Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Regarding 3D Foreign Currency Option Holiday Expirations

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38527; International Series Release No. 1075; File No.

SR-PHLX-97-07]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the Philadelphia Stock Exchange, Inc. Regarding 3D Foreign

Currency Option Holiday Expirations

April 18, 1997.

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

(``Act''),\1\ notice is hereby given that on March 14, 1997, the

Philadelphia Stock Exchange, Inc. (``PHLX'' or ``Exchange'') filed with

the Securities and Exchange Commission (``SEC'' or ``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.

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

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

of the Proposed Rule Change

The PHLX proposes not to list any 3D foreign currency options that

would expire during the period December 20 through and including

January 2 of each year. Additionally, the Exchange proposes to adopt a

list of holidays and bank holidays which, if they fall on a Monday,

would cause the 3D foreign currency options scheduled to expire that

day to expire the next business day. The holidays are: Martin Luther

King, Jr. Day; Memorial Day; Presidents Day; Independence Day; Easter

Monday; Labor Day; May Day; Columbus Day and Veterans Day.

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

3D Foreign Currency Options (``3D FCOs'') are presently traded on

the PHLX on the German mark and the Japanese yen.\2\ These are cash

settled options that have an expiration every Monday at 11:59 p.m.

Eastern Time (or the following business day if Monday is a holiday).

The settlement value is based on a formula which averages random

samples of bids and offers from contributor banks. Experience with the

3D FCO on the German mark over the last two years has shown that it is

often difficult to gather enough updated quotes during the Christmas

and New Year's weeks each year. Thus, the integrity of the derived

settlement value may be called into question. Accordingly, the Exchange

has determined not to list for trading any series of 3D FCOs which

would expire between December 20 each year and January 2 of the

following year. This year, the last expiration date of 3d FCOs in

December would occur on December 15, 1997, and the next one would occur

on January 5, 1998.

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\2\ The Exchange has traded 3D German marks since September of

1994. See Securities Exchange Act Release No. 33732 (March 8, 1994),

59 FR 12023 (March 15, 1994). The Exchange recently started trading

3D options on the Japanese yen on February 24, 1997. See Scurities

Exchange Act Release No. 36505 (Nov. 22, 1995), International Series

Release No. 889, 60 FR 61277 (Nov. 29, 1995).

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The second purpose of this rule change is to adopt a permanent list

of holidays, so that if any of these holidays occur on a Monday, it

would cause the expiration of the 3D FCOs to occur on the following

business day pursuant to Exchange Rule 1000(b)(21)(iii).\3\ By adopting

a permanent schedule, it will allow the Exchange and investors to know

for certain, in advance, when a holiday expiration will occur. The

holidays on the list were chosen because they are either U.S. bank

holidays or European bank holidays (May Day). On those days, the

interbank foreign exchange participants which provide quotations for

the settlement value are not open for business so it would be very

difficult to obtain an adequate settlement value. This list of holidays

will be published to the membership in a circular each year and weekly

expiration memos also note when certain options expire on a day other

than a Monday due to a holiday.

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\3\ The rule originally required expirations to fall back to the

preceding business day (usually Friday) when Monday was a holiday

but was changed so that the options would still capture weekend

risk. See Securities Exchange Act Release No. 35097 (Dec. 13, 1994),

59 FR 65559 (Dec. 20, 1994).

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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, 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 and a national market system, as

well as to protect investors and the public interest by adopting

policies regarding 3D foreign currency option expirations which allow

the Exchange to forego or postpone expirations on days when the

integrity of the settlement value may be in question.

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 either solicited or received.

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 PHLX consents, the Commission will:

[[Page 20056]]

(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. Sec. 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

PHLX. All submissions should refer to File No. SR-PHLX-97-07 and should

be submitted by May 15, 1997.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\4\

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\4\ 17 CFR 200.30-3(a)(12).

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Margaret H. McFarland,

Deputy Secretary,

[FR Doc. 97-10614 Filed 4-23-97; 8:45 am]

BILLING CODE 8010-01-M