[Federal Register Volume 60, Number 218 (Monday, November 13, 1995)]
[Notices]
[Pages 57027-57028]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27880]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36452; File No. SR-PSE-95-24]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 to the Proposed Rule Change by the Pacific
Stock Exchange Incorporated, Relating to the Listing and Trading of
Flexible Exchange Options on Specified Equity Securities
November 2, 1995.
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 October 5, 1995, the Pacific Stock Exchange Incorporated (``PSE'' 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. On
October 25, 1995, the Exchange filed with the Commission Amendment No.
1 to the proposed rule change.\3\ The Commission is publishing this
notice to solicit comments on the proposed rule change, as amended,
from interested persons.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, the Exchange first proposes to add the
definition of ``FLEX Post Official'' to PSE Rule 8.100(b)(7).
Second, the Exchange proposes to add as new PSE Rule 8.114, the
provision on financial requirements for FLEX Appointed Market
Makers, which had been inadvertently deleted from the proposed rule
change as originally filed. Third, the Exchange proposes to re-
number PSE Rule 8.114, as PSE Rule 8.115. See Letter from Michael D.
Pierson, Senior Attorney, Market Regulation, PSE, to John Ayanian,
Attorney, Office of Market Supervision, Division of Market
Regulation, Commission, dated October 26, 1995.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its rules to provide for the listing
and trading of Flexible Exchange Options (``Flex Options'') on
specified equity securities (``FLEX Equity Options''). The text of the
proposed rule change is available at the Office of the Secretary, the
Exchange, 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 Exchange included statements
concerning the purpose of and basis for 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
Section (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 purpose of the proposed rule change is to expand the PSE's FLEX
Options rules \4\ to permit the introduction of trading in FLEX Options
on specified equity securities that satisfy the Exchange's listing
standards for equity options. Currently, FLEX Options are listed and
traded on the PSE in respect of several broad market indexes of equity
securities (``FLEX Index Options'').\5\
\4\ See PSE Rules 8.100 through 8.114.
\5\ Specifically, the Commission has approved the listing by the
PSE of FLEX Options on the Wilshire Small Cap and PSE Technology
Indexes. See Securities Exchange Act Release No. 34364 (July 13,
1994), 59 FR 36813 (July 19, 1994) (approval of FLEX Options on the
Wilshire Small Cap and PSE Technology Indexes).
---------------------------------------------------------------------------
For the most part, the PSE represents that the current rules
governing FLEX Index Options will apply unchanged to FLEX Equity
Options. Certain changes to the PSE's existing FLEX Options rules,
however, are proposed to deal with the special characteristics of FLEX
Equity Options. Specifically, the PSE proposes to add several new
definitions to rule 8.100 to accommodate the introduction of trading in
FLEX Equity Options,\6\ and to revise certain other PSE rules
describing FLEX Options and governing their trading, as described
below.
\6\ In addition to the term FLEX Equity Options, the proposal
also defines the terms ``FLEX Index Options,'' ``Non-FLEX Options,''
``Non-FLEX Equity Option,'' and, ``Applicable Floor Procedure
Committee.
---------------------------------------------------------------------------
The PSE proposes to revise Rule 8.102 concerning the terms of FLEX
Options to make specific reference to the terms of FLEX Equity Options.
Specifically, FLEX Equity Options will have (1) a maximum term of three
years, (2) a minimum size of 250 contracts for an opening transaction
in a new series, and (3) a minimum size of 100 contracts for an opening
or closing transaction in a series in which there is already open
interest (or any lesser amount in a closing transaction that represents
the remaining underlying size). The minimum value size for FLEX Quotes
\7\ by a single Market-Maker in response to a Request for Quotes \8\ in
FLEX Equity Options is the lesser of 100 contracts or the remaining
underlying size in a closing transaction.
\7\ See PSE Rule 8.100(b)(7).
\8\ See PSE Rule 8.100(b)(12).
---------------------------------------------------------------------------
The PSE also proposes to allow exercise prices and premiums for
FLEX Equity Options to be stated in dollar amounts or percentages, with
premiums rounded to the nearest minimum tick and exercise prices
rounded to the nearest one-eighth. The exercise of FLEX Equity Options
will be by physical delivery, and the exercise-by-exception procedures
of The Options Clearing Corporation (``OCC'') will apply.\9\
\9\ OCC Rule 805 provides for automatic exercise of in-the-money
options at expiration without the submission of an exercise notice
to the OCC if the price of the security underlying the option is at
or above a certain price (for calls) or at or below a certain price
(for puts); and the non-exercise of an option at expiration if the
price of the security underlying the option does not satisfy such
price levels. See OCC rule 805.
---------------------------------------------------------------------------
The PSE represents that the trading procedures applicable to FLEX
Equity Options will be mostly the same as
[[Page 57028]]
those that apply to FLEX Index Options, except that unless the Exchange
decides otherwise, there will not be FLEX Appointed Market-Makers \10\
who are obligated to respond to Requests for Quotes in respect of FLEX
Equity Options as there are in respect of FLEX Index Options. Instead,
the PSE proposes to have five or more ``FLEX Qualified Market-Makers''
appointed to each class of FLEX Equity Option who must satisfy
essentially the same standards of qualification as FLEX Appointed
Market-Makers (including the requirement for a specific clearing member
letter of guarantee for FLEX Options), \11\ and who may, but without
obligation to do so, enter quotes in response to a Request for Quotes
in a class of FLEX Equity Options in which the Market-Maker is
qualified. In addition, FLEX Qualified Market-Makers will be obligated
to make responsive quotes when called upon to do so by a FLEX Post
Official \12\ in the interests of a fair and orderly market. Quotes of
FLEX Qualified Market-Makers must satisfy the minimum size parameters
discussed above for FLEX Equity Options and must be entered within the
time periods provided in the PSE's FLEX Options Rules.\13\
\10\ See Rule 8.109.
\11\See, e.g., PSE Rules 8.109, 8.113, 8.114, and 8.115.
\12\ See PSE Rule 8.100(b)(7).
\13\ See PSE Rule 8.103.
---------------------------------------------------------------------------
The PSE represents that the rules governing priority of bids and
offers for FLEX Equity Options are also much the same as those that
apply to FLEX Index Options, except that in the case of FLEX Equity
Options, no guaranteed minimum right of participation is provided to an
Exchange member that initiates a Request for Quotes and indicates an
intention to cross or act as principle on the trade; \14\ as to such a
member the Exchange's regular rules of price and time priority shall
apply.\15\
\14\ See PSE Rule 8.103(c).
\15\ See PSE Rule 6.75.
---------------------------------------------------------------------------
The PSE represents that position limits and exercise limits for
FLEX Equity Options are proposed to be larger than the limits
applicable to Non-FLEX Equity Options, in the same manner and for the
same reasons that the position and exercise limits for FLEX Index
Options are larger than those applicable to Non-FLEX Index Options.
Position and exercise limits for FLEX Equity Options are proposed to be
five times the limits for Non-FLEX Equity Options on the same
underlying security. Also, as is currently the case for FLEX Index
Options, it is proposed that there will be no aggregation of positions
or exercises in FLEX Equity Options with positions or exercises in Non-
FLEX Equity Options for purposes of position or exercise limits. The
PSE believes that the larger position and exercise limits for FLEX
Options and the nonaggregation of positions and exercises in FLEX
Options and Non-FLEX Options reflect the institutional nature of the
market for FLEX Options and the fact that the PSE must compete with
over-the-counter markets throughout the world, many of which do not
impose any position or exercise limits whatsoever.
Also, the Exchange proposes to provide that the expiration date of
a FLEX Equity Option may not fall on a day that is within two business
days of the expiration date of a Non-FLEX Equity Option. This is
intended to eliminate the possibility that the exercise of FLEX Equity
Options at expiration will cause any untoward pressure on the market
for underlying securities at the same time as Non-FLEX Options expire.
The Exchange proposes that this change will also apply to FLEX Index
Options.\16\
\16\ Current PSE Rule 7.52(b)(4) provides that the expiration
date of a FLEX Index Option may not fall within three business days
of the expiration date of a Non-FLEX Index Option.
---------------------------------------------------------------------------
The Exchange believes that 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, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any 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 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 PSE. All
submissions should refer to SR-PSE-95-24 and should be submitted by
December 4, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
\17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
FR Doc. 95-27880 Filed 11-9-95; 8:45 am]
BILLING CODE 8010-01-M