Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by Philadelphia Stock Exchange, Inc. Relating to Adoption of Listing Standards Applicable to Options on Securities Issued in Certain Corporate Restructuring Transactions

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35409; File No. SR-Phlx-95-12]

February 22, 1995.

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by Philadelphia Stock Exchange, Inc. Relating to Adoption of

Listing Standards Applicable to Options on Securities Issued in Certain

Corporate Restructuring Transactions

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

(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on

February 13, 1995, the Philadelphia Stock Exchange, Inc. (``Phlx'' or

``Exchange'') filed with the Securities and Exchange Commission

(``Commission'' or ``SEC'') the proposed rule change as described in

Items I, II and III below, which Items have been prepared by the self-

regulatory organization. On February 21, 1995, the Exchange submitted

to the Commission Amendment No. 1 to the proposed rule change in order

to make certain technical corrections to the text of the proposal.\1\

The Commission is publishing this notice to solicit comments on the

proposed rule change from interested persons.

\1\See letter from Michell R. Weisbaum, Associate General

Counsel, Phlx, to Beth Stekler, Attorney, Division of Market

Regulation, SEC, dated February 21, 1995 (``Amendment No. 1'').

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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 amend

Exchange Rule 1009 in order to adopt listing standards applicable to

options on securities issued in certain corporate restructuring

transactions.\2\ The text of the proposed rule change is available at

the Commission.

\2\This filing withdraws and replaces File No. SR-Phlx-94-43.

See letter from Michelle R. Weisbaum, Associate General Counsel,

Phlx, to Michael A. Walinskas, Branch Chief, Division of Market

Regulation, SEC, dated February 17, 1995.

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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 self-regulatory organization

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 Items IV below. The self-regulatory

organization 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

The Phlx proposes to amend Exchange Rule 1009 in order to permit

the earlier listing of options on securities issued by companies in

connection with certain corporate restructuring transactions (``New

securities''). Currently, certain of the Exchange's rules preclude the

listing of options on any security until that security has been

actively traded at or above a specific price level for a certain period

of time. For example, under Exchange Rule 1009, Commentary

[[Page 11160]] .01(3), trading volume in an underlying security must be

at least 2,400,000 shares during the preceding twelve months (``volume

test''). Further, under Exchange Rule 1009, Commentary .01(4), the

market price for an underlying security must be at least $7.50 for the

majority of business days during the three calendar month period

preceding the date the security is selected as an underlying security

(``price test'').

The proposed rule change would facilitate the earlier listing of

options on New securities by permitting the Exchange to determine

whether a New security satisfies the volume and price tests by

reference to the trading volume and market price history of an

outstanding equity security (``Old security'') previously issued by the

issuer (or an affiliate thereof) of the New security. Specifically, if

(a) the aggregate market value, assets, or revenue attributable to a

New security is at least a stated percentage of the same measure

attributable to the Old security; or (b) the aggregate market value of

the New security is not less than $500 million,\3\ then the Exchange

would be permitted to determine whether a New security satisfies the

volume and price tests by reference to the training volume and market

price history of the Old security. Reference may be made to the trading

volume and market price history of the Old security only for trading

days occurring prior to the ex-date for the transaction in which the

New security is issued\4\ and prior to any trading day for which these

tests are determined to be satisfied by reference to the trading volume

and market price history of the New security. If reference is made to

either the trading volume or market price history of the Old security

for this purpose for any period of time, then reference must be made to

both such criteria in respect of the Old security for that period.

\3\The proposed rule change would apply to a New security if at

least one of the following conditions is met:

(1) Any one or more of (A) the aggregate market value of the New

security, (B) the aggregate market value of the assets attributed to

the business represented by the New security, or (C) the revenues

attributed to the business represented by the New security are at

least 25% of the same measure determined with respect to the Old

security or the business represented by the Old security, as

applicable, calculated in a comparable manner on a basis that

reflects the inclusion of the business represented by the New

security, provided that in the case of the qualification of a New

security under clause (B), the aggregate book value of the assets

attributed to the business represented by the New security is not

less than $50 million, and in the case of the qualification of a New

security under clause (C), the revenues attributed to the business

represented by the New security are not less than $50 million;

(2) Any one or more of (A) the aggregate market value of the New

security, (B) the aggregate book value of the assets attributed to

the business represented by the New security, or (C) the revenues

attributed to the business represented by the New security are at

least 33\1/3\% of the same measure determined with respect to the

Old security or the business represented by the Old security, as

applicable, calculated in a comparable manner on a basis that

reflects the exclusion of the business represented by the New

security, provided that in the case of the qualification of a New

security under clause (B), the aggregate book value of the assets

attributed to the business represented by the New security is not

less than $50 million, and in the case of the qualification of a New

security under clause (C), the revenue attributed to the business

represented by the New security are not less than $50 million; or

(3) The aggregate market value represented by the New security

is at least five hundred million dollars ($500,000,000).

\4\Under the proposed rule change, options contracts may not

initially be listed for trading in respect of a New security until

such time as shares of the New security are issued and outstanding

and are the subject of trading that is not on a ``when issued''

basis or in any other way contingent on the issuance or distribution

of the shares.

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Further, should the New security be listed on an exchange or in an

automatic quotation system that has an initial listing requirement

equivalent to the requirement of paragraph (2) of Commentary .01 under

Exchange Rule 1009 (number of shareholders must be at least 2,000),

that requirement would be deemed to be satisfied. Finally, if at least

40 million shares of a New security will be outstanding in a

restructuring, the Exchange may assume that the New security will

satisfy the listing criteria set forth in Exchange Rule 1009,

Commentary .01(1) (sufficient public float) and .01(2) (minimum number

of security holders). Before relying on either of the assumptions

described above, the Exchange must make a reasonable investigation as

to the number of shareholders and public float of the New security and

must not have determined that the requirements of paragraphs (1) and

(2) will, in fact, not be satisfied.

The proposed rule change also would revise one of the Exchange's

guidelines relating to the withdrawal of approval of underlying

securities. Currently, under Exchange Rule 1010, Commentary .01(3), an

underlying security will not be deemed to satisfy the Exchange's

listing criteria if the trading volume of the underlying security in

all markets was less than 1,800,000 shares in the preceding twelve

months (``maintenance volume test'') or, under Commentary .01(4), if

the market price of the underlying security closed below $5 for a

majority of the business days during the preceding six months (``market

price test''). Because New securities have limited trading history,

they may be unable to satisfy the maintenance volume test or the market

price test at the time options on such securities are first listed for

trading on the Exchange. Accordingly, the proposed rule change would

add a new Commentary .01(7) to Exchange Rule 1010 to provide that the

Exchange may determine whether a New security satisfies the maintenance

volume and market price tests, as well as the comparable tests set

forth in Commentary .05 under Exchange Rule 1010, by reference to the

trading volume and price history of the Old security prior to the first

day of trading in the New security, including ``when issued'' trading.

2. Statutory Basis

The proposed rule change is consistent with Section 6 of the Act in

general and, in particular, with Section 6(b)(5) in that it is designed

to promote just and equitable principles of trade, to prevent

fraudulent and manipulative acts and practices, to foster cooperation

and coordination with persons engaged in regulating, clearing,

settling, processing information with respect to, and facilitating

transactions in securities, to remove impediments to and perfect the

mechanism of a free and open market, as well as to protect investors

and the public interest.

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.

III. Date of Effectiveness of the Proposed Rule Change and Timing for

Commission Action

Within 35 days of the publication of this notice in the Federal

Register or within such other 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 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. [[Page 11161]] 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 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. Sec. 552, will be available for inspection and

copying at 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

Phlx. All submissions should refer to File No. SR-Phlx-95-12 and should

be submitted by March 22, 1995.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95-4933 Filed 2-28-95; 8:45 am]

BILLING CODE 8010-01-M