[Federal Register Volume 59, Number 243 (Tuesday, December 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31202]


[[Page Unknown]]

[Federal Register: December 20, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35097; File No. SR-PHLX-94-54]

Self-Regulatory Organizations; Notice of Filing and Order Granting 
Accelerated Approval of Proposed Rule Change by the Philadelphia 
Stock Exchange, Inc., Relating to the Holiday Expiration Date for 
Cash/Spot Foreign Currency Options

December 13, 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 
7, 1994, 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 self-
regulatory organization.\1\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\On December 7, 1994, the PHLX withdrew the portion of the 
proposal requesting approval to list cash/spot foreign currency 
options in consecutive month and cycle month series. In addition, 
the PHLX requested accelerated approval for the portion of the 
proposal concerning holiday expirations and the definition of 
``underlying foreign currency.'' See Letter from Michele R. 
Weisbaum, Associate General Counsel, PHLX, to Michael Walinskas, 
Branch Chief, Division of Market Regulation, Commission, dated 
December 5, 1994 (``Amendment No. 1''). Under Amendment No. 1, the 
contract listed on December 19, 1994, will be effected on Friday, 
December 23, 1994, will not be effected by the new procedure.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The PHLX proposes to amend PHLX Rule 1000, ``Applicability, 
Definitions, and References,'' to provide that the expiration date for 
cash/spot foreign currency options (``3D options'') that expire on a 
holiday or an Exchange designated bank holiday will be the business day 
following the holiday or the Exchange designated bank holiday. In 
addition, the PHLX proposes to amend PHLX Rule 1000(b)(14) to correct 
the definition of ``underlying foreign currency'' as it applies to 3D 
options. Under the proposal, the 3D option contract listed on December 
19, 1994, will be effected by the proposed expiration procedure, but 
the 3D contract expiring on Friday, December 23, 1994, will not be 
effected by the proposed expiration procedure.\2\
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    \2\See Amendment No. 1, supra note 1.
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    The text of the proposed rule change is available at the Office of 
the Secretary, PHLX, and at the Commission.

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 self-regulatory organization 
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 self-regulatory organization 
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

    The PHLX proposes to amend its rules to make two changes to its 3D 
options. Presently, 3D options expire every Monday at 11:59 p.m. 
Eastern Standard Time. PHLX Rule 1000(b)(21)(iii), ``Expiration Date,'' 
provides that if Monday is a holiday or Exchange designated bank 
holiday, 3D options will expire on the preceding business day. The 
Exchange also trades physically settled foreign currency options that 
expire on the Friday preceding the third Wednesday of each month 
(``mid-month options'') and on the last Friday of each month (``month-
end options''). the PHLX states that the Exchange created 3D options 
with a Monday expiration to attract users seeking an option capturing 
the risk associated with the weekend.
    Pursuant to existing PHLX Rule 1000(b)(21)(iii), if Monday is a 
holiday, the expiration reverts back to the preceding business day, 
which is usually Friday but on some occasions may be Thursday. The 
Exchange now realizes that this defeats the purpose of using 3D options 
to capture weekend risk. In response to this concern, which has been 
raised by users of the product, the Exchange proposes that 3D options 
expire on the following business day, instead of the previous business 
day, when the regular Monday expiration occurs on an Exchange holiday 
or designated bank holiday. This usually will be a Tuesday, however, it 
may be a Wednesday. For example, Monday, December 26, 1994, is an 
Exchange holiday, (Christmas) so expiration, as proposed, should be 
Tuesday. However, Tuesday, December 27, 1994, is a designated bank 
holiday (Boxing Day), so expiration would occur on Wednesday, December 
28, 1994, if the proposed ``next business date'' rule were in effect.
    In addition, the PHLX proposes to revise the definition of 
``underlying foreign currency'' to reflect that for 3D options which 
are cash settled, the underlying foreign currency is the currency that 
the Options Clearing Corporation (``OCC'') would have been obligated to 
sell or purchase upon exercise of the contract since OCC actually 
transfers the cash value upon exercise of the foreign currency.
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act, in general, and, in particular with Section 
6(b)(5), in that it is designed to promote just and equitable 
principles of trade and to protect investors and the public interest by 
providing both a more appropriate expiration date for 3D options when 
the expiration date falls on a holiday.

(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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    The Exchange has requested that the proposed rule change be given 
accelerated effectiveness pursuant to Section 19(b)(2) of the Act.
    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act of the rules and regulations 
thereunder applicable to a national securities exchange and, in 
particular, the requirements of Section 6(b)(5).\3\ The PHLX state that 
the Exchange created 3D options with a Monday expiration in order to 
attract investors seeking an option that captures weekend risk. Under 
current rules, however, if Monday is a holiday or designated bank 
holiday, the 3D options will expire on the preceding business day, 
which is usually the preceding Friday. By amending its rules to provide 
that 3D options will expire on the following business day when the 
regular expiration Monday is an Exchange holiday or designated bank 
holiday, the Commission believes that the proposal will accommodate the 
investment objectives of market participants and facilitate 
transactions in 3D options by providing investors with a means to 
capture weekend currency risk.
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    \3\15 U.S.C. 78f(b)(50 (1988).
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    The Commission believes that 3D options, as amended, should provide 
investors with greater flexibility to tailor foreign currency options 
positions to satisfy their investment objectives. In this regard, the 
Commission notes that the PHLX has stated that foreign currency options 
provide a strategic investment tool for sophisticated retail options 
customers, multi-national corporations, and proprietary traders who 
manage and hedge foreign currency exposure, as well as banks, which 
trade short-term FCOs to hedge the risks of trading in the foreign 
currency forward and cash markets.\4\ In addition, the Commission 
continues to believe that 3D options broaden the hedging opportunities 
of foreign currency market participants by providing them with an 
alternative to using futures contracts, forward contracts and/or off-
exchange customized derivative instruments to satisfy their short-term 
currency investment needs.
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    \4\See Securities Exchange Act Release No. 33732 (March 8, 
1994), 59 FR 12023 (March 15, 1994) (order approving File No. SR-
PHLX-93-10).
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    The Commission believes that the proposal to revise the definition 
of ``underlying foreign currency'' clarifies the definition in the 
context of 3D options by reflecting the fact that the OCC delivers the 
cash value, rather than the underlying currency, upon exercises of a 3D 
option.
    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register in order to allow the 
Exchange to implement the new holiday expiration procedure prior to the 
January 2, 1995, expiration, an Exchange holiday. The Commission 
believes that the proposal to amend the holiday expiration procedure 
for 3D options will allow investors to continue to use 3D options for 
the purpose of hedging weekend currency risk. In addition, the 
Commission notes that the PHLX has notified its members of the proposed 
change and that the Commission has received no comments on the 
proposal. The Commission also believes that it is appropriate to grant 
accelerated approval to the proposal to revise the definition of 
``underlying foreign currency'' because the proposal clarifies the 
Exchange's rule without making any substantive change. Accordingly, the 
Commission believes it is consistent with Sections 6(b)(5) and 19(b)(2) 
of the Act to approve the proposed rule change on an accelerated basis.

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, NW., Washington, DC 20549. 
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 at the 
Commission's Public Reference Section, 450 Fifth Street, NW., 
Washington, DC. Copies of such filing will also be available for 
inspection and copying at the principal office of the above-mentioned 
self-regulatory organization. All submissions should refer to the file 
number in the caption above and should be submitted by January 10, 
1995.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\5\ that the proposed rule change (SR-PHLX-94-54) is hereby 
approved.

    \5\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.\6\
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    \6\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35086; File No. SR-Amex-94-38]

 
Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 to Proposed Rule Change by the American 
Stock Exchange, Inc. Relating to the Listing and Trading of Stock Index 
and Currency Warrants

December 12, 1994.
    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 September 12, 1994, the American Stock Exchange, Inc. (``Amex'' 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 self-regulatory 
organization. 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) (1988).
    \2\17 CFR 240.19b-4 (1991).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Amex proposes to: (1) Amend Section 106 of the Amex Company 
Guide to revise the listing criteria for stock index (``stock index'' 
or ``index'') warrants and currency warrants (``currency 
warrants'');\3\ (2) amend Rule 462 to specify the customer margin 
requirements for the purchase or short sale of stock index and currency 
warrants; (3) add a new Part VI to the rules of the Exchange to provide 
rules for the trading of index and currency warrants; and (4) rescind 
Commentaries .01 and .02 to Rule 411 (Duty to Know and Approve 
Customers) upon the adoption of new Part VI of the Exchange's rules. On 
Dec. 2, 1994, the Amex amended certain surveillance related matters 
addressed in the filing. See footnote 5 infra.
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    \3\Currency warrants, as used in this filing, may refer to 
warrants on individual currencies (or cross currencies) or to 
warrants on a specific currency index group (``currency index 
warrants'').
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    The text of the proposed rule change is available at the Office of 
the Secretary, Amex and at the Commission.

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 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 Amex 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 Amex proposes to: (1) Amend its listing guidelines and 
establish uniform rules for the trading of stock index and currency 
warrants; and (2) establish special customer margin requirements for 
positions in stock index and currency warrants.
    The Amex seeks to amend Section 106 of the Amex Company Guide to 
provide higher standards for index and currency warrant issuers than 
currently exists. In particular, such issuers would be expected to have 
a minimum tangible net worth in excess of $150 million. In addition, 
the aggregate original issuer price of all of a particular issuer's 
warrant offerings (combined with offerings by its affiliates) that are 
listed on a national securities exchange or that are National Market 
securities traded through NASDAQ would not be permitted to exceed 25% 
of the issuer's net worth. The proposed amendment requires that each 
warrant issuer will be automatically exercised on either the delisting 
date (if the issue is not listed upon another organized securities 
market) or upon expiration. Section 106 also will be amended to provide 
that opening prices (``a.m. settlement'') for all U.S. traded 
securities will be used to determine an index's settlement value where 
25 percent or more of the value of the index is represented by 
securities whose primary trading market is in the U.S.
    Rule 462 is being amended to apply the current customer margin 
requirements for broad based stock index and currency options to stock 
index and currency warrants, respectively. Thus, purchases of stock 
index and currency warrants will require payment in full, and short 
sales of stock index warrants will require initial margin of: (i) 100 
percent of the current value of the warrant plus (ii) 15 percent of the 
current value of the underlying broad stock index less the amount by 
which the warrant is out of the money, up to a maximum of five percent 
of the index value. Short sales of currency warrants will follow the 
margin requirements applicable to listed currency options. The Exchange 
proposes that its stock index and currency warrant margin requirements 
be permitted offset treatment for spread, straddle and covered 
positions.\4\
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    \4\The staff of the Commission has indicated to the Exchange 
that it must request and obtain appropriate interpretive or no-
action relief from the Commission in order to permit its index and 
currency warrant margin requirements to allow offset treatment for 
spread, straddle and covered positions.
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    Proposed Part VI of the Exchange rules applies to the trading of 
index warrants and currency warrants. Proposed Rule 1100 provides that, 
unless the context otherwise requires or a specific rule in part VI 
applies, the provisions of the Constitution and all other rules and 
policies of the Exchange apply to trading of such securities.
    Proposed Rule 1101 states that no member or member organization 
shall accept an order from a customer for the purchase or sale of index 
or currency warrants unless the customer's account has been approved 
for options trading pursuant to Exchange Rule 921. Accordingly, the 
Exchange will rescind Commentaries .01 and .02 to Rule 411, its current 
suitability standard applicable to warrants, which currently provide 
that the Exchange ``recommends'' that index and currency warrants only 
be sold to investors whose accounts have been approved for options 
trading. Furthermore, proposed Rules 1102-1105 require that the option 
rules pertaining to suitability, discretionary account trading, 
supervision of accounts and customer complaints be applied to stock 
index an currency warrants.
    Proposed Rule 1106 requires approval by a Compliance Registered 
Options Principal of all advertisements, sales literature and 
educational material issued by a member organization pertaining to 
stock index and currency warrants. The rule further requires Exchange 
approval of all advertisements and educational materials pertaining to 
stock index and currency warrants.
    Proposed Rule 1107 provides that position limits for stock index 
warrants on the same index with original issue prices of ten dollars or 
less will be fifteen million warrants covering all such issues. In 
addition, with respect to warrants on the Standard & Poor's MidCap 400 
Index, the position limit will be seven and one-half million warrants 
covering all such issues, provided the original issue prices of the 
warrants are not grater than ten dollars. The rule provides that 
warrants with an original issue price of ten dollars or more will be 
weighted more heavily than warrants with an original issue price of ten 
dollars or less in calculating position limits. The rule also gives the 
Exchange the authority to require the liquidation of a position in 
stock index warrants that is in excess of the position limits set forth 
in the rule, and Commentary V to the rule provides procedures for 
allowing limited exceptions to the position limits.
    Proposed Rule 1108 provides for exercise limits on stock index 
warrants analogous to those found in stock index options and states 
that such limits are distinct from any exercise limits that may be 
imposed by the issuers of stock index warrants.
    Proposed Rule 1109 requires that the trading halt provisions in 
Rule 918C(b) shall be applied to the trading stock index warrants.
    Upon Commission approval of the foregoing amendments, the Exchange 
proposes that it will only file rule changes for specific warrant 
issues where there is no corresponding option or warrant on the same 
underlying index already listed on a national securities exchange or 
NASDAQ. Accordingly, when a listed option overlies a particular broad 
based index, the Exchange proposes it be allowed to list warrants on 
that index without further Commission review and approval pursuant to 
Section 19(b) of the Act.
    Both initial and maintenance listing standards for stock index 
warrants will require that no more than 20% of the securities in the 
underlying 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 Amex and the primary exchange on which the foreign security 
(including a foreign security underlying an ADR) is traded.\5\ 
Furthermore, proposed Rule 1100 provides that stock index and currency 
warrants listed on the Exchange prior to SEC approval of this filing 
shall continue to be governed by those provisions of the Exchange's 
rules that were applicable to such warrants prior to approval of this 
filing. Finally, prior to trading index or currency warrants, the 
Exchange will distribute a circular to its membership providing 
guidance regarding member firm compliance responsibilities (including 
suitability recommendations) when handling transactions in index or 
currency warrants.
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    \5\Telephone conversation between Benjamin D. Krause, Amex, and 
Michael Walinskas, SEC, on December 2, 1994 (``Amendment No. 1''). 
The Exchange proposes that the ``20% test'' be applied in the same 
manner as that contained in Securities Exchange Act Release No. 
34157 (June 3, 1994), 59 FR 30062 (June 10, 1994) (Commission 
approval order allowing the expedited trading approval of certain 
narrow-based index options).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act in general and furthers the objectives of 
Section 6(b)(5) in particular in that it is designed to prevent 
fraudulent and manipulative acts and practices and to promote just and 
equitable principles of trade, and is not designed to permit unfair 
discrimination between customers, issuers, brokers and dealers.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes the proposed rule change will impose 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 has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the publication of this notice in the Federal 
Register or within such other 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 self-regulatory organization consents, the Commission will:
    (A) By order approve the 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. 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 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 at the 
Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. 20549. Copies of such filing will also be available 
for inspection and copying at the principal office of the Amex. All 
submissions should refer to File No. SR-Amex-94-38 and should be 
submitted by January 10, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-31202 Filed 12-19-94; 8:45 am]
BILLING CODE 8010-01-M