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

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,
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in general, and with Section 6(b)(5),
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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).