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U.S. Securities and Exchange Commission

Philadelphia Stock Exchange Rulemaking:
Notice of Filing of Proposed Rule Change: Revise Exchange Rule 1101A Relating to Index Options Strike Price Intervals

SECURITIES AND EXCHANGE COMMISSION

(Release No. 34-39964; File No. SR-PHLX-98-09)

May 6, 1998

Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Philadelphia Stock Exchange, Inc. to Revise Exchange Rule 1101A Relating to Index Options Strike Price Intervals

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, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

   Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 ("Act"), 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, II, and III below, which Items have been prepared by the Exchange. 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 Exchange seeks to amend Exchange Rule 1101A(a), "Terms of Option Contracts," to revise the strike (exercise) price intervals for index options. The proposal would change the intervals between index option strike prices to facilitate the prompt dissemination of quote information and to more accurately reflect the strike prices currently being listed.

   Currently, Rule 1101A(a) establishes the strike price interval at $5, except: (i) where the strike price exceeds $500, the strike price interval may be $10; and (ii) where the strike price exceeds $1,000, the interval may be $20. The Exchange may also determine to list strike prices at wider intervals in "out-of-the money" or far term series, generally $25, except: (i) where the strike price exceeds $500, the interval may be $50; and (ii) where the strike price exceeds $1,000, the interval may be $100. Also, where strike price intervals would be greater than $5, the Exchange may list alternative strike prices at $5 intervals in response to demonstrated customer interest or specialist request.

   At this time, the Exchange is proposing an index option strike price interval of $5 for the three consecutive near-term months, $10 for the fourth month, and $30 for the fifth month. However, the Exchange will retain the ability to list alternative strike prices at $5 intervals in response to demonstrated customer interest or specialist request.

   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 IV 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

   During recent years, the number of new option products and total series listed by the national securities exchanges has increased dramatically, thereby increasing the number of continuous quote changes disseminated by the exchanges to the Options Price Reporting Authority ("OPRA"), and by OPRA to securities information vendors. In an effort to curb the growth of strike price dissemination and to more accurately reflect the strike prices currently being listed, the Exchange proposes to amend Exchange Rule 1101A(a) to change the intervals between index option strike prices.

   Currently, Exchange Rule 1101A(a) establishes a formula for strike price intervals which takes into consideration the index value and time remaining until expiration. The Rule establishes a strike price interval at $5, except: (i) where the strike price exceeds $500, the strike price interval may be $10; and (ii) where the strike price exceeds $1,000, the interval may be $20. The Exchange may also determine to list strike prices at wider intervals in "out-of-the money" or far term series, generally $25, except: (i) where the strike price exceeds $500, the interval may be $50; and (ii) where the strike price exceeds $1,000, the interval may be $100. Also, where strike price intervals would be greater than $5, the Exchange may list alternative strike prices at $5 intervals in response to demonstrated customer interest or specialist request.

   The Exchange’s proposed rule change would establish new strike price intervals of: (i) $5 for the three consecutive near-term months; (ii) $10 for the fourth month; and (iii) $30 for the fifth month. However, the Exchange would retain the ability to list alternative strike prices at $5 intervals in response to demonstrated customer interest or specialist request, as well as to list strike prices at wider intervals. The Exchange believes the continued ability to add strike prices at alternative $5 intervals in response to customer interest will maintain flexibility in the marketplace and will preserve specific trading opportunities.

   The current version of Exchange Rule 1101A(a) was adopted in 1996, 2 and was likewise intended to improve the Exchange’s strike price dissemination policy. Based on its experience implementing Rule 1101A(a), the Exchange has determined to revise and simplify the Rule for easier administration. The Exchange believes the revised Rule will more accurately reflect the needs of the marketplace. Specifically, basing the strike price interval on an option’s value (in the case of options greater than $500 or $1000) has not proven useful. The Exchange believes that widening the interval in far-term series should continue to reduce the number of outstanding series listed.

   The Exchange also believes that listing far-term series and long-term options at wider strike price intervals should improve the efficiency of quotation dissemination and facilitate speedy pricing by reducing the number of listed strike prices. The Exchange believes the immediate effect should be a reduction in the number of index option strike prices. Furthermore, the Exchange believes it will experience a reduction in its systems capacity and usage as well as its operational burdens. For instance, strike prices currently occupy trading floor screen space and consume transmission line traffic to OPRA and outside vendors that disseminate Exchange trading information. Further, the role of the specialist in monitoring multitudes of strike prices should be enhanced.

2. Statutory Basis

   The Exchange believes the proposed rule change is consistent with Section 6 of the Act, 3 in general, and with Section 6(b)(5), 4 in particular, in that it is designed to promote just and equitable principles of trade; foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities; and remove impediments to and perfect the mechanism of a free and open market and a national market system. The Exchange further believes that the proposed rule change will protect investors and the public interest by eliminating excessive strike prices, thereby improving quotation dissemination capabilities, while maintaining investors' flexibility to better tailor index option trading to meet their investment objectives. According to the Exchange, the proposed rule change strikes a reasonable balance between reducing option series and accommodating the needs of investors.

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.

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 Exchange 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, 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, 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-98-09 and should be submitted by [insert date 21 days after the date of this publication].

   For the Commission, by the Division of Market Regulation, pursuantto delegated authority.5

Jonathan G. Katz
Secretary


Footnotes

1 15 U.S.C. 78s(b)(1).

2 See Securities Exchange Act Release No. 37003 (Mar. 21, 1996), 61 FR 13913 (Mar. 28, 1996).

3 15 U.S.C. 78f.

4 15 U.S.C. 78f(b)(5).

5 17 CFR 200.30-3(a)(12).

http://www.sec.gov/rules/sro/ph9809f.htm


Modified:05/08/98