[Federal Register Volume 60, Number 221 (Thursday, November 16, 1995)]
[Notices]
[Pages 57607-57608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28249]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36464; International Series Release No. 879; File No.
SR-CBOE-95-54]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Inc. Relating to Currency
Warrants Based on the Value of the U.S. Dollar in Relation to the
Brazilian Real
November 8, 1995
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on
September 13, 1995, the Chicago Board Options Exchange, Inc. (``CBOE''
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. 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 Exchange proposes to approve for listing and trading currency
warrants based upon the value of the U.S. dollar in relation to the
Brazilian Real. 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, CBOE 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 CBOE 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
The Exchange is permitted to list and trade currency warrants under
CBOE Rule 31.5(E). The Exchange is now proposing to list and trade
currency warrants based upon the value of the U.S. dollar in relation
to the Brazilian Real (``Brazilian Real warrants''). The listing and
trading of currency warrants relating to the Brazil Real will comply in
all respects with CBOE Rule 31.5(E).
1. Currency Warrant Trading
Brazilian Real warrants will be unsecured obligations of their
issuers and will be cash-settled in U.S. dollars. The warrants will be
either exercisable throughout their life (i.e., American style) or
exercisable only on their expiration date (i.e., European style). Upon
exercise, the holder of a warrant structured as a ``put'' would receive
payment in U.S. dollars to the extent that the value of the Brazilian
Real has declined in relation to the U.S. dollar below a pre-stated
base price. Conversely, holders of a warrant structured as a ``call''
would, upon exercise, receive payment in U.S. dollars to the extent
that the value of the Brazilian Real in relation to the U.S. dollar has
increased above the pre-stated base price. Warrants that are out-of-
the-money at the time of expiration will expire worthless.
2. Warrant Listing Standards and Customer Safeguards
In SR-CBOE-90-08,\1\ the Exchange established generic listing
standards for currency warrants, which are contained in CBOE Rule
31.5(E). On August 29, 1995, the Commission approved SR-CBOE-94-34,\2\
which amended Rule 31.5(E) and established customer protection and
margin requirements for currency warrants.
\1\ See Securities Exchange Act Release No. 28556 (October 19,
1990), 55 FR 43233 (October 26, 1990).
\2\ See Securities Exchange Act Release No. 36169 (August 29,
1995), 60 FR 46644 (September 7, 1995).
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CBOE Rule 31.5(E) sets forth the criteria applicable to listing
currency warrants. Any issue of Brazilian Real warrants will conform to
the listing criteria under Rule 31.5(E) which provide that: (1) The
issuer shall have minimum tangible net worth in excess of $150,000,000
and otherwise substantially exceed the size and earnings requirements
in Rule 31.5(A); (2) the term of the warrants shall be for a period
ranging from one to five years from date of issuance; and (3) the
minimum public distribution of such issues shall be 1,000,000 warrants,
together with a minimum of 400 public holders, and have a minimum
aggregate market value of $4,000,000. In addition, where an issuer has
a minimum tangible net worth in excess of $150,000,000 but less than
$250,000,000, the Exchange shall not list Brazilian Real warrants of
the issuer if the value of such warrants plus the aggregate value,
based upon the original issuing price, of all outstanding stock index,
currency index and currency warrants of the issuer (and its affiliates)
that are listed for trading on a national securities exchange or traded
through the facilities of the National Association of Securities
Dealers Automated Quotation System (``NASDAQ'') exceeds 25% of the
issuer's net worth.
Among the consequences of the recently approved rule amendments,
Brazilian Real warrants may be sold only to customers whose accounts
have been approved for options trading pursuant to Exchange Rule 9.7.
Moreover, the suitability standards of Exchange Rule 9.9 apply to
recommendations in currency warrants. Also, the standards of Rule
9.10(a), regarding discretionary orders, will be applicable to currency
warrants.
3. Margin Requirements
Recently approved SR-CBOE-94-34 also establishes margin
requirements for currency warrants. New Exchange Rule 30.53 requires
minimum margin on any currency warrant carried ``short'' in a
customer's account to be 100% of the current market value of each such
warrant plus an ``add-on'' percentage of the produce of the units of
underlying currency per warrant and the spot price for such currency.
The Exchange has calculated frequency distributions reflecting
percentage price returns for all one (1) and five (5) day periods for
the Brazilian Real for the period of September 1, 1992 through August
30, 1995. These distributions demonstrate that more than 97.5% of all
five (5) day
[[Page 57608]]
returns for the three (3) year period would have been covered by 10.0%
of the underlying Real value. Based upon these results, the Exchange is
proposing to set the margin ``add-on'' percentage for Brazilian Real
warrants at 10% for both initial and maintenance margin, with a minimum
add-on for out-of-the money warrants of 2%. If as the result of the
Exchange's routine monitoring of margin adequacy, the Exchange
determines that a different percentage would be appropriate, CBOE will
file a proposal with the Commission to modify the add-on percentages.
The Exchange believes that the listing and trading of Brazilian
Real warrants is consistent with Section 6(b) of the Act in general,
and with Section 6(b)(5) in particular, because it will help remove
impediments to a free and open securities market and facilitate
transactions in securities by providing investors with a low-cost means
to participate in the performance of the Brazilian economy or to hedge
against the risk of investing in that economy.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes the proposed rule change will impose no
inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
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 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 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 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. 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-95-54 and should be
submitted by December 7, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\3\
\3\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-28249 Filed 11-15-95; 8:45 am]
BILLING CODE 8010-01-M
