Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto by the Philadelphia Stock Exchange, Inc. Relating to a 4:02 p.m. Closing Time for Equity Options Trading

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38218; File No. SR-Phlx-97-04]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change and Amendment No. 1 Thereto by the Philadelphia Stock Exchange,

Inc. Relating to a 4:02 p.m. Closing Time for Equity Options Trading

January 30, 1997.

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

(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given

that on January 8, 1997, 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 self-

regulatory organization.\3\ The Commission is publishing this notice to

solicit comments on the proposed rule change from interested persons.

---------------------------------------------------------------------------

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

\2\ 17 CFR 240.19b-4.

\3\ On January 29, 1997, the Exchange filed Amendment No. 1 to

its proposal. Amendment No. 1 is a technical amendment, correcting

rule language in Rule 1047, Commentary .03(c), which was submitted

as Exhibit B with the rule filing. See Letter from Edith Hallahan,

Phlx, to Janice Mitnick, Division of Market Regulations, SEC, dated

January 29, 1997.

---------------------------------------------------------------------------

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

of the Proposed Rule Change

The Exchange proposes to amend Rule 101, Hours of Business, and

Rule 1047, Trading Rotations, Halts and Suspensions, to close equity

options trading at 4:02 p.m. Currently, equity options trade until 4:10

p.m.

The text of the proposed rule change is available at the Office of

the Secretary, Phlx, 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 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 Item IV below. The self-regulatory organization

has prepared summaries, set froth 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

Since 1978, equity options have traded ten minutes longer than the

primary market. At that time, significant delays in the reporting of

stock prices were common; therefore, the additional ten minute period

was necessary to receive final stock prices. These delays have now been

reduced due to technological advances. Currently, the extra time period

for options trading after closing prices are reported in the underlying

equities results in equity options trading without the pricing benefit

of continuing stock trading. The additional ten minutes also results in

repeated automatic executions at outdated equity options prices.

Further, not all market participants are able to respond quickly to

changes in equity options prices between 4:00 and 4:10 p.m. In summary,

the Exchange, in balancing the benefits of an extended trading session

with the difficulties of trading after the underlying stock has closed,

has determined that the benefits do not outweigh the difficulties;

therefore, a 4:02 p.m. close for equity options is appropriate.

The purpose of the rule change is to reduce the amount of time

equity options trade after the close of the primary market for the

underlying security. Under the proposal, there will be a two minute

time period for equity options traders and investors to respond to late

reports of closing security prices and, where warranted, to bring

closing equity option prices in line with stock prices. The proposed

changes to Rule 101 establish a 4:02 p.m. close for equity options, and

expressly except index options. Reference to narrow-based (industry)

index options trading until 4:10 p.m. is being added to Rule 101, and

reference to broad-based index options is replacing the listing of

specific such index options by name. Broad-based index options will

continue to trade until 4:15 p.m. The Exchange understands that other

option exchanges have proposed a 4:02 p.m. close for certain index

options as well as for equity options; however, the Exchange is not

proposing to change the closing time for its index options.

The proposed change to Rule 1047 merely substitutes reference to

the current close of 4:10 p.m. with the proposed 4:02 p.m. close. The

Exchange notes that pursuant to Commentary .03 of this Rule, in unusual

market conditions, a closing rotation after the 4:02 p.m. close may be

conducted in an option, whether or not expiring, with the approval of

the Options Committee. Further, the Exchange proposes to amend the rule

to begin the closing rotation five minutes after the notice is

disseminated. Currently under Rule 1047, Commentary .03(b), the closing

rotation begins 10 minutes after the notice is disseminated.

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, 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

[[Page 5663]]

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, consistent with Section

6(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.

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, 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 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 File No. SR-Phlx-97-04, and

should be submitted by February 27, 1997.

For the Commission, by the Division of Market Regulations,

pursuant to delegated authority.\4\

---------------------------------------------------------------------------

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

---------------------------------------------------------------------------

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97-2912 Filed 2-5-97; 8:45 am]

BILLING CODE 8010-01-M