[Federal Register Volume 60, Number 133 (Wednesday, July 12, 1995)]
[Notices]
[Pages 35978-35979]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35928; International Series Release No. 823 File No.
SR-Phlx-95-43]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc., Relating to Customized
Foreign Currency Options Transaction Size
June 30, 1995.
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 June 21,
1995, 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 Phlx. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Phlx proposes to amend Exchange Rule 1069(a) to revise the
minimum transaction size for customized foreign currency options
(``Customized FCOs'') from 200 to 100 contracts. The text of the
proposed rule change is available at the Office of the Secretary, the
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 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 the
Statutory Basis for, the Proposed Rule Change
On November 1, 1994, the Commission approved the Exchange's
proposal to trade Customized FCOs.\1\ Customized FCOs provide users of
the Exchange's foreign currency options (``FCOs'') markets with the
ability to customize the strike price and quotation method and to
choose any underlying and base currency combination out of all
Exchange-listed currencies, including the U.S. dollar, for their FCO
transactions. The Phlx represents that Customized FCOs were introduced
to attract institutional customers who enjoy the flexibility and
variety offered in the over-the-counter foreign currency market but who
prefer the benefits attributed to an exchange auction market for
hedging their exchange rate risks.
\1\ See Securities Exchange Act Release No. 34925 (November 1,
1994), 59 FR 55720 (November 8, 1994).
---------------------------------------------------------------------------
The Exchange originally imposed a 300 contract minimum opening
transaction size pursuant to Rule 1069(a)(6). The Exchange represents
that a number of mid-sized corporations and institutions subsequently
told the Phlx that a 300 contract minimum was too large for their
purposes. The Exchange represents that these corporations and
institutions believed that Customized FCOs would fill a market need for
them but that the opening transaction size was prohibitive. As a
result, the Exchange states that it determined to reduce the minimum
opening transaction size in stages. As a first step, earlier this year,
the Exchange reduced the minimum size of opening transactions in
Customized FCOs to 200 contracts.\2\ The Exchange believes, however,
that 200 contracts is still too large for a significant segment of mid-
sized corporations (i.e., $1-10 billion in market capitalization) that
wish to hedge their currency risk in a cost-effective manner using an
exchange-traded Customized FCO. The Exchange, therefore, now proposes
to reduce the minimum opening transaction size for Customized FCOs to
100 contracts, which would still provide for an average minimum opening
transaction value of almost $5 million, as shown below:
\2\ See Securities Exchange Act Release No. 35464 (March 9,
1995), 60 FR 14043 (March 15, 1995.
[[Page 35979]]
----------------------------------------------------------------------------------------------------------------
Exchange rate Underlying Value of 200 Value of 100
Underlying currency \3\ contract size contracts contracts
----------------------------------------------------------------------------------------------------------------
Australian dollar............................... $0.7285000 50,000 $7,285,000 $3,642,500
Canadian dollar................................. 0.7379000 50,000 7,379,000 3,689,500
Swiss franc..................................... 0.8295000 62,500 10,368,750 5,184,375
German mark..................................... 0.6925000 62,500 8,656,250 4,328,125
French franc.................................... 0.1959800 250,000 9,799,000 4,899,500
British pound................................... 1.5640000 31,250 9,775,000 4,887,500
Japanese yen.................................... 0.0115410 6,250,000 14,426,250 7,213,125
ECU............................................. 1.2841000 62,500 16,051,250 8,025,625
Italian lira \4\................................ 0.0006066 50,000,000 6,066,000 3,033,000
Spanish peseta \5\.............................. 0.0080220 5,000,000 8,022,000 4,011,000
---------------------------------------------------------------
Averages.................................. .............. .............. 9,782,850 4,891,425
----------------------------------------------------------------------------------------------------------------
By reducing the minimum size of a Customized FCO opening
transaction to 100 contracts, now both opening and closing
transactions, regardless of open interest, would have the same minimum
size.\6\ Further, assigned registered options traders (``ROTs'') would
no longer have more stringent quote obligations than non-assigned ROTs
because the minimum size for any responsive quote would be at least 100
contracts. The Exchange notes that the beneficial parity and priority
provisions in Phlx Rule 1069(b) that were adopted as a quid pro quo for
assigned ROTs in exchange for this heightened quotation size
responsibility is the subject of another rule change that has been
filed with the Commission.\7\
\3\ As of May 16, 1995, assuming that the U.S. dollar is the
base currency.
\4\ The Exchange has requested approval to trade Customized FCOs
on the Italian lira. See Securities Exchange Act Release No. 35678
(May 4, 1995), 60 FR 24945 (May 10, 1995) (notice of File No. SR-
Phlx-95-20).
\5\ The Exchange has requested approval to trade Customized FCOs
on the Spanish peseta. See Securities Exchange Act Release No. 35677
(May 4, 1995), 60 FR 24941 (May 10, 1995) (notice of File No. SR-
Phlx-95-21).
\6\ Pursuant to Rule 1069(a)(6), the minimum closing transaction
size is the lesser of 100 contracts or the remaining number of
contracts.
\7\ In that proposal, the Exchange proposes to eliminate the
response period applicable to Customized FCOs which would also
eliminate the parity/priority benefits currently available to
assigned ROTs. See Securities Exchange Act Release No. 35615 (April
17, 1995), 60 FR 20133 (April 24, 1995) (notice of File No. SR-Phlx-
95-05).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act, in general, and with Section 6(b)(5), in
particular, in that it is designed to promote just and equitable
principles of trade, prevent fraudulent and manipulative acts and
practices, facilitate transactions in securities, remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, protect investors and the public
interest by opening up the Customized FCO market to smaller
institutional and corporate FCO users who are currently priced out of
the market while keeping the entry requirements high enough to
discourage smaller, less sophisticated FCO users.
(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 solicited or received with respect to the
proposed rule change.
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 self-regulatory organization 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. 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 in 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 Phlx. All
submissions should refer to File No. SR-Phlx-95-43 and should be
submitted by August 2, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
\8\ 17 CFR 200.30-3(a)(12) (1994).
---------------------------------------------------------------------------
Jonathan G. Katz,
Secretary.
[FR Doc. 95-16994 Filed 7-11-95; 8:45 am]
BILLING CODE 8010-01-M