[Federal Register Volume 59, Number 205 (Tuesday, October 25, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-26351]
[[Page Unknown]]
[Federal Register: October 25, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34854; International Series Release No. 732; File No.
SR-CBOE-94-32]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by Chicago Board Options Exchange, Inc. Relating to Warrants on
the Nikkei Stock Index 300
October 18, 1994.
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
September 2, 1994, the Chicago Board Options Exchange, Inc. (``CBOE''
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. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CBOE proposes to list and trade warrants on the Nikkei Stock
Index 300 (``Nikkei 300'' or ``Index''). The text of the proposed rule
change is available at the Office of the Secretary, CBOE, 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 or 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 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 Exchange is permitted to list and trade index warrants under
CBOE Rule 31.5(E). The Exchange is now proposing to list and trade
index warrants based on the Nikkei 300. The listing and trading of
index warrants on the Nikkei 300 would comply in all respects with CBOE
Rule 31.5(E). CBOE has received the Commission's approval to list and
trade options on the Nikkei 300.\1\
---------------------------------------------------------------------------
\1\See Securities Exchange Act Release No. 34388 (July 15,
1994), 59 FR 37789 (July 25, 1994) (approving File No. SR-CBOE-94-
14).
---------------------------------------------------------------------------
Index design. The Nikkei 300 is a broad-based, capitalization-
weighted index designed to be representative of stocks on the Tokyo
Stock Exchange. It was designed by and is maintained by Nihon Keizai
Shimbun, Inc. The Index is fully described in SR-CBOE-94-14, the
Exchange's rule filing relating to the listing and trading of options
on the Nikkei 300.\2\
---------------------------------------------------------------------------
\2\See supra, note 1.
---------------------------------------------------------------------------
Index warrant trading. The warrants on the Index would be direct
obligations of their issuers and would be cash-settled in U.S. dollars.
The warrants would have either American or European style exercise.
Upon exercise, or at the warrant expiration date in the case of
warrants with European style exercise, the holder of a warrant
structured as a ``put'' would receive payment in U.S. dollars to the
extent that the index value has declined below a pre-stated cash
settlement value. Conversely, holders of a warrant structured as a
``call'' would, upon exercise or at expiration, receive payment in U.S.
dollars to the extent that the index value has increased above the pre-
stated cash settlement value. Warrants that are out-of-the-money at the
time of expiration would expire worthless.
Warrant listing standards and customer safeguards. In SR-CBOE-90-
08,\3\ the Exchange established generic listing standards for index
warrants, which are contained in CBOE Rule 31.5(E). The filing also
established certain sales practice rules for the trading of index
warrants, which are contained in Chapter IX of the Exchange's Rules.
The listing and trading of index warrants on the Nikkei 300 would be
subject to those guidelines and rules.
---------------------------------------------------------------------------
\3\See Securities Exchange Act Release No. 28556 (October 19,
1990), 55 FR 43233 (October 26, 1990).
---------------------------------------------------------------------------
Under Rule 31.5(E), (i) issuers shall meet the CBOE's size and
earnings criteria for equity issues and have assets in excess of
$100,000,000; (ii) the term of the warrants shall be for a period
ranging from one to five years from the date of issuance; and (iii) the
minimum public distribution of such issues shall be 1,000,000 warrants,
together with a minimum of 400 public holders, and have an aggregate
market value of $4,000,000.
Because index warrants are derivative in nature and closely
resemble index options, CBOE would also require safeguards designed to
meet the investor protection concerns raised by the trading of index
options. The Exchange would require that index warrants on the Nikkei
300 be sold only to customers whose accounts have been approved for
options trading under CBOE Rule 9.7.\4\ CBOE Rule 30.50, Interpretation
.02 also applies the suitability standards of CBOE Rule 9.9 to
recommendations in index warrants.
---------------------------------------------------------------------------
\4\Telephone conversation between James R. McDaniel, Schiff
Hardin & Waite, and Beth A. Stekler, Attorney, Division of Market
Regulation, SEC, on October 17, 1994.
---------------------------------------------------------------------------
In addition, CBOE Rule 30.50, Interpretation .04 requires that the
standards of Rule 9.10(a) regarding discretionary orders be applied to
index warrants. It requires a branch office manager or registered
options principal to approve and initial a discretionary order in index
warrants on the day entered. Also, prior to commencement of trading,
the Exchange would distribute a circular to its members calling
attention to specific risks associated with warrants calling attention
to specific risks associated with warrants on the Index if the Exchange
is required to do so by Commission policy.
2. Statutory Basis
The listing and trading of warrants on the Nikkei 300 is consistent
with Section 6(b) of the ACt in general and furthers the objectives of
Section 6(b)(5) of the Act in particular because it will help remove
impediments to a free and open securities market and facilitate
transactions in securities because the Index warrants will provide
investors a means by which to hedge investments in the Japanese equity
market and provide a surrogate instrument for trading in the Japanese
securities market.
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule amendments will not impose any burden on
competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants or Others
Comments were neither solicited nor 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 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. 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 at 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 at the
Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such filing will also be available for
inspection and copying at the principal office of the CBOE. All
submissions should refer to File No. SR-CBOE-94-32 and should be
submitted by November 15, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-26351 Filed 10-19-94; 8:45 am]
BILLING CODE 8010-01-M
