Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Philadelphia Stock Exchange Relating to the Listing and Trading of Options on the Semiconductor Index

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34307; File No. SR-Phlx-94-02]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the Philadelphia Stock Exchange Relating to the Listing and

Trading of Options on the Semiconductor Index

July 5, 1994.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''),\1\ notice is hereby given that on January 5, 1994, 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 Phlx.\2\ The Commission is publishing this

notice to solicit comments on the proposed rule change from interested

persons.

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\1\15 U.S.C. 78s(b)(1) (1988).

\2\On January 14, 1994, the Phlx submitted Amendment No. 1 to

the proposal: (1) To correct the description of the formula for

calculating the value of the Index; (2) to set the exercise prices

at 5 point intervals instead of 2\1/2\ point intervals; (3) to

provide that if the number of components in the Index increases to

more than 21 components or decreases to less than 11 components, the

Exchange shall submit a rule filing to the Commission pursuant to

Section 19(b)(4) of the Act; and (4) to require that the components

of the Index will be required to be listed for trading on the New

York Stock Exchange or the American Stock Exchange, or traded as

National Market securities through the facilities of the National

Association of Securities Dealers, Inc. Automated Quotation system.

See Letter from William Uchimoto, General Counsel, Phlx, to Richard

Zack, Branch Chief, Office of Derivatives and Equity Oversight

(``ODEO''), Division of Market Regulation (``Division''), SEC, dated

January 14, 1994. On April 26, 1994, the Phlx filed Amendment No. 2

to the proposal which: (1) provides that the index will be updated

during the trading day at least once every 15 seconds, rather than

once every minute; (2) specifies that the expiration cycle

applicable to options of the Index will be three expiration months

from the March, June, September, December cycle plus two additional

near-term months; (3) provides that additional exercise prices will

be added pursuant to Rule 1101A rather than Rule 1012; and (4)

clarifies the Exchange's obligations with respect to delisting and

replacing components of the Index. See Letter from Michele R.

Weisbaum, Associate General Counsel, Phlx, to Michael Walinskas,

Branch Chief, ODEO, Division, SEC, dated April 26, 1994. The

Exchange filed Amendment No. 3 to the proposal on May 20, 1994, to

provide that the Index will be maintained so that if at any time,

less than 90% of the component issues by weight are eligible for

exchange options trading, the Exchange will submit a Rule 19b-4

filing to the Commission before opening any new series of options on

the Index for trading. See Letter from Michele R. Weisbaum,

Associate General Counsel, Phlx, to Brad Ritter, Attorney, ODEO,

Division, SEC, dated May 20, 1994.

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I. Self-Regulatory Organization's Statement of the Terms of Substance

of the Proposed Rule Change

The Phlx, pursuant to Rule 19b-4 of the Act, proposes to list and

trade options on the Semiconductor Index (``Index''), an index

developed by the Phlx and comprised of sixteen of the most highly

capitalized and widely-held U.S. stocks representing the semiconductor

industry.

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.

(A) Self-Regulatory Organization's Statement of the Purpose of, and the

Statutory Basis for, the Proposed Rule Change

The Phlx proposes to list for trading American-style options\3\ on

the Index, a price-weighted index composed of sixteen highly

capitalized and widely held common stocks of U.S. companies that are

primarily involved in the design, manufacture, sale and distribution of

semiconductors used in computer and other electronic device

manufacturing.\4\ The Exchange proposes classifying the Index as a

narrow-based industry index.

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\3\An American-style option can be exercised at any time before

the option expires.

\4\The components of the Index are: Advanced Micro Devices;

Analog Devices; Applied Materials; Cypress Semiconductor; Integrated

Device Technology; Intel Corp. International Rectifier Corp.;

Lattice Semiconductor Corp.; LSI Logic Corp.; Micron Technology

Inc.; Motorola Inc.; National Semiconductor Corp.; Novellus Systems,

Inc.; Teradyne, Inc.; Texas Instruments, Inc.; and VLSI Technology,

Inc.

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The formula for calculating the Index is as follows:

TN12JY94.000

where:

SP=Current stock price for each component.

BASE=Base Value; Number by which the Index is initially normalized

to a value of 200.

The current price of each component issue is multiplied by 100

shares. The resulting market values are added to determine the current

aggregate market value of the issues in the Index. To compute the

current Index value, the aggregate market value is divided by the base

divisor. The value of the Index was set to equal 200 on December 1,

1993.

Adjustments in the value of the Index which are necessitated by the

addition and/or deletion of an issue from the Index are made by adding

and/or subtracting the market value (current stock price x 100

shares) of the relevant issues.

The Index value will be updated dynamically at least once every 15

seconds during the trading day. The Phlx has retained Bridge Data, Inc.

to compute the value of the Index. Pursuant to Phlx Rule 1100A, 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. The Index

value will also be available on broker/dealer interrogation devices to

subscribers of the option information.

In accordance with Phlx Rule 1009A, if any change in the nature of

any stock in the Index occurs as a result of delisting, merger,

acquisition or otherwise, the Exchange will take appropriate steps to

delete this stock from the Index and replace it with another stock

which the Exchange believes would be compatible with the intended

market character of the Index. In making replacement determinations,

the Exchange will also take into account the capitalization, liquidity,

and volatility of a particular stock.

Index options will be traded pursuant to the current Phlx rules

governing the trading of index options, particularly Phlx Rules 1000A

through 1103A, and generally, Phlx Rules 1000 through 1070.

The settlement value for Index options will be based on the opening

values of the component securities on the date prior to expiration.

Index options will expire on the Saturday following the third Friday of

the expiration month, and the last day for trading in an expiring

series will be the second business day (ordinarily a Thursday)

preceding the expiration date.

The Phlx proposes to employ position and exercise limits pursuant

to Phlx Rule 1001A(b) (i) and 1002A, respectively. Exercise price

intervals will be initially set at 5 point intervals and additional

exercise prices will be added in accordance with Phlx Rule 1101A(a).

The Phlx will trade consecutive and cycle month series pursuant to

Phlx Rule 1101A. Specifically, there will be three expiration months

from the March, June, September, December cycle plus two additional

near-term months so that the three nearest term months will always be

available.

The Exchange believes that the proposed rule change is consistent

with Section 6 of the Act, in general, and with Section 6(b)(5),\5\ in

particular, in that it is designed to prevent fraudulent and

manipulative acts and practices, to facilitate transactions in

securities, and to remove impediments to and perfect the mechanism of a

free and open market

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\5\15 U.S.C. 78f(b)(5) (1988).

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(B) Self-Regulatory Organization's Statement on Burden on Competition

The Phlx 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 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 self-regulatory organization consents, the Commission will:

(A) by order approve such 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. 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 Section, 450 Fifth Street, NW.,

Washington, DC. 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-94-02 and should be

submitted by August 2, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\6\

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\6\17 CFR 200.30-3(a)(12) (1993).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-16754 Filed 7-11-94; 8:45 am]

BILLING CODE 8010-01-M