[Federal Register Volume 63, Number 81 (Tuesday, April 28, 1998)]
[Notices]
[Pages 23327-23331]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11164]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39895; File No. SR-Phlx-98-07]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change and Amendment
Nos. 1 and 2 Thereto by the Philadelphia Stock Exchange, Inc., Relating
to the Listing and Trading of Options on the Exchange's Computer Box
Maker Index
April 21, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on February 5, 1998, the
Philadelphia Stock Exchange, Inc. (``Exchange'' or ``Phlx'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in items I and II below, which Items have been
prepared by the Exchange. On April 3, 1998, the Exchange filed with the
Commission Amendment No. 1 to the proposed rule change.\2\ On April 20,
1998, the Exchange filed with the Commission Amendment No. 2 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 and is accelerating approval of the amended
proposal.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ Amendment No. 1 revised the proposal's maintenance criteria,
position and exercise limits, concentration limits, and corrected
technical errors and oversights.
\3\ Amendment No. 2 clarified that the 9,000 contract position
limit governing options on the proposed index is independent of the
three-tiered position limits found in Exchange Rule 1001A(b)(i), and
instead appears as part of Exchange Rule 1001A(c). The second
amendment also modified the concentration criteria that trigger the
application of alternative position and exercise limits. See Letter
to Sharon Lawson, Senior Special Counsel, Division of Market
Regulation, Commission, from Nandita Yagnik, Attorney, Exchange,
dated April 20, 1998.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to list and trade European style, cash-
settled options, including long term options,\4\ on the Exchange's
Computer Box Maker Index (``Index''). The Index is a price-weighted,
narrow-based, A.M. settled, index comprised of nine stocks issued by
companies that manufacture, market, and support desktop and notebook
personal computers and fault tolerant systems.\5\
---------------------------------------------------------------------------
\4\ See Exchange Rule 1101A(b)(iii). Long term options also are
referred to as ``LEAPs.'' For ease of reference and clarity, the
term ``options'' hereafter shall include LEAPs where applicable.
\5\ The Index is comprised of the following stocks (primary
markets in parentheses): Apple Computer, Inc. (Nasdaq); Compaq
Computer Corp. (NYSE); Dell Computer Corp. (Nasdaq); Gateway 2000,
Inc. (NYSE); Hewlett Packard Co. (NYSE); International Business
Machines (NYSE); Micron Technology, Inc. (NYSE); Sun Microsystems,
Inc. (Nasdaq); and Unisys Corp. (NYSE).
---------------------------------------------------------------------------
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 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 III below. The Exchange 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 purpose of the proposed rule change is to list for trading
European style, cash-settled options on the Index, a new index
developed by the Exchange pursuant to Exchange Rule 1009A(a). Options
on the Index will provide a potential hedging vehicle for basket
traders and other market participants who trade the securities
comprising this small subsector of the technology industry. The
following is a detailed description of the proposed option contract and
the underlying Index:
(a). Ticker Symbol: BMX.
(b). Settlement Value Symbol: BMZ.
(c). Underlying Index: The Index is a price-weighted index
comprised of nine stocks issued by companies that manufacture, market,
and support desktop and notebook personal computers and fault tolerant
systems. All of the nine component stocks trade on the New York Stock
Exchange, Inc. (``NYSE''), or are National Market System (``NMS'')
securities that trade through the facilities of the Nasdaq Stock market
(``Nasdaq''), and therefore are reported securities as defined in Rule
11Aa3-1 under the Act.\6\ Further, all of the component stocks
presently meet the Exchange's listing criteria for equity options
contained in Exchange Rule 1009 and are currently the subject of listed
options on U.S. national securities exchanges.
---------------------------------------------------------------------------
\6\ 17 CFR 240.11Aa3-1.
---------------------------------------------------------------------------
The Exchange represents that only the securities of U.S. companies
are represented in the Index. However, if component securities issued
by non-U.S. companies are added to the Index (stocks or American
Depositary Receipts) and such component securities are not subject to
comprehensive surveillance sharing agreements, those component
securities will not account for more than 20% of the weight of the
Index.
Statistical information provided by the Exchange indicates that as
of April 2, 1998, the aggregate market capitalization of the nine
component stocks in the Index exceeded $266 billion. The individual
market capitalizations ranged from a high of $103.4 billion (IBM) to a
low of $3.43 billion (Unisys Corp.). Each of the nine component stocks
in the Index had average daily trading volumes in excess of one million
shares per trading day over the preceding six months. The average daily
trading volumes ranged from a high of 19.9 million shares per day
(Compaq Computer Corp.) to a low of 2.1 million shares per day (Gateway
2000, Inc.). The Exchange believes the Index's component stocks are
some of the most widely held and highly capitalized common stocks.
(d) Index Calculation: The Index is a price-weighted index. The
following formula will be used to compute the Index value:
[GRAPHIC] [TIFF OMITTED] TN28AP98.000
Where: SP=current stock price
The initial divisor is an arbitrary number selected to achieve a
certain index value. The divisor for the Index shall be 3.5 which
generates an Index value of 118 as of April 2, 1998.
(e). Index Maintenance: To maintain the continuity of the Index,
the divisor
[[Page 23328]]
will be adjusted to reflect non-market changes in the price of the
component securities as well as changes in the composition of the
Index. Changes which may result in divisor adjustments include, but are
not limited to, stock splits, dividends, spin-offs, mergers, and
acquisitions. In accordance with Exchange Rule 1009A, if any change in
the nature of any component in the Index (for example, due to a
delisting, merger, acquisition or other event) will change the overall
market character of the Index, the Exchange will take appropriate steps
to remove the component stock or replace it with another stock that the
Exchange believes would be compatible with the intended market
character of the Index. The Exchange represents that any replacement
components will be reported securities as defined in Rule 11Aa3-1 of
the Act.
Initially, the Index will be comprised of nine component stocks.
Absent Commission approval, the Exchange will not increase the number
of components to more than twelve or reduce the number of components to
fewer than eight. The Exchange represents that the component stocks,
comprising the top 90% of the Index, by weight, will each maintain a
minimum market capitalization of $75 million. The remaining 10%, by
weight, will each maintain a minimum market capitalization of $50
million. The component stocks comprising the top 90% of the Index, by
weight, will each maintain a trading volume of at least 500,000 shares
per month. The trading volume for each of the component stocks
constituting the bottom 10% of the index, by weight, will average at
least 400,000 shares per month. No fewer than 90% of the component
securities, by weight, or no fewer than 80% of the total number of the
components, shall qualify as stocks eligible for options trading.\7\ If
the Index fails at any time to satisfy one or more of the required
maintenance criteria, the Exchange will immediately notify the
Commission staff of that fact and will not open for trading any
additional series of options on the Index, unless the Exchange
determines that such failure is insignificant and the Commission
concurs in that determination, or unless the Commission approves the
continued listing of options on the Index under Section 19(b)(2) of the
Act.\8\ In addition to not opening for trading any additional series,
the Exchange may, in consultation with the Commission, prohibit opening
purchase transactions in series of options previously opened for
trading to the extent that the Exchange deems such action necessary or
appropriate.\9\
---------------------------------------------------------------------------
\7\ See infra note 23.
\8\ See 15 U.S.C. 78s(b)(2), and Exchange Rule 1009A.
\9\ See Exchange Rule 1010.
---------------------------------------------------------------------------
In addition to the above maintenance criteria, the Exchange
represents that no single component security of the Index shall account
for more than 35% of the Index, and that the three highest weighted
component securities shall not account for more than 65% of the Index.
If the Index fails to satisfy these concentration criteria, the
Exchange will reduce the position and exercise limit to 5,500 contracts
or to such other level approved by the Commission under Section 19(b)
of the Act. All series of Index options would be scheduled for a
position limit decrease to 5,500 contracts effective the Monday
following the expiration of the farthest-out, then-trading, non-LEAP
option series. If prior to the scheduled position limit decrease,
however, the Index complied with the concentration requirements, the
position limit would not be reduced. As of April 2, 1998, the highest
weighted component stock (IBM) made up 24.6% of the Index and the top
three components (IBM, Dell Computer Corp., and Hewlitt Packard Co.)
accounted for 55% of the Index.
(f). Unit of Trading: Each option contract on the Index will
represent $100 (the Index multiplier) times the Index value. For
example, an Index value of 200 will result in an option contract value
of $20,000 ($100 x 200).
(g). Exercise Price: The exercise price of an option contract on
the Index will be set in accordance with Exchange Rule 1101A(a).
(h). Settlement Value: The Index value for purposes of settling
outstanding Index option contracts upon expiration will be calculated
based upon the regular way opening sale prices for each of the Index's
component stocks in their primary market on the last trading day prior
to expiration. In the case of National Market System securities traded
through Nasdaq, the first reported sale price will be used for the
final settlement value for expiring Index option contracts. In the
event that a component security does not open for trading on the last
day before the expiration of a series of Index option contracts, the
last sale price for that security will be used in calculating the Index
value. However, in the event that the Options Clearing Corporation
(``OCC'') determines that the current Index value is unreported or
otherwise unavailable (including instances where the primary market(s)
for securities representing a substantial part of the value of the
Index is not open for trading at the time when the current Index value
used for exercise settlement purposes would be determined), the OCC may
determine an exercise settlement amount for the Index in accordance
with Article XVII, Section 4, of the OCC By-Laws.\10\
---------------------------------------------------------------------------
\10\ See OCC By-Laws, Article XVII, Section 4, and Securities
Exchange Act Release No. 37315 (June 17, 1996), 61 FR 32471 (June
24, 1996).
---------------------------------------------------------------------------
(i). Last Trading Day: The last business day prior to the third
Friday of the month for options which expire on the Saturday following
the third Friday of that month.
(j). Trading Hours: 9:30 a.m. to 4:02 p.m. e.s.t.
(k). Position and Exercise Limits: The Index is an industry or
narrow-based index. The position and exercise limits will be 9,000
contracts.\11\ As described earlier, if at any time any one component
security accounts for more than 35% of the Index, or any three
component securities account for more than 65% of the Index, the
Exchange will reduce the position and exercise limits to 5,500
contracts, or to such other level approved by the Commission under
Section 19(b) of the Act.
---------------------------------------------------------------------------
\11\ The 9,000 contract position limit for options on the Index
is separate and independent of the position limits set forth in
Exchange Rule 1001A(b)(i). See supra note 3.
---------------------------------------------------------------------------
(l). Expiration Cycles: Three months from the March, June,
September, December cycle plus at least two additional near-term
months. LEAPs also will be traded on the Index pursuant to Exchange
Rule 1101A(b)(iii).
(m). Exercise Style: European.
(n). Premium Quotations: Premiums will be expressed in terms of
dollars and fractions of dollars pursuant to Exchange Rule 1033A. For
example, a bid or offer of 1\1/2\ will represent a premium per options
contract of $150 ($1\1/2\ x 100).
The value of the Index will be calculated and disseminated every 15
seconds during the trading day. The Exchange has retained Bridge Data
Inc. to compute and perform all necessary maintenance of the Index.\12\
Pursuant to Exchange Rule 100A, updated Index values will be
disseminated and displayed by means of primary market prints reported
by the Consolidated Tape Association and over the facilities of the
Options Price Reporting Authority (``OPRA''). The Index value also will
be available on broker-dealer
[[Page 23329]]
interrogation devices to subscribers of options information. The
Exchange represents that it has the capacity to handle the additional
traffic expected to be generated by the Index.\13\ In addition, OPRA
has informed the Commission that the additional traffic from option
contracts on the Index is within OPRA's capacity.\14\
---------------------------------------------------------------------------
\12\ As a back-up to Bridge Data Inc., the Exchange will utilize
its own internal index calculation system, the Index Calculation
Engine (``ICE'') System.
\13\ See Letter to Michael Walinskas, Senior Special Counsel,
Office of Market Supervision, Commission, from Thomas A. Wittman,
First Vice President, Trading Systems, Exchange, dated February 6,
1998.
\14\ See Letter to Michael Walinskas, Senior Special Counsel,
Office of Market Supervision, Commission, from Joseph P. Corrigan,
Executive Director, OPRA, dated February 11, 1998.
---------------------------------------------------------------------------
Option contracts on the Index will be traded pursuant to current
Exchange rules governing the trading of narrow-based index options,
including provisions addressing sales practices, floor trading
procedures, margin requirements, and trading halts and suspensions.\15\
The Exchange represents that the surveillance procedures currently used
to monitor trading in index options also will be used to monitor
options based on the Index. These procedures entail complete access to
trading activity in the underlying component securities which all trade
on either the NYSE or Nasdaq. In addition, the Intermarket Surveillance
Group (``ISG'') Agreement dated July 14, 1983, as amended on January
29, 1990, will be applicable to the trading of option contracts on the
Index.
---------------------------------------------------------------------------
\15\ See Exchange Rule 722, Exchange Rules 1000A through 1102A,
and generally Exchange Rules 1000 through 1072.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6 of the Act,\16\ in general, and with Section 6(b)(5),\17\ in
particular, in that it is designed to promote just and equitable
principles of trade; prevent fraudulent and manipulative acts and
practices; foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities; remove impediments to and
perfect the mechanism of a free and open market and a national market
system; and protect investors and the public interest.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f.
\17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe 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
The Exchange did not solicit or receive written comments with
respect to the proposed rule change.
II. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing proposed rule change and Amendment
Nos. 1 and 2 thereto, including whether the proposed rule change, as
amended, is consistent with the Act. 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 submissions, 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 persons, 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. 20549. Copies of such filing will also be available
for inspection and copying at the principal office of the Exchange. All
submissions should refer to File No. SR-Phlx-98-07 and should be
submitted by May 19, 1998.
IV. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The Exchange has requested that the Commission grant accelerated
approval of the Index pursuant to Section 19(b)(2) of the Act.\18\ The
request for accelerated approval is predicated on the Index's
substantial compliance with the generic listing standards \19\ and the
Exchange's desire to remain competitive in the area of new product
development.\20\
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78s(b)(2).
\19\ See infra note 27.
\20\ See Letter to Michael Loftus, Attorney, Division of Market
Regulation, Commission, from Nandita Yagnik, Attorney, Exchange,
dated April 3, 1998.
---------------------------------------------------------------------------
V. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission has carefully reviewed the Exchange's proposed rule
change and believes, for the reasons set forth below, the proposal is
consistent with the requirements of the Act and the rules thereunder
applicable to a national securities exchange, and, in particular, the
requirements of Section 6(b)(5).\21\ Specifically, the Commission finds
that the trading of options on the Index will serve to promote the
public interest and help to remove impediments to a free and open
securities market by providing investors with a means of hedging
exposure to market risks associated with the securities issued by
companies that manufacture and support computers.
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission finds that the trading of options on the Index will
permit investors to participate in the price movements of the nine
securities on which the Index is based. Further trading of options on
the Index will allow investors holding positions in some or all of the
securities underlying the Index to hedge the risks associated with
these securities. Accordingly, the Commission believes that options on
the Index will provide investors with an additional trading and hedging
mechanism.\22\
---------------------------------------------------------------------------
\22\ Pursuant to Section 6(b)(5) of the Act, the Commission must
predicate approval of any new option proposal upon a finding that
the introduction of such new derivative instrument is in the public
interest. Such 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.
---------------------------------------------------------------------------
Nevertheless, the trading of options on the Index raises several
issues related to design of the Index, customer protections, and
surveillance. The Commission believes, however, for the reasons
described below, that the Exchange adequately has addressed these
issues.
A. Index Design and Structure
The Commission believes it is appropriate for the Exchange to apply
its rules governing the trading of narrow-based index options to
options based on the Index. The Commission notes that the Index
contains nine stocks representing one industry group, and thus reflects
a very narrow segment of the U.S. equities market.
The Commission notes that the nine securities comprising the Index
are actively-traded. For the six month period ending April 2, 1998, the
average daily trading volume among the component securities ranged from
a high of 19.9 million shares per day (Compaq Computer Corp.) to a low
of 2.1 million shares per day (Gateway 2000, Inc.). In addition, the
market capitalizations of the securities in the Index are extremely
large, ranging from
[[Page 23330]]
a high of $103.4 billion (IBM) to a low of $3.43 billion (Unisys Corp.)
as of April 2, 1998. Finally, no one component stock accounted for more
than 24.6% of the Index's total value, and the percentage weighting of
the three largest issues in the Index accounted for 55% of the Index's
value.
With respect to the maintenance of the Index, the Commission
believes the Exchange has implemented several safeguards in connection
with the listing and trading of options on the Index that will serve to
ensure that the Index remains comprised of highly-capitalized,
actively-traded securities, thereby ensuring that the Index will remain
substantially the same over time. In this regard, the Exchange will
maintain the Index so that: (1) the component securities comprising the
top 90% of the Index, by weight, each will have market capitalizations
of at least $75 million, and the remaining 10% each will have market
capitalizations no less than $50 million; (2) the component securities
comprising the top 90% of the Index, by weight, each will have monthly
trading volumes of at least 500,000 shares, and the remaining 10% each
will have monthly trading volumes no less than 400,000 shares; (3) at
least 90% of the components in the Index, by weight, and 80% of the
number of components in the Index will be eligible \23\ for
standardized options trading; (4) the component securities will be
``reported'' securities pursuant to Rule 11Aa3-1 of the Act; \24\ (5)
absent approval from the Commission pursuant to Section 19(b)(2) of the
Act, the Exchange will not increase the number of components to more
than twelve or reduce the number of components to fewer than eight; and
(6) if any component security requires replacement because of a
delisting, merger, acquisition, or other event affecting the market
character of such component security, the Exchange will replace it with
another security that the Exchange believes would be compatible with
the intended market character of the Index.
---------------------------------------------------------------------------
\23\ The Exchange's options listing standards, which are uniform
among the options exchanges, provide that a security underlying an
option must, among other things, meet the following requirements:
(1) the public float must be at least 7,000,000 shares; (2) there
must be a minimum of 2,000 securityholders; (3) trading volume in
the U.S. must have been at least 2.4 million shares over the
preceding twelve months; and (4) the market price per share must
have been at least $7.50 for a majority of the business days during
the preceding three calendar months. See Exchange Rule 1009,
``Criteria for Underlying Securities,'' Commentary .01.
\24\ 17 CFR 240.11Aa3-1.
---------------------------------------------------------------------------
The Commission further believes the maintenance standards governing
the Index will help protect against material changes in the composition
and design of the Index that might adversely affect the Exchange's
obligations to protect investors and to maintain fair and orderly
markets in options based on the Index. The Exchange is required to
immediately notify the Commission staff if the Index fails at any time
to satisfy one or more of the specified maintenance criteria. Further,
in such an event, the Exchange will not open for trading any additional
series of options on the Index, unless the Exchange determines that
such failure is insignificant and the Commission concurs in that
determination, or unless the Commission approves the continued listing
of options on the Index under Section 19(b)(2) of the ACt.\25\
---------------------------------------------------------------------------
\25\ See 15 U.S.C. 78s(b)(2), and Exchange Rule 1009A.
---------------------------------------------------------------------------
B. Customer Protection
The Commission believes that a regulatory system designed to
protect public customers must be in place before the trading of
sophisticated financial instruments, such as options based on the
Index, can commence on a national securities exchange. The Commission
notes that the trading of standardized exchange-listed options occurs
in an environment that is designed to ensure that: (1) the special
risks of options are disclosed to public customers; (2) only investors
capable of evaluating and bearing the risks of options trading are
engaged in such trading; and (3) special compliance procedures are
applicable to options accounts. Accordingly, because the Index options
will be subject to the same regulatory regime as the other standardized
options currently traded on the Exchange, the Commission believes that
adequate safeguards are in place to ensure the protection of investors
in Index options.
C. Surveillance
In evaluating new derivative instruments, the Commission,
consistent with the protection of investors, considers the degree to
which the derivative exchange has the ability to obtain information
necessary to detect and deter market manipulation and other trading
abuses. Therefore, the Commission believes that a surveillance sharing
agreement between an exchange proposing to list a security index
derivative product and the exchange(s) trading the securities
underlying the derivative product is an important measure for
surveillance of the derivative and underlying securities markets. Such
agreements facilitate and ensure the availability of information needed
to fully investigate manipulation if it were to occur.\26\ In this
regard, the Commission notes that the primary markets for the stocks
underlying the Index--the NYSE and the NASD (the self-regulatory
organization which oversees Nasdaq)--as well as the Exchange, are
members of the ISG, which provides for the sharing of all necessary
surveillance information. The Commission believes this arrangement will
ensure the availability of information necessary to detect potential
manipulations and other trading abuses.
---------------------------------------------------------------------------
\26\ See Securities Exchange Act Release No. 31243 (Sept. 28,
1992), 57 FR 45849 (Oct. 5, 1992).
---------------------------------------------------------------------------
The Commission finds good cause for approving the proposal,
including Amendment Nos. 1 and 2 thereto, prior to the thirtieth day
after the date of publication of notice thereof in the Federal
Register. The Commission notes that proposed rule changes regarding the
listing and trading of options on narrow-based indexes may become
effective immediately upon filing provided they satisfy certain generic
listing standards.\27\ The generic listing standards establish minimum
guidelines concerning the design and operation of narrow-based indexes.
The Commission recognizes that the Index, as amended, satisfies all of
the generic listing standards save two, the minimum number of component
securities \28\ and the concentration limits.\29\ In addition, to the
extent that the Index deviates from the generic listing standards in
these categories, the Commission notes that the Exchange has amended
its proposal to adequately address the concerns identified by the
Commission staff. This includes for example, providing for a reduction
in position and exercise limits if the concentration limits are
exceeded, and maintaining the Index at a minimum of eight component
securities.\30\ Therefore, the
[[Page 23331]]
Commission believes there is no compelling reason to delay the listing
and trading of options based on the Index. Accordingly, because the
Index substantially complies with the generic listing standards, and
the investor protection concerns have been addressed, the Commission
finds good cause exists for granting accelerated approval to the
proposed rule change and Amendment Nos. 1 and 2 thereto.
---------------------------------------------------------------------------
\27\ See Securities Exchange Act Release No. 34157 (June 3,
1994), 59 FR 30062 (June 10, 1994). Although, a proposed rule change
filed in accordance with the generic listing standards becomes
effective immediately upon filing, trading in the approved options
may not commence until 30 days after the date of effectiveness.
\28\ The generic listing standards require that a narrow-based
index initially consist of no fewer than ten component securities.
Thereafter, it may not consist of fewer than nine component
securities. Id.
\29\ Under the generic listing standards, an individual
component security may not represent more than 25% of the weight of
the index. Furthermore, in an index of less than 25 components, the
five highest weighted component securities may not constitute more
than 60% of the weight of the index. Id.
\30\ As previously noted, the Index currently contains nine
securities and may consist of as few as eight component securities.
On other occasions, the Commission has approved narrow-based indexes
with similar minimum component standards. See e.g., Securities
Exchange Act Release Nos. 38143 (Jan. 8, 1997), 62 FR 2411 (Jan. 16,
1997) (permitted American Stock Exchange's ``Tobacco Index'' to
initially consist of nine securities and thereafter consist of no
fewer than nine securities); 37198 (May 10, 1996), 61 FR 25251 (May
20, 1996) (permitted Chicago Board Options Exchange's ``PC Index''
to initially consist of eight securities and thereafter consist of
no fewer than eight securities); and 34345 (July 11, 1994), 59 FR
36245 (July 15, 1994) (permitted Exchange's ``Phone Index'' to
initially consist of eight securities and thereafter consist of no
fewer than eight securities).
---------------------------------------------------------------------------
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\31\ that the proposed rule change, SR-Phlx-98-07, and Amendment
Nos. 1 and 2 thereto, are hereby approved on an accelerated basis.
\31\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\32\
---------------------------------------------------------------------------
\32\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-11164 Filed 4-27-98; 8:45 am]
BILLING CODE 8010-01-M