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12260 Federal Register / Vol. 70, No.

47 / Friday, March 11, 2005 / Notices

aggressive quoting by market makers in For the Commission, by the Division of II. Self-Regulatory Organization’s
competition for large-sized orders, and, Market Regulation, pursuant to delegated Statement of the Purpose of, and
authority.17 Statutory Basis for, the Proposed Rule
in turn, better-priced executions. For
these reasons, the Commission waives Margaret H. McFarland, Change
the 30-day pre-operative period. Deputy Secretary.
In its filing with the Commission, the
[FR Doc. E5–1020 Filed 3–10–05; 8:45 am] Phlx included statements concerning
IV. Solicitation of Comments BILLING CODE 8010–01–P the purpose of and basis for the
Interested persons are invited to proposed rule change and discussed any
submit written data, views, and comments it received on the proposed
SECURITIES AND EXCHANGE rule change. The text of these statements
arguments concerning the foregoing, COMMISSION
including whether the proposed rule may be examined at the places specified
change is consistent with the Act. [Release No. 34–51322; File No. SR–Phlx– in Item IV below. The Phlx has prepared
Comments may be submitted by any of
2005–17] summaries, set forth in Sections A, B,
and C below, of the most significant
the following methods: Self-Regulatory Organizations; aspects of such statements.
Electronic Comments Philadelphia Stock Exchange, Inc.;
Notice of Filing and Immediate A. Self-Regulatory Organization’s
• Use the Commission’s Internet Effectiveness of Proposed Rule Statement of the Purpose of, and
comment form (http://www.sec.gov/ Change and Amendment No. 1 Thereto Statutory Basis for, the Proposed Rule
rules/sro.shtml); or Relating to Position Limits and Change
Exercise Limits 1. Purpose
• Send an e-mail to rule-
comments@sec.gov. Please include File March 4, 2005. The purpose of the proposed rule
Number SR–PCX–2005–25 on the Pursuant to Section 19(b)(1) of the change is to amend Exchange Rule 1001,
subject line. Securities Exchange Act of 1934 Position Limits, to establish increased
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 position and exercise limits for equity
Paper Comments notice is hereby given that on March 3, options and options overlying QQQQ,
• Send paper comments in triplicate 2005, the Philadelphia Stock Exchange, on a six-month pilot basis. Position
Inc. (‘‘Phlx’’ or ‘‘Exchange’’) filed with limits impose a ceiling on the number
to Jonathan G. Katz, Secretary,
the Securities and Exchange of option contracts in each class on the
Securities and Exchange Commission,
Commission (‘‘Commission’’) the same side of the market relating to the
450 Fifth Street, NW., Washington, DC proposed rule change as described in same underlying security that can be
20549–0609. All submissions should Items I and II below, which Items have held or written by an investor or group
refer to File Number SR–PCX–2005–25. been prepared by the Phlx. On March 3, of investors acting in concert. Exchange
This file number should be included on 2005 the Phlx filed Amendment No. 1 Rule 1002 (not proposed to be amended
the subject line if e-mail is used. To help to the proposed rule change.3 The herein) establishes corresponding
the Commission process and review Exchange has filed the proposal as a exercise limits.6 Exercise limits prohibit
your comments more efficiently, please ‘‘non-controversial’’ rule change an investor or group of investors acting
use only one method. The Commission pursuant to Section 19(b)(3)(A) of the in concert from exercising more than a
will post all comments on the Act 4 and Rule 19b–4(f)(6) thereunder,5 specified number of puts or calls in a
Commission’s Internet Web site (http:// which renders it effective upon filing particular class within five consecutive
www.sec.gov/rules/sro.shtml). Copies of with the Commission. The Commission business days.
the submission, all subsequent is publishing this notice to solicit Exchange Rule 1001 subjects equity
amendments, all written statements comments on the proposed rule change, options to one of five different position
with respect to the proposed rule as amended, from interested persons. limits depending on the trading volume
change that are filed with the and outstanding shares of the
I. Self-Regulatory Organization’s
Commission, and all written underlying security. Exchange Rule
Statement of the Terms of Substance of
communications relating to the 1002 establishes exercise limits for the
the Proposed Rule Change
proposed rule change between the corresponding options at the same
The Phlx proposes to amend levels as the corresponding security’s
Commission and any person, other than Exchange Rule 1001 to increase the
position limits.7
those that may be withheld from the standard position and exercise limits for
public in accordance with the equity options contracts and options on 6 As clarified by the Phlx, although the proposed
provisions of 5 U.S.C. 552, will be the Nasdaq-100 Index Tracking Stock rule change would not amend the text of Exchange
available for inspection and copying in (‘‘QQQQ’’) on a six month pilot basis Rule 1002 itself, the proposed amendment to
Exchange Rule 1001 would have the effect of
the Commission’s Public Reference beginning on the effective date of the increasing the exercise limits established in
Section. Copies of such filing also will proposed rule change. The text of the Exchange Rule 1002 for the same six-month pilot
be available for inspection and copying proposed rule change is available on the period. Telephone conversation between Richard S.
at the principal office of the Exchange. Phlx’s Web site (http://www.phlx.com), Rudolph, Vice President and Counsel, Phlx, and Ira
L. Brandriss, Assistant Director, Division of Market
All comments received will be posted at the Phlx’s Office of the Secretary, and Regulation, Commission, on March 4, 2005. See
without change; the Commission does at the Commission’s Public Reference also infra, note 7 and accompanying text.
not edit personal identifying Room. 7 Exchange Rule 1002 states, in relevant part,

‘‘* * * no member of member organization shall


information from submissions. You exercise, for any account in which such member or
17 17 CFR 200.30–3(a)(12).
should submit only information that 1 15 U.S.C. 78s(b)(1). member organization has an interest of for the
you wish to make available publicly. All 2 17 CFR 240.19b–4.
account of any partner, officer, director or employee
submissions should refer to File thereof or for the account of any customer, a long
3 Amendment No. 1 made certain technical
position in any option contract of a class of options
Number SR–PCX–2005–25 and should changes to Exhibit 5 to the filing. dealt in on the Exchange (or, respecting an option
be submitted on or before April 1, 2005. 4 15 U.S.C. 78s(b)(3)(A).
not dealt in on the Exchange, another exchange if
5 17 CFR 240.19b–4(f)(6). the member or member organization is not a

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Federal Register / Vol. 70, No. 47 / Friday, March 11, 2005 / Notices 12261

Standard Position and Exercise months during which the standard options overlying QQQQ would be
Limits. The Exchange proposes to adopt position and exercise limits for equity increased to the following levels:
a pilot program for a period of six options traded on the Exchange and for

Current Equity Option Contract Limit Proposed Equity Option Contract Limit

13,500 25,000
22,500 50,000
31,500 75,000
60,000 200,000
75,000 250,000

Current QQQQ Option Contract Limit Proposed QQQQ Option Contract Limit

300,000 900,000

In 1998, the Commission approved an other adjusted number of shares). conducted. These procedures utilize
Exchange proposal (and similar Neither side of the long call/short put daily monitoring of market movements
proposals of other options exchanges) to can be in-the-money at the time the via automated surveillance techniques
increase standard option position and position is established. The Exchange to identify unusual activity in both
exercise limits to their current levels.8 believes this is consistent with existing options and in underlying stocks.
Since that time, there has been a steady Commentary .07(4) to Exchange Rule Furthermore, the significant increases in
increase in the number of accounts that, 1001, which provides for an exemption unhedged options capital charges
(a) approach the position limit; (b) for a ‘‘collar,’’ and Commentary .07(2) resulting from the September 1997
exceed the position limit; and (c) are and (3), which allow for a hedge adoption of risk-based haircuts in
granted an exemption to the standard exemption for ‘‘reverse conversions’’ combination with the Exchange margin
limit. Several member organizations and ‘‘conversions,’’ respectively. requirements applicable to these
have petitioned the Exchange to either Manipulation. The Exchange believes products under Exchange rules, serve as
eliminate position limits, or in lieu of that position and exercise limits, at their a more effective protection than do
total elimination, increase the current current levels, no longer serve their position limits.10
levels and expand the available hedge stated purpose. The Commission has
exemptions. A review of available data previously stated that: Furthermore, large stock holdings
indicates that the majority of accounts must be disclosed to the Commission by
Since the inception of standardized
that maintain sizable positions are in way of Schedules 13D or 13G.11 Options
options trading, the options exchanges have
those options subject to the 60,000 and had rules imposing limits on the aggregate positions are part of any reportable
75,000 tier limits. There also has been number of options contracts that a member positions and, thus, cannot be legally
an increase in the number of accounts or customer could hold or exercise. These hidden. In addition, Exchange Rule
that maintain sizable positions in the rules are intended to prevent the 1003, which requires members to file
establishment of options positions that can reports with the Exchange for any
lower three tiers. In addition, overall be used or might create incentives to
volume in the options market has customer who held aggregate long or
manipulate or disrupt the underlying market
continually increased over the past five so as to benefit the options position. In
short positions of 200 or more option
years. The Exchange believes that the particular, position and exercise limits are contracts of any single class for the
increase in options volume and lack of designed to minimize the potential for mini- previous day, will remain unchanged
evidence of market manipulation manipulations and for corners or squeezes of and will continue to serve as an
occurrences over the past twenty years the underlying market. In addition such important part of the Exchange’s
limits serve to reduce the possibility for surveillance efforts.
justifies the proposed increases in the disruption of the options market itself,
position and exercise limits. especially in illiquid options classes.9 The Exchange believes that restrictive
The proposal would also adopt a new As the anniversary of listed options equity position limits prevent large
equity hedge exemption to the existing trading approaches its thirty-fifth year, customers, such as mutual funds and
exemptions currently provided under the Exchange believes that the existing pension funds, from using options to
Commentary .07 to Exchange Rule 1001. surveillance procedures and reporting gain meaningful exposure to individual
Specifically, new Commentary .07(5) to requirements at the Phlx, other options stocks. This can result in lost liquidity
Rule 1001 would allow for a ‘‘reverse exchanges, and at the several clearing in both the options market and the
collar’’ hedge exemption, where a long firms are capable of properly identifying equity market. In addition, the Exchange
call position is accompanied by a short unusual and/or illegal trading activity. has found that restrictive limits and
put position where the long call expires In addition, routine oversight narrow hedge exemption relief restrict
with the short put and the strike price inspections of the Exchange’s regulatory member firms from adequately
of the long call equals or exceeds the programs by the Commission have not facilitating customer order flow and
short put, and where each long call and uncovered any material inconsistencies offsetting the risks of such facilitations
short put position is hedged with 100 or shortcomings in the manner in which in the listed options market. The fact
shares of the underlying security (or the Exchange’s market surveillance is that position limits are calculated on a

member of that exchange) if as a result thereof such the position limit in Exchange Rule 1001, in the 9 See Securities Exchange Act Release No. 39489

member or member organization, or partner, officer, case of options on a stock or an Exchange-Traded (December 24, 1997), 63 FR 276 (January 5, 1998)
director or employee thereof or customer, acting Fund Share. * * *’’ (SR–CBOE–97–11).
alone or in concert with others, directly or 8 See Securities Exchange Act Release No. 40875 10 See Securities Exchange Act Release No. 38248

indirectly, has or will have exercised within any (December 31, 1998), 64 FR 1842 (January 12, 1999) (February 6, 1997), 62 FR 6474 (February 12, 1997)
five (5) consecutive business days aggregate long (Order approving SR–Phlx–98–36; SR–Amex–98– (File No. S7–7–94) (adopting Risk-Based Haircuts).
positions in that class (put or call) as set forth as 22; SR–CBOE–98–25; and SR–PCX–98–33). 11 17 CFR 240.13d–1.

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12262 Federal Register / Vol. 70, No. 47 / Friday, March 11, 2005 / Notices

gross rather than a delta basis also is an C. Self-Regulatory Organization’s exemption strategies to those of another
impediment. Statement on Comments on the exchange, which were recently
Financial Requirements. The Proposed Rule Change Received From approved by the Commission.21
Exchange believes that the current Members, Participants, or Others At any time within 60 days of the
financial requirements imposed by the No written comments were either filing of the proposed rule change, the
solicited or received. Commission may summarily abrogate
Exchange and by the Commission
such rule change if it appears to the
adequately address concerns that a III. Date of Effectiveness of the Commission that such action is
member or its customer may try to Proposed Rule Change and Timing for necessary or appropriate in the public
maintain an inordinately large Commission Action interest, for the protection of investors,
unhedged position in an equity option. The proposed rule change has been or otherwise in furtherance of the Act.
Current margin and risk-based haircut designated by the Phlx as a ‘‘non-
methodologies serve to limit the size of IV. Solicitation of Comments
controversial’’ rule change pursuant to
positions maintained by any one Section 19(b)(3)(A) of the Act 15 and Interested persons are invited to
account by increasing the margin and/ subparagraph (f)(6) of Rule 19b–4 submit written data, views, and
or capital that a member must maintain thereunder.16 arguments concerning the foregoing,
for a large position held by itself or by The foregoing rule change: (1) Does including whether the proposed rule
its customer. It should also be noted that not significantly affect the protection of change, as amended, is consistent with
the Exchange has the authority under investors or the public interest, (2) does the Act. Comments may be submitted by
Exchange Rule 722(d)(1), (d)(4) and not impose any significant burden on any of the following methods:
(i)(8) to impose a higher margin competition, and (3) by its terms does
Electronic Comments
requirement upon a member or member not become operative for 30 days after
organization when the Exchange the date of this filing, or such shorter • Use the Commission’s Internet
determines a higher requirement is time as the Commission may designate, comment form (http://www.sec.gov/
warranted. In addition, the if consistent with the protection of rules/sro.shtml); or
Commission’s net capital rule, Rule investors and the public interest. • Send an e-mail to rule-
Consequently, the proposed rule change comments@sec.gov. Please include File
15c3–1 under the Act,12 imposes a
has become effective pursuant to No. SR–Phlx–2005–17 on the subject
capital charge on members to the extent
Section 19(b)(3)(A) of the Act 17 and line.
of any margin deficiency resulting from Rule 19b–4(f)(6) thereunder.18
the higher margin requirement. Pursuant to Rule 19b–4(f)(6)(iii), a Paper Comments
Finally, equity position limits have proposed ‘‘non-controversial’’ rule • Send paper comments in triplicate
been gradually expanded from 1,000 change does not become operative for 30 to Jonathan G. Katz, Secretary,
contracts in 1973 to the current level of days after the date of filing, or such Securities and Exchange Commission,
75,000 contracts for the largest and most shorter time as the Commission may 450 Fifth Street, NW., Washington, DC
active stocks. To date, the Exchange designate, if consistent with the 20549–0609.
believes that there have been no adverse protection of investors and the public All submissions should refer to File
affects on the market as a result of these interest, and the Exchange gave the No. SR–Phlx–2005–17. This file number
past increases in the limits for equity Commission written notice of its intent should be included on the subject line
option contracts. to file the proposed rule change, along if e-mail is used. To help the
with a brief description and text of the Commission process and review your
2. Statutory Basis proposed rule change, at least five comments more efficiently, please use
business days prior to the date of filing only one method. The Commission will
The Exchange believes that its of the proposed rule change, or such post all comments on the Commission’s
proposal is consistent with Section 6(b) shorter time as designated by the Internet Web site (http://www.sec.gov/
of the Act,13 in general, and furthers the Commission.19 The Phlx has requested rules/sro.shtml). Copies of the
objectives of Section 6(b)(5) of the Act,14 that the Commission waive the five-day submission, all subsequent
in particular, in that it is designed to pre-filing notice requirement and the amendments, all written statements
perfect the mechanisms of a free and 30-day operative delay. The with respect to the proposed rule
open market and the national market Commission has determined that it is change that are filed with the
system, protect investors and the public consistent with the protection of Commission, and all written
interest and promote just and equitable investors and the public interest to communications relating to the
principles of trade, by establishing waive the five-day pre-filing notice proposed rule change between the
higher equity option position limits on requirement and the 30-day operative Commission and any person, other than
a six-month pilot basis. delay.20 Waiving the pre-filing those that may be withheld from the
requirement and accelerating the public in accordance with the
B. Self-Regulatory Organization’s operative date will allow the Phlx to provisions of 5 U.S.C. 552, will be
Statement on Burden on Competition immediately conform its position and available for inspection and copying in
exercise limits and its equity hedge the Commission’s Public Reference
The Exchange does not believe that
Room, 450 Fifth Street, NW.,
the proposed rule change will impose 15 15
U.S.C. 78s(b)(3)(A). Washington, DC 20549. Copies of such
any inappropriate burden on 16 17
CFR 240.19b–4(f)(6). filing will also be available for
competition. 17 15 U.S.C. 78s(b)(3)(A).
18 17 CFR 240.19b–4(f)(6).
inspection and copying at the principal
19 17 CFR 240.19b–4(f)(6)(iii). office of the Phlx. All comments
20 For the purposes only of accelerating the received will be posted without change;
12 17
operative date of this proposal, the Commission has
CFR 240.15c3–1.
considered the proposed rule’s impact on 21 See Securities Exchange Act Release No. 51244
13 15 U.S.C. 78f(b). efficiency, competition, and capital formation. 15 (February 23, 2005), 70 FR 10010 (March 1, 2005)
14 15 U.S.C. 78f(b)(5). U.S.C. 78c(f). (SR–CBOE–2003–30).

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Federal Register / Vol. 70, No. 47 / Friday, March 11, 2005 / Notices 12263

the Commission does not edit personal (Catalog of Federal Domestic Assistance Percent
identifying information from Numbers 59002 and 59008)
submissions. You should submit only Herbert L. Mitchell, Businesses and non-profit orga-
information that you wish to make nizations without credit avail-
Associate Administrator for Disaster able elsewhere ........................ 4.000
available publicly. All submissions Assistance.
should refer to File No. SR–Phlx–2005– [FR Doc. 05–4782 Filed 3–10–05; 8:45 am]
17 and should be submitted on or before The number assigned to this disaster
BILLING CODE 8025–01–P
April 1, 2005. for physical damage is 10066 C and for
For the Commission, by the Division of
economic injury is 10067 0.
Market Regulation, pursuant to delegated SMALL BUSINESS ADMINISTRATION The State which received an EIDL
authority.22 Declaration # is Louisiana.
[Disaster Declaration #10066 and #10067]
Margaret H. McFarland, (Catalog of Federal Domestic Assistance
Deputy Secretary. Louisiana Disaster #LA–00001 Numbers 59002 and 59008)
[FR Doc. E5–1018 Filed 3–10–05; 8:45 am] Dated: March 3, 2005.
AGENCY: Small Business Administration.
BILLING CODE 8010–01–P Hector V. Barreto,
ACTION: Notice.
Administrator.
SUMMARY: This is a notice of an [FR Doc. 05–4784 Filed 3–10–05; 8:45 am]
Administrative declaration of a disaster BILLING CODE 8025–01–P
SMALL BUSINESS ADMINISTRATION for the State of Louisiana, dated 03/03/
2005.
[Disaster Declaration # 10007 and # 10008] Incident: Severe Storms and SMALL BUSINESS ADMINISTRATION
Tornadoes.
Indiana Disaster Number IN–00001 Incident Period: 11/23/2004. [Disaster Declaration # 10022]
Effective Date: 03/03/2005.
AGENCY:U.S. Small Business Physical Loan Application Deadline West Virginia Disaster Number WV–
Administration. Date: 05/02/2005. 00002
ACTION: Amendment 2. EIDL Loan Application Deadline Date:
12/05/2005. AGENCY:U.S. Small Business
Administration.
SUMMARY: This is an amendment of the ADDRESSES: Submit completed loan
Presidential declaration of a major applications to: U.S. Small Business ACTION: Amendment 1.
disaster for the State of Indiana (FEMA– Administration, Disaster Area Office 1,
1573–DR), dated January 21, 2005. 360 Rainbow Blvd. South 3rd Floor, SUMMARY: This is an amendment of the
Niagara Falls, NY 14303. Presidential declaration of a major
Incident: Severe Winter Storms and
FOR FURTHER INFORMATION CONTACT: A. disaster for Public Assistance Only for
Flooding.
Escobar, Office of Disaster Assistance, the State of West Virginia (FEMA–1574–
Incident Period: January 1, 2005, DR), dated February 1, 2005.
U.S. Small Business Administration,
through February 11, 2005.
409 3rd Street, Suite 6050, Washington, Incident: Severe storms, flooding, and
DATES: Effective Date: February 11, DC 20416. landslides.
2005. SUPPLEMENTARY INFORMATION: Notice is Incident Period: January 4, 2005,
Physical Loan Application Deadline hereby given that as a result of the through January 25, 2005.
Date: March 22, 2005. Administrator’s disaster declaration on
DATES: Effective Date: January 25, 2005.
03/03/2005, applications for disaster
EIDL Loan Application Deadline Date: Physical Loan Application Deadline
loans may be filed at the address listed
October 21, 2005. Date: April 4, 2005.
above or other locally announced
ADDRESSES: Submit completed loan locations. ADDRESSES: Submit completed loan
applications to: U.S. Small Business The following areas have been applications to: U.S. Small Business
Administration, Disaster Area Office 1, determined to be adversely affected by Administration, Disaster Area Office 1,
360 Rainbow Blvd. South 3rd Floor, the disaster: 360 Rainbow Blvd. South 3rd Floor,
Niagara Falls, NY 14303. Primary Parish: La Salle. Niagara Falls, NY 14303.
Contiguous Parishes: Louisiana,
FOR FURTHER INFORMATION CONTACT: A. FOR FURTHER INFORMATION CONTACT: A.
Avoyelles, Caldwell, Catahoula, Grant,
Escobar, Office of Disaster Assistance, Escobar, Office of Disaster Assistance,
Rapides, Winn.
U.S. Small Business Administration, U.S. Small Business Administration,
409 3rd Street, Suite 6050, Washington, Percent 409 3rd Street, Suite 6050, Washington,
DC 20416. DC 20416.
The Interest Rates are:
SUPPLEMENTARY INFORMATION: The notice SUPPLEMENTARY INFORMATION: The notice
Homeowners with credit avail-
of the President’s major disaster able elsewhere ........................ 5.875 of the President’s major disaster
declaration for Indiana, dated January Homeowners without credit avail- declaration for Private Non-Profit
21, 2005, is hereby amended to establish able elsewhere ........................ 2.937 organizations in the State of West
the incident period for this disaster as Businesses with credit available Virginia, dated February 1, 2005, is
beginning January 1, 2005, and elsewhere ................................ 5.800 hereby amended to establish the
continuing through February 11, 2005. Businesses & small agricultural incident period for this disaster as
cooperatives without credit beginning January 4, 2005, and
All other information in the original available elsewhere ................. 4.000
declaration remains unchanged. continuing through January 25, 2005.
Other (including non-profit orga-
nizations) with credit available All other information in the original
22 17 CFR 200.30–3(a)(12). elsewhere ................................ 4.750 declaration remains unchanged.

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