[Federal Register Volume 59, Number 227 (Monday, November 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29213]
[Federal Register: November 28, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34986; File Nos. SR-Amex-94-49, SR-CBOE-94-41, SR-PSE-
94-33, and SR-PHLX-94-53]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Changes by the American
Stock Exchange, Inc., the Chicago Board Options Exchange, Inc., the
Pacific Stock Exchange, Inc., and the Philadelphia Stock Exchange, Inc.
Relating to an Extension of the Hedge Exemption Pilot Programs
November 18, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on November
2, 1994, the Pacific Stock Exchange, Inc. (``PSE''); on November 7,
1994, the Chicago Board Options Exchange, Inc. (``CBOE''); on November
9, 1994, the American Stock Exchange, Inc. (``Amex''); and on November
17, 1994, the Philadelphia Stock Exchange, Inc. (``PHLX'') (each
individually referred to as an ``Exchange'' and two or more
collectively referred to as ``Exchanges'') filed with the Securities
and Exchange Commission (``SEC'' or ``Commission'') the proposed rule
changes as described in Items I and II below, which Items have been
prepared by the self-regulatory organization. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organizations' Statement of the Terms of Substance
of the Proposed Rule Changes
The proposed rule changes filed by the Amex and PHLX extend for six
months (i.e., from November 17, 1994, to May 17, 1995) the Exchanges'
pilot programs for exemptions from equity position limits for certain
hedged positions.\1\ The proposals filed by the CBOE and the PSE extend
for six months (i.e., from November 17, 1994, to May 17, 1995), the
Exchanges' pilot programs for position limit exemptions for certain
hedged equity option positions and certain stock index option
positions.
---------------------------------------------------------------------------
\1\Position limits impose a ceiling on the aggregate number of
options contracts on the same side of the market that can be held or
written by an investor or group of investors acting on concert.
---------------------------------------------------------------------------
The text of the proposals are available at the Office of the
Secretary of the respective Exchanges and at the Commission.
II. Self-Regulatory Organizations' Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Changes
In its filing with the Commission, the self-regulatory
organizations included statements concerning the purpose of and basis
for the proposed rule changes and discussed any comments it received on
the proposed rule changes. The text of these statements may be examined
at the places specified in Item IV below. The self-regulatory
organizations have prepared summaries, set forth in sections (A), (B),
and (C) below, of the most significant aspects of such statements.
(A) Self-Regulatory Organizations' Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Changes
The Commission has previously approved pilot programs by the Amex
and the PHLX providing exemptions from position limits for certain
fully hedged equity option positions.\2\ In addition, the Commission
has previously approved pilot programs proposed by the CBOE, the New
York Stock Exchange, Inc., and the PSE providing exemptions from
position limits for certain fully hedged equity option positions and/or
stock index option positions.\3\ Each of the pilot programs allow the
underlying hedged positions to include securities that are readily
convertible into common stock.\4\ Under all of the pilot programs,
exercise limits continue to correspond to position limits, so that
investors are allowed to exercise, during five consecutive business
days, the number of option contracts set forth as the position limit,
as well as those contracts purchased pursuant to the pilot program.\5\
---------------------------------------------------------------------------
\2\See Securities Exchange Act Release No. 25738 (May 24, 1988),
53 20201 (June 2, 1988).
\3\See Securities Exchange Act Release Nos. 25738 (May 24,
1988), 53 FR 20201 (June 2, 1988) (order approving CBOE's equity
option hedge exemption pilot programs); 25739 (May 24, 1988(, 53 FR
20204 (June 2, 1988) (approving CBOE's stock index option hedge
exemption pilot program); 27786 (March 8, 1990), 55 FR 9523 (March
14, 1990) (order approving NYSE's equity option and stock index
option hedge exemption pilot programs); 25811 (June 20, 1988), 53 FR
23821 (June 24, 1988) (order approving PSE'e equity option hedge
exemption pilot program); and 32900 (September 14, 1993), 58 FR
49077 (September 21, 1993) (order approving PSE's stock index option
hedge exemption pilot program).
\4\The Commission expects the Exchanges to determine on a case-
by-case basis whether an instrument that is being used as the basis
for an underlying hedged position is readily and immediately
convertible into a security that is convertible at a future date,
but which is not presently convertible, is not a ``convertible''
security for purposes of the equity option position limit hedge
exemption until the date it becomes convertible. In addition, if the
convertible security used to hedge an options position is called for
redemption by the issuer, the security would have to be converted
into the underlying security immediately or the corresponding
options position reduced accordingly. See, e.g., Securities Exchange
Act Release No. 32904 (September 14, 1993), 58 FR 49339.
\5\Exercise limits prohibit the exercise by an investor or group
of investors acting in concert of more than the number of options
contracts specified in the position limit rule within five
consecutive business days.
---------------------------------------------------------------------------
The Exchanges believe that the proposed rule changes are consistent
with Section 6(b) of the Act, in general, and furthers the objectives
of Section 6(b)(5), in particular, in that they are designed to protect
investors and the public interest and to remove impediments and perfect
the mechanism of a free and open market.
(B) Self-Regulatory Organizations' Statement on Burden on Competition
The Exchanges do not believe that the proposed rule changes will
impose any burden on competition.
(C) Self-Regulatory Organizations' Statements on Comments on the
Proposed Rule Changes Received From Members, Participants or Others
Written comments on the proposed rule changes were neither
solicited nor received.
III. Date of Effectiveness of the Proposed Rule Changes and Timing for
Commission Action
The Exchanges have requested that the proposed rule changes be
given accelerated effectiveness pursuant to Section 19(b)(2) of the
Act.
The Commission finds that the proposed rule changes to extend the
pilot programs until May 17, 1995, are consistent with the requirements
of the Act and the rules and regulations thereunder applicable to a
national securities exchange, and, in particular, the requirements of
Section 6(b)(5) thereunder.\6\ The Commission concludes, as it did when
originally approving each of the pilot programs, that providing for
increased position and exercise limits for equity options and stock
index options in circumstances where those excess positions are fully
hedged with offsetting stock positions will provide greater depth and
liquidity to the market and allow investors to hedge their stock
portfolios more effectively, without significantly increasing concerns
regarding intermarket manipulations or disruptions of either the
options market or the underlying stock market.
---------------------------------------------------------------------------
\6\15 U.S.C. Sec. 78f(b)(5) (1982).
---------------------------------------------------------------------------
The Commission also notes that before the pilot program of an
Exchange can be extended or approved on a permanent basis, that
Exchange must provide the Commission with a report on the operation of
its pilot program since its inception by January 31, 1995.
Specifically, an Exchange must provide the Commission details on (1)
the frequency with which the exemptions have been used; (2) the types
of investors using the exemptions; (3) the size of the positions
established pursuant to the pilot program; (4) what types of
convertible securities are being used to hedge positions and how
frequently the convertible securities have been used to hedge; (5)
whether the Exchange has received any complaints on the operation of
the pilot program; (6) whether the Exchange has taken any disciplinary
action against, or commenced any violation of any term or condition of
the pilot program; (7) the market impact, if any, of the pilot program;
and (8) how the Exchange has implemented surveillance procedures to
ensure compliance with the terms and conditions of the pilot program.
In addition, the Commission expects each Exchange to inform the
Commission of the results of any surveillance investigations undertaken
for apparent violations of the provisions of its position limit hedge
exemption rules.
The Commission finds good cause for approving the extension of the
pilot programs prior to the thirtieth day after the date of publication
of notice of filing thereof in the Federal Register in order to permit
the continuation of the pilot programs. The Commission notes that the
Exchanges have not experienced any significant programs with the pilot
programs since their inception and that the Exchanges will continue to
monitor the pilot programs to ensure that no problems arise. Finally,
no adverse comments have been received by the Exchanges or the
Commission concerning the pilot programs. Based on the above, the
Commission believes good cause exists to approve the extension of the
pilot programs through May 17, 1995, on an accelerated basis.
Therefore, the Commission believes that granting accelerated approval
of the proposal is appropriate and consistent with sections 6 and
19(b)(2) of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule changes that are filed
with the Commission, and all written communications relating to the
proposed rule changes 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 Section, 450 Fifth Street,
N.W., Washington, D.C. Copies of such filing will also be available for
inspection and copying at the principal office of the above-mentioned
self-regulatory organizations. All submissions should refer to the file
number in the caption above and should be submitted by December 19,
1994.
It is therefore ordered, Pursuant to Section 19(b)(2) of the
Act,\7\ that the proposed rule changes (SR-Amex-94-49, SR-CBOE-94-41,
SR-PSE-94-33, and SR-PHLX-94-53) relating to an extension of the hedge
exemption pilot programs until May 17, 1995, is approved.
\7\15 U.S.C. Sec. 78s(b)(2) (1982).
---------------------------------------------------------------------------
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
---------------------------------------------------------------------------
\8\17 CFR 200.30-3(a)(12) (1993).
---------------------------------------------------------------------------
Jonathan G. Katz,
Secretary.
[FR Doc. 94-29213 Filed 11-25-94; 8:45 am]
BILLING CODE 8010-01-M