were established in a coordinated effort
with representatives of the Exchanges, and are consistent with many
of the criteria that are currently utilized by the Commission in its
review of options on narrow-based stock indexes.
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1. Standards Relating to Component Stocks
The proposed initial listing and maintenance listing standards
require that all component stocks be deemed ``reported securities,'' as
that term is defined in Rule 11Aa3-1 under the Act.\17\ Upon the
initial listing of narrow-based index options approved for trading
pursuant to the procedures contained in this order, the underlying
index must include at least ten component stocks. Thereafter, the index
must contain at least nine component stocks at all times. In addition,
the number of component stocks may not increase or decrease by a number
exceeding 33\1/3\ percent of the number of stocks comprising the index
at the time of its initial listing.
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\17\See 17 CFR 240.11Aa3-1. A ``reported security'' is defied in
paragraph (a)(4) of this rule as ``any listed equity security or
Nasdaq security for which transaction reports are required to be
made on a real-time basis pursuant to an effective transaction
reporting plan.'' A ``transaction reporting plan'' is defined in
paragraph (a)(2) of this rule as ``any plan for collecting,
processing, making available or disseminating transaction reports
with respect to transactions in reported securities filed with the
Commission pursuant to, and meeting the requirements of, this
section.'' Accordingly, a proposed narrow-based index currently can
only be comprised of exchange-listed and Nasdaq National Market
securities.
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Both initial and maintenance listing standards require that the
component stocks comprising the top 90 percent of the index, by weight,
must have a minimum market capitalization of $75 million. In addition,
the component stocks constituting the bottom 10 percent of the index,
by weight, must have a minimum market capitalization of $50 million.
The listing and maintenance listing standards also include trading
volume requirements. The component stocks comprising the top 90 percent
of the index, by weight, must have a monthly trading volume of at least
one million shares per month over the six months preceding the filing
of the index with the Commission; thereafter, the component stocks must
maintain monthly trading volume of at least 500,000 shares per month.
The trading volume for the component stocks constituting the bottom 10
percent of the index, by weight, must have been at least 500,000 shares
over the same period; thereafter, they must maintain an average monthly
trading volume of at least 400,000 shares per month. If the index is
capitalization-weighted, and it contains 15 or more component stocks,
the top five weighted component stocks each must have an average
monthly trading volume over the six months preceding the filing of the
index with the Commission of at least two million shares; thereafter,
it must maintain an average monthly trading volume over the prior six
months of at least one million shares. If a capitalization-weighted
index contains less than 15 component stocks, those component stocks
comprising the top 30 percent of the total number of stocks in the
index each must have an average monthly trading volume over the six
months preceding the filing of the index with the Commission of at
least two million shares; thereafter, it must maintain an average
monthly trading volume over the prior six months of at least one
million shares.
Initially and thereafter, no inidividual component stock in the
index may represent more than 25 percent of the weight of the index. In
addition, initially and thereafter, where an index is comprised of less
than 25 stocks, the top five highest weighted stocks may not constitute
more than 60 percent of the weight of the index; and where an index is
comprised of 25 stocks or more, the top five highest weighted stocks
may not represent more than 50 percent of the weight of the index.
At all times, at least 90 percent of the stocks in the index, by
weight, and 80 percent of the total number of stocks comprising the
index, individually must satisfy the particular Exchange's rules
governing the listing and maintenance of listing of options thereon.
Both initial and maintenance listing standards require that no more
than 20 percent of the securities in the index, by weight, may be
comprised of foreign securities or American depositary receipts
(``ADRs'') overlying foreign securities that are not subject to
comprehensive surveillance sharing agreements between the particular
U.S. options Exchange and the primary exchange on which the foreign
security underlying the ADR is traded.\18\
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\18\See e.g., Securities Exchange Act Release No. 31529
(November 27, 1992), 57 FR 57248 (December 3, 1992) (``Release No.
34-31529''). To the extent that at least 50 percent of the world-
wide trading volume of the underlying security occurs in the U.S.
ADR market, the Commission has permitted the Exchanges to list
options thereon without the existence of such a comprehensive
surveillance sharing agreement. Following such initial listing, at
least 30 percent of the world-wide trading volume must continue to
occur in the U.S. trading market. See, e.g., Securities Exchange Act
Release No. 33555 (January 31, 1994), 59 FR 5619 (February 7, 1994)
(``Release No. 33555''). Accordingly, because no comprehensive
surveillance sharing agreement is required with respect to ADRs
satisfying the 50 percent volume requirement, and the 30 percent
maintenance volume requirement, such ADRs may be excluded in
determining whether the 20 percent restriction has been exceeded.
See Release No. 33555, to determine how to calculate the 50 percent
and 30 percent world-wide trading volume requirements.
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2. Standards Relating to the Index and Options Thereon
A narrow-based index subject to the requirements of this order must
be cash-settled. The index value may be calculated only pursuant to a
capitalization, price, or equal-dollar weighted methodology.\19\ The
index value must be disseminated at least once every 15 seconds during
the trading hours of the index. The settlement value of expiring index
options must be based upon the opening prices of the component
securities on the primary exchange on which they are traded (or on the
Nasdaq National Market) (otherwise known as ``A.M. settlement'') on the
applicable expiration date.\20\
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\19\An index whose value is calculated pursuant to an equal
dollar weighted methodology must be rebalanced at least once every
calendar quarter.
\20\In the event that a component security did not open for
trading on the expiration date of a series of index options, the
last sale price for that security shall be used in calculating the
index value.
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If a narrow-based index is maintained by a broker-dealer, it shall
be calculated by a third party that is not a broker-dealer. Further,
appropriate procedures must be established by the Exchange and the
broker-dealer to ensure that the broker-dealer will not possess or be
able to misuse any informational advantages with respect to changes in
the composition or the level of such index. Such procedures must
include, for example, the establishment of appropriate informational
barriers.
The streamlined procedures described herein pertaining to the
listing of new narrow-based index options would apply to all narrow-
based index options permitted under the rules of the Exchanges,
including long-term options and reduced-value long-term options that
otherwise satisfy the particular Exchange's rules governing long-term
options and reduced-value long-term options.\21\
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\21\The CBOE has represented that, if it proposes to list
reduced-value long-term options on a narrow-based index pursuant to
section 19(b)(3)(A) in accordance with this order, it would include
as a part of its rule filing an amendment to the list of indexes on
which reduced-value long-term options are traded, as set forth in
CBOE Rule 24.9(b)(2)(A).
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In the event that a class of narrow-based index options listed on
an Exchange pursuant to the streamlined listing procedures described
herein fails to satisfy one or more of the required maintenance
criteria, the Exchange responsible for that index option must notify
the Commission staff immediately upon discovery of such failure.
Further, the Exchange shall not open for trading any additional series
of options on that class unless the Exchange determines that such
failure is not significant, and the Commission affirmatively concurs in
that determination, or unless the Commission specifically approves the
continued listing of that class of index options pursuant to a proposal
filed in accordance with Section 19(b)(2).
B. Review Procedure
If a particular narrow-based index (and options thereon) proposed
by an Exchange satisfy the foregoing generic listing standards, then
such Exchange may vial itself of certain streamlined listing
procedures. The procedures proposed in the Exchanges' filings are
designed to allow them to list narrow-based index options without
undergoing the formal process of review and approval by the Commission
pursuant to section 19(b)(2). An Exchange would be required to submit
its proposal in draft form to Commission staff at least one week prior
to the Exchange's formal filing of the rule change proposal. The
Exchange would then submit its formal rule change proposal for
effectiveness immediately upon filing, pursuant to section 19(b)(3)(A).
However, to allow the Commission adequate opportunity to verify the
representations made by the Exchange in its proposal and review and
address any concerns raised by the proposal or by commenters, the
Exchange would be allowed to establish a trade date for the
commencement of trading of options on the index no earlier than 30 days
from the date of the formal filing of the proposal.
If the Commission determines that the Exchange proposal does not
satisfy the generic standards, or if the Commission deems it necessary
or appropriate in the public interest or for the protection of
investors, the Commission, pursuant to section 19(b)(3)(C) of the Act,
has 60 days from the date of the filing of the Exchange's proposal to
abrogate the Exchange's rule change and require that the Exchange
refile the proposed rule change for formal Commission review pursuant
to section 19(b) (1) and (2).
III. Commission Findings and Conclusions
A. Generic Listing Standards
The Commission finds that the proposed rule changes are consistent
with the requirements of section 6(b)(5) of the Act and the rules and
regulations thereunder applicable to a national securities exchange.
Specifically, the Commission finds that the Exchange's proposals to
establish generic listing standards for narrow-based index options
strike a reasonable balance between the Commission's mandates under
section 6(b)(5) to remove impediments to and perfect the mechanism of a
free and open market and a national market system, while protecting
investors and the public interest. Thus, the Commission finds that the
listing by an Exchange of options on particular narrow-based indexes,
in accordance with the requirements stated herein, will constitute a
stated policy, practice, or interpretation with respect to the
administration of an existing Exchange rule, pursuant to section
19(b)(3)(A), relieving the Exchange of the former requirement of
obtaining specific Commission approval of such narrow-based index
options pursuant to section 19(b)(2).
The Commission believes that trading options on an index (including
a narrow-based index) of securities permits investors to participate in
the price movements of the index's underlying securities, and allows
investors holding positions in some or all of such securities to hedge
the risks associated with their portfolios. The Commission further
believes that trading options on an index provides investors with an
important trading and hedging mechanism that is designed to reflect
accurately the overall movement of the component stocks.
Currently, when an exchange intends to list options on an index of
securities which the Commission has not specifically approved
previously for the listing and trading of such index options, the
Exchange must submit a proposed rule change to the Commission pursuant
to section 19(b)(1) of the Act and Rule 19b-4 thereunder. Pursuant to
section 6(b)(5) of the Act, the Commission must find, among other
things, that trading in options on the particular index will serve to
protect investors and contribute to the maintenance of fair and orderly
markets. In this regard, the Commission must predicate approval of any
new option proposal upon a finding that the introduction of such
derivative instrument is in the public interest. Such a finding would
be difficult for a derivative instrument that served no hedging or
other economic function, because any benefits that might be derived by
market participants likely would be outweighed by the potential for
manipulation, diminished public confidence in the integrity of the
markets, and other valid regulatory concerns.
Accordingly, before approving an Exchange proposal to list options
on a particular index, and consistent with its legislative mandate, the
Commission must conclude that the Exchange has addressed several issues
pertaining to the particular index, including the design and structure
of the index, customer protection, surveillance, and market impact.
Specifically, with respect to index design and structure, the
Commission takes into account, among other things, the number of
securities comprising the index, the market capitalizations of the
component securities, their relative weightings in the index, their
trading volume, and the extent to which the component securities
individually, satisfy the Exchange's requirements for the listing of
equity options thereon. It is with respect to these criteria, among
others, that this order establishes generic standards which, if
satisfied, would allow an Exchange to file a proposed rule change,
effective immediately upon filing, to list and trade options on a
particular narrow-based index 30 days from the filing date.\22\
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\22\The Commission reiterates that an Exchange would not be
foreclosed from pursuing formal Commission review of a proposal to
list options on a narrow-based index that do not qualify for
effectiveness upon filing under section 19(b)(3)(A). See supra note
15.
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The Commission believes that the listing and maintenance listing
standards set forth herein are consistent with the criteria currently
utilized in the Commission's case-by-case consideration of narrow-based
index option proposals, and are reasonably designed to ensure the
protection of investors and the public interest. Specifically, the
Commission finds that the generic standards covering minimum
capitalization, monthly trading volume, and relative weightings of
component stocks are designed to ensure that the trading markets for
component stocks are adequately capitalized and sufficiently liquid,
and that no one stock or stock group dominates that index. Thus, the
Commission believes that the satisfaction of these requirements
significantly minimizes the potential for manipulation of the index.
Two other important requirements are that at least 90 percent of
the component stocks, by weight, must be eligible individually for
options trading, and that no more than 20 percent of the index may be
comprised of ADRs which are not subject to a comprehensive surveillance
sharing agreement. The Commission believes that these standards are
necessary to ensure that index options are not used as surrogate
instruments to trade options on stocks and/or ADRs that otherwise are
not eligible for options trading.,
The Commission also believes that the number of securities required
to constitute the narrow-based index is large enough to ensure that an
index is not created for the purpose of obtaining more favorable
regulatory treatment, e.g., with respect to position and exercise
limits, as compared with the trading of options in the underlying
stocks.
The Commission also finds the requirements that all securities
comprising the index be ``reported securities,'' as defined in Rule
11Aa3-1 under the Act, and that the index value be disseminated at
least once every 15 seconds during trading hours of the index, will
contribute significantly to the transparency of the market for such
index options.\23\ The Commission further believes that basing the
settlement value of expiring index options upon the opening prices of
the component securities on the primary exchange on which they are
traded (or on the Nasdaq National Market) may help contain the
volatility of related markets upon their expiration.
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\23\Currently, only exchange-traded securities and Nasdaq
National Market securities qualify as ``reported securities.'' See
supra note 17.
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The Commission notes that an Exchange which lists options pursuant
to this order must notify the Commission immediately upon discovering
that such options have failed to satisfy the maintenance listing
standards described herein, and is prohibited from listing any
additional series of such options unless the Exchange, with the
affirmative concurrence of the Commission, determines that such failure
is insignificant. The Commission believes that this requirement helps
to ensure the continued compliance of such new option products with the
standards set forth in this order, and confirms the obligation of the
Exchanges to monitor all series of options listed thereon to ensure
that they continue to satisfy the maintenance listing standards
prescribed in their respective rules. On the other hand, this
requirement will allow the Commission to provide flexibility on the
issue of continued listing, where the failure to meet a particular
standard is insignificant and will not hinder the protection of
investors or cause the index to be susceptible to manipulation.
The Commission further notes that each of the Exchanges' rules that
are applicable to narrow-based index options, including provisions
addressing sales practices, floor trading procedures, position and
exercise limits,\24\ margin requirements, and trading halts and
suspensions, will continue to apply to any narrow-based index listed
pursuant to the streamlined approval procedures described herein.
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\24\In its section 19(b)(3)(A) filing, an Exchange must specify
the applicable position limits for options on the narrow-based
index.
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Finally, the Commission generally believes that a surveillance
sharing agreement between an Exchange proposing to list a stock index
derivative product and the exchange(s) trading the stocks underlying
the derivative product is an important measure for surveillance of the
derivative and underlying securities markets. Such agreements ensure
the availability of information necessary to detect and deter potential
manipulations and other trading abuses, thereby making the stock index
product less readily susceptible to manipulation. In this regard, all
of the Exchanges, as well as the National Association of Securities
Dealers, Inc. (``NASD''), are members of the Intermarket Surveillance
Group (``ISG''), which provides for the exchange of all necessary
surveillance information.\25\ In light of the Exchanges' membership in
the ISG, and the fact that the generic listing and maintenance listing
standards ensure that all stocks (and ADRs) comprising a narrow-based
index being added pursuant to this order would be listed on a U.S.
exchange (or quoted on and traded through the Nasdaq National Market),
the Commission is satisfied that the ISG Agreement would cover
investigations and inquiries regarding trading activity in options on
narrow-based indexes and their underlying component securities. In
addition, the Commission finds that the requirement that no more than
20 percent of the weight of the index may be comprised of ADRs that are
not subject to a comprehensive surveillance sharing agreement between
the particular U.S. exchange and the primary market of the underlying
security will continue to ensure that the Exchanges have the ability to
adequately surveil trading in the narrow-based index options and the
ADR components of the index.\26\
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\25\The ISG was formed on July 14, 1983, among other things, to
coordinate more effectively surveillance and investigative
information sharing arrangements in the stock and options markets.
See Intermarket Surveillance Group Agreement, dated July 14, 1983.
The most recent amendment to the ISG Agreement, which incorporates
the original agreement and all amendments made thereafter, was
signed by ISG members on January 29, 1990. See Second Amendment to
the Intermarket Surveillance Group Agreement, dated January 29,
1990.
\26\As noted above, comprehensive surveillance sharing
agreements must be in place with the markets underlying ADRs
representing at least 80 percent of the weight of the index unless
the ADR meets the 50 percent U.S. trading volume test (and the 30
percent maintenance volume test). See supra note 18. In addition, by
virtue of the Exchange's and the NASD's membership in the ISG, the
Exchanges would have the ability to obtain surveillance information
regarding trading in the ADR. See Release No. 34-31529, supra note
18.
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B. Commission Review of Exchange Proposals
The Commission finds that the review procedures provide the
Commission with sufficient opportunity to examine the representations
made by an Exchange in connection with its listing of options on a
narrow-based index pursuant to section 19(b)(3)(A). Specifically, the
Commission believes that the seven day prefiling requirement gives the
Commission staff an opportunity to discuss with an Exchange whether its
proposal to list and trade particular narrow-based index options
properly qualifies for effectiveness upon filing. In addition, the
Commission finds that the 30 day delay in the commencement of trading
of proposed narrow-based index options will provide a meaningful
opportunity for public comment prior to the commencement of trading,
while also providing the Exchanges with the opportunity to inform
market participants in advance of the proposed trade date for a new
index option. In accordance with section 19(b)(3)(C) of the Act, if the
Commission determines that the rule change proposal is inconsistent
with the requirements of the Act and the rules and regulations
thereunder, the 30 day delay would allow the Commission to abrogate the
rule change before trading commences, which will minimize disruption on
market participants. This authority could be utilized if, for example,
it is determined that the proposed narrow-based index option does not
satisfy the applicable generic listing standards.
The Commission notes that its ability to review an Exchange's
proposal submitted under the procedures outlined herein would not
necessarily be limited to determining whether proposed narrow-based
index options satisfy the generic standards. Rather, the Commission
will have an opportunity to determine whether the proposed index
options raise other regulatory concerns that should be addressed before
trading commences. For example, the Commission will have an opportunity
to determine whether the listing and trading of options on the new
narrow-based index will have an adverse impact on the underlying
securities markets.\27\
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\27\An Exchange, in conjunction with a section 19(b)(3)(A) rule
filing to list options on a narrow-based index, must provide the
Commission with written representations that both the Exchange and
the Options Price Reporting Authority have the necessary systems
capacity to support those new series of options to be generated by
the narrow-based index.
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In summary, if the Commission determines that a proposed index
option product does not completely satisfy the generic listing
standards, or if based on the foregoing considerations it generally
appears to the Commission to be necessary or appropriate in the public
interest or for the protection of investors, the Commission, within 60
days of the Exchange's filing, may summarily abrogate the Exchange's
rule change and require that the rule proposal be filed with the
Commission pursuant to sections 19(b) (1) and (2) of the Act. Although
the purpose of streamlining the review of new narrow-based index
options by creating generic standards is to facilitate the Exchanges'
ability to list such new products as the demand for them arises, the
Commission believes nevertheless that its authority to abrogate such a
rule change proposal supplies a significant regulatory check on the
Exchanges to ensure that these new standards are implemented properly.
C. Accelerated Approval of Proposed Rule Changes and Exchange
Amendments
The Commission finds good cause for approving the proposed rule
changes filed by the NYSE, PSE, and Phlx, and the Exchange Amendments,
prior to the thirtieth day after the date of publication on notice of
filing thereof in the Federal Register. The rule changes proposed by
the NYSE, PSE, and Phlx, and Amex Amendment Nos. 1 and 2, conform their
proposals to the CBOE's proposal. Further, the CBOE's proposal was
published for the full 21-day comment period, and no comments were
received. With the exception of Amex Amendment Nos. 1 and 2, the
Exchange Amendments clarify, but do not change, the proposed rule
changes. The Commission finds, therefore, that no new regulatory issues
are raised by the foregoing proposed rule changes and the Exchange
Amendments. Accordingly, the Commission believes it is consistent with
sections 19(b)(2) and 6(b)(5) of the Act to approve the NYSE, PSE, and
Phlx proposed rule changes and Exchange Amendments on an accelerated
basis.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the NYSE, PSE, and Phlx proposed rule changes and
Exchange Amendments. Persons making written submissions should file six
copies thereof with the Secretary, Securities and Exchange Commission,
450 Fifth Street, NW., Washington, DC 20549. Copies of the submission,
all subsequent amendments, all written statements with respect to the
foregoing that are filed with the Commission, and all written
communications relating to the foregoing 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 Section,
450 Fifth Street, NW., Washington, DC. Copies of such filings also will
be available for inspection and copying at the principal office of the
above-mentioned self-regulatory organizations. All submissions should
refer to the appropriate file number(s) in the caption above and should
be submitted by July 1, 1994.
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\28\ that the proposed rule changes (File Nos. SR-Amex-92-35, SR-
CBOE-93-59, SR-NYSE-94-17, SR-PSE-94-07, and SR-Phlx-94-10), as
amended, are approved.
\28\15 U.S.C. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\29\
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\29\17 CFR 200.30-3(a)(12) (1993).
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Jonathan G. Katz,
Secretary.
[FR Doc. 94-14096 Filed 6-9-94; 8:45 am]
BILLING CODE 8010-01-M