[Federal Register: March 1, 2004 (Volume 69, Number 40)]
[Notices]
[Page 9672-9673]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01mr04-115]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49312; File No. SR-Phlx-2004-13]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Philadelphia Stock
Exchange, Inc. Relating to the Phlx/KBW Bank Index 10-for-1 Split
February 24, 2004.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby
given that on February 17, 2004, the Philadelphia Stock Exchange, Inc.
(``Phlx'' 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. The Phlx has submitted the proposed rule change under section
19(b)(3)(A) of the Exchange Act \3\ and Rule 19b-4(f)(6) thereunder,\4\
which renders the proposal effective upon filing with the Commission.
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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Phlx proposes to reduce the value of its Phlx/KBW Bank Index
(``Index'') option (``BKX'') to one-tenth its present value by
multiplying by ten the base market divisor used to calculate the Index.
In addition, the position and exercise limits applicable to the BKX
(currently 24,000 contracts) will be increased to 44,000 contracts. The
Index is a cash-settled, capitalization-weighted, narrow-based, A.M.
settled index composed of 24 geographically diverse stocks representing
national money center banks and leading regional institutions.\5\
---------------------------------------------------------------------------
\5\ The Index is currently composed of the following stocks:
Citigroup, Inc., Bank of America Corp., Wells Fargo and Co., JP
Morgan Chase & Co., Wachovia Corp., Bank One Corporation, U.S.
Bancorp, Washington Mutual, Fifth Third Bancorp, FleetBoston
Financial Corp., MBNA Corp., National City Corp., Bank of New York
Company, SunTrust Banks, Inc., BB&T Corp., PNC Financial Services,
Golden West Financial Corp., State Street Corp., Keycorp, Mellon
Financial Corporation, SouthTrust Corp., Northern Trust Corp.,
Comerica, Inc., and Zion Bancorporation.
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Amex 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to attract additional
liquidity to the BKX. A ten-for-one split, which reduces the value of
the Index, should have a positive effect on overall transaction volumes
by making the option premiums more attractive for retail investors. By
reducing the value of the Index, investors will be able to utilize the
BKX as a trading vehicle while extending a smaller outlay of capital.
This should attract additional investors and, in turn, create a more
active and liquid trading environment.
The Exchange began trading the BKX in 1992.\6\ As of January 30,
2004, the Index value was 992.69 and the near-month at-the-money call
premium was $16.25 per contract. The Exchange proposes to conduct a
``ten-for-one split'' of the Index, such that the Index value would be
reduced to one-tenth of its current value, or 99.27. In order to
maintain economic equivalence, the number of BKX contracts will be
increased ten-fold, such that for each BKX contract currently held, the
holder would receive ten contracts at the reduced value, each with a
strike price equal to one-tenth of the original strike price. For
example, the holder of one BKX 990 call with a premium of $16.25 will
receive ten BKX 99 calls with a premium of $1.63.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 31145 (September 3,
1992), 57 FR 41531 (September 10, 1992) (File No. SR-Phlx-91-27).
---------------------------------------------------------------------------
In addition, the position and exercise limits applicable to BKX
will be increased from 24,000 contracts to 44,000 contracts in order to
accommodate the increased number of contracts outstanding. With the
exception of the position limit change, this procedure is similar to
the one employed respecting equity options where the underlying
security is subject to a ten-for-one stock split.\7\ The trading symbol
will remain BKX.
---------------------------------------------------------------------------
\7\ Customarily, the position and exercise limits would also be
increased ten-fold in a ten-for-one split until the expiration of
the then-furthest-out expiration month, after which time the
position and exercise limits would revert back to their pre-split
levels. See, e.g., Securities Exchange Act Release No. 42814 (May
23, 2000), 65 FR 35152 (June 1, 2000) (File No. SR-Phlx-00-11) (two-
for-one split of index value resulted in a doubling of the
applicable position and exercise limits). In the present case, the
position and exercise limits will not revert back to pre-split
levels.
---------------------------------------------------------------------------
In conjunction with the proposed split, the Exchange will list
strike prices surrounding the new lower Index value, pursuant to Phlx
Rule 1101A. The Exchange will announce the effective date by way of an
Exchange memorandum to the membership, which will also serve as notice
of the strike price and position limit changes.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \8\ in general, and furthers the objectives of Section
6(b)(5)\9\ in particular, in that it is designed 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
to protect investors and the public interest by establishing a lower
Index value, which should, in turn, facilitate trading in BKX, creating
a more liquid trading environment. The Exchange believes that reducing
the value of the Index should not raise manipulation concerns and
should not cause adverse market impact because the Exchange will
continue to employ its surveillance procedures and has proposed an
orderly procedure to achieve the Index split, including adequate prior
notice to market participants.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78f(b).
\9\ 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.
[[Page 9673]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Phlx has filed the proposed rule change pursuant to section
19(b)(3)(A) of the Act \10\ and subparagraph (f)(6) of Rule 19b-4
thereunder.\11\ Because the foregoing proposed rule change: (1) Does
not significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) is not proposed to become operative for 30 days, or such
shorter time as the Commission may designate, and the Phlx provided the
Commission with written notice of its intent to file the proposed rule
change at least five business days prior to the filing date, the
proposed rule change has become effective pursuant to Section
19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative prior to 30 days after the date of filing.
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a
shorter time if such action is consistent with the protection of
investors and the public interest. The Phlx has requested that the
Commission waive the 30-day operative delay to allow the proposed Index
split and corresponding increases in the position and exercise limits
applicable to BKX options to occur without delay.
The Commission finds that waiving the 30-day operative delay is
consistent with the protection of investors and the public
interest.\12\ Specifically, the Commission believes that allowing the
Phlx to implement the proposed ten-for-one split of the Phlx/KBW Bank
Index will facilitate a more liquid trading environment and make the
BKX product more accessible to investors. Waiving the 30-day operative
delay will permit the Exchange community (specialists, broker-dealers,
and retail customers) a full expiration month's notice before the
changes specified in the proposal take effect following the March 2004
expiration date, and will assist Phlx in implementing the proposed
Index split in an orderly manner. Accordingly, the Commission
designates the proposal to be operative immediately.
---------------------------------------------------------------------------
\12\ For purposes only of waiving the operative date of this
proposal, the Commission has considered the proposed rule's impact
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------
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.\13\
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposal 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 20549-0609. Comments
may also be submitted electronically at the following e-mail address:
rule-comments@sec.gov. All comment letters should refer to File No. SR-
Phlx-2004-13. The file number should be included on the subject line if
e-mail is used. To help the Commission process and review your comments
more efficiently, comments should be sent in hardcopy or by e-mail but
not by both methods.
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
Exchange. All submissions should refer to the File No. SR-Phlx-2004-13
and should be submitted by March 22, 2004.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
---------------------------------------------------------------------------
\14\ 17 CFR.200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-4507 Filed 2-27-04; 8:45 am]
BILLING CODE 8010-01-P