[Federal Register Volume 64, Number 15 (Monday, January 25, 1999)] [Notices] [Pages 3734-3735] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 99-1606] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-40953; File No. SR-Phlx-99-01] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Philadelphia Stock Exchange, Inc. to Modify Existing Rules Relating to Trading of the New European Currency, the Euro January 15, 1999. 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 January 6, 1999, 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, 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. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Phlx proposes to change the references to the European Currency Unit (``ECU'') to the New European currency (``Euro'') in the Phlx rules in response to the European Council's decision to convert the ECU to the Euro on a one-to-one basis as of January 1, 1999. 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. [[Page 3735]] A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose On May 11, 1998, the Exchange re-introduced the ECU for trading in the non-customized environment anticipating the advent of the Euro.\3\ Subsequently, the European Council agreed in the Maastrict Treaty to have a single European currency, the Euro. On January 1, 1999, the ECU converted to the Euro on a one-to-one basis. Accordingly, Phlx foreign currency options (``FCO'') contracts on the ECU converted to the Euro pursuant to Phlx Rule 1009(c).\4\ Phlx Rule 1009(c) states, in the event that any of the sovereign governments of the European Economic Community's European Monetary System issuing any of the above mentioned currencies should issue a new currency intended to replace the one of the above mentioned currencies as a standard unit of the official medium of exchange of such government. Such new currency also may be approved as an underlying currency for options transactions by the Exchange, subject to any approval criteria the Exchange may deem necessary or appropriate for the protection of investors. --------------------------------------------------------------------------- \3\ See Securities Exchange Act Release No. 39940 (April 30, 1998) 63 FR 25258 (May 7, 1998) (File No. SR-Phlx-98-17). \4\ The Commission notes that it was consulted by the Phlx prior to the conversion of the ECU to the Euro. On these facts, the Commission believes that the Euro replaces the previously approved ECU as the standard unit of the official medium of exchange of the European Council as required by Phlx Rule 1009(c). On different facts, however, the Exchange may need to submit a filing to the Commission, pursuant to Section 19(b)(2) of the Act, prior to trading an option on a new foreign currency intended to replace an existing foreign currency option. Pursuant to Phlx Rule 1009(c), the Exchange believes that it is necessary and appropriate for investors that the Exchange recognize the conversion of the ECU to the Euro on a one-to-one basis and implement such changes to its FCO contracts, including options trading pursuant to Phlx Rule 1069. Because the ECU/Euro conversion was on a one-to-one basis, the Euro FCO contract size would be 62,500 Euros. The premium will be $.0044, per unit or $275 for an option contract having a unit of trading of 62,500, pursuant to Phlx Rule 1033. Pursuant to Rule 1014, the bid-ask differential for the Euro options will be $.0005 between the bid and the offer for each option contract for which the bid is $.0050 or less; no more than $.0010 where the bid is more than $.0050 but does not exceed $.0200; and no more than $.0015 where the bid is more than $.0200. The initial margin for the Euro would be 3%, the same margin as the ECU.\5\ According to Phlx Rule 1034, the minimum trading increments for the Euro will be the same as the ECU, $.0001. --------------------------------------------------------------------------- \5\ The Exchange submitted to the Commission a correlation analysis between the ECU and the Euro, which demonstrated nearly a one-to-one correlation. Thus, the Exchange proposes not to change the customer margin level for the Euro at this time. Subject to Phlx Rule 722, Commentary .15, the Exchange will re-examine the margin levels for the Euro on January 15, 1999. --------------------------------------------------------------------------- As a result of the conversion, the Exchange proposes to replace all references to the ECU with the Euro in the text of the various Phlx rules. Therefore, the Phlx is proposing to amend the text of Phlx Rules 1000(b)(15), 1009, 1014, 1033, 1034 and Options Floor Procedure Advice F-6 to reflect the proposed change. 2. Statutory Basis The Phlx believes the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act \6\ that an exchange have rules that are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. Specifically, the Phlx notes that the conversion of the ECU to the Euro was a major event in world financial markets. This conversion was adopted by the Exchange in order to provide investors with a continuous, uninterrupted market to hedge their currency risk using options on the Euro. --------------------------------------------------------------------------- \6\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange 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 at the time of this filing. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change constitutes a stated policy, practice, or interpretation with respect to the meaning, administration, or enforcement of an existing rule of the Exchange and therefore, has become effective pursuant to Section 19(b)(3)(A)(i) of the Act,\7\ and subparagraph (e) of Rule 19b-4 thereunder.\8\ --------------------------------------------------------------------------- \7\ 15 U.S.C. 78s(b)(3)(A)(i). \8\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- At any time within 60 days of the filing of such proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. 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 in the Commission's Public Reference Room. 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-99-01 and should be submitted by February 16, 1999. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\9\ --------------------------------------------------------------------------- \9\ 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. 99-1606 Filed 1-22-99; 8:45 am] BILLING CODE 8010-01-M