[Federal Register Volume 61, Number 214 (Monday, November 4, 1996)]
[Notices]
[Pages 56726-56728]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-28182]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37878; File No. SR-CBOE-96-64]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by
the Chicago Board Options Exchange, Inc., Relating to Listing and
Delisting Standards for Debt Securities
October 28, 1996.
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
October 22, 1996, 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. CBOE submitted Amendment No. 1 to the filing on October
25, 1996 to clarify rule language.\1\ The Commission is publishing this
notice to solicit comments on the proposed rule change, as amended,
from interested persons.
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\1\ See Letter from Janet Angstadt, Schiff Hardin & Waite, to
Michael Walinskas, SEC, dated October 25, 1996.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CBOE proposes to revise its standards for the listing and
delisting of debt securities to conform to those of other securities
exchanges. 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 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 purpose of the proposed rule change is to permit the Exchange
to conform the Exchange's listing and delisting standards for debt
securities to those of the American Stock Exchange (``AMEX'') and New
York Stock Exchange (``NYSE''). The Exchange proposes to revise the
listing and delisting standards set forth in Rule 31.5 so that the
listing and delisting standards are substantially similar to those that
now exist for the NYSE and AMEX. The Commission approved substantially
similar standards for listing bonds and debentures for the AMEX and
NYSE in Securities Exchange Act Release No. 36594 (December 14, 1995)
(``Release No. 36594'') (approval of AMEX proposal to revise debt
listing standards) and Securities Exchange Act Release No. 34019 (May
5, 1994) (approval of NYSE proposal to revise debt listing standards).
The NYSE and the AMEX stated that the purpose of the revisions to their
debt listing standards was to facilitate the exchange listing of debt
securities and to provide debtholders with a transparent auction market
for secondary trading.
Original Listing Standards
CBOE Rule 31.5 provides that the Exchange will consider listing
bonds and debentures if: (1) the issuer meets the net worth and
earnings criteria for equity issues (Rule 31.5A) and appears to be able
to satisfy interest and principal when due; (2) the issuer meets the
size and earnings criteria applicable to issuers listing common stock;
and (3) the issue has an aggregate market value and principal amount of
at least $5 million for issuers that have common stock listed on the
Exchange, AMEX or NYSE, or at least $20 million and 100 holders for
issuers that do not have securities listed on the Exchange, AMEX or
NYSE.\1\
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\1\ CBOE's listing and delisting standards for common stock are
substantially identical to those of AMEX.
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The Exchange proposes to replace its listing criteria for debt
securities with standards similar to those of AMEX and the NYSE. Under
the proposed standards, if an issuer has equity securities listed on
the Exchange, AMEX or NYSE, and is in ``good standing,'' \2\ the
Exchange will ordinarily list that issuer's debt securities as long as
the debt issue has an aggregate market value or principal amount of at
least $5 million. If the issuer does not have equity securities listed
on the Exchange, AMEX or NYSE, the Exchange will rely on the analyses
of nationally recognized securities rating organizations (``NRSROs''),
such as Standard & Poor's or Moody's.\3\
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\2\ An issuer is in ``good standing'' if the issuer is in
compliance with the relevant Exchange, AMEX or NYSE standards for
continued listing.
\3\ As noted by the AMEX in its proposed rule filing, the
Exchange will not conduct a review to determine whether the issuer
satisfies its original equity listing guidelines or, as the case may
be, those of the AMEX or NYSE.
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Specifically, the Exchange proposes to make the following changes
to Rule 31.5 of the Exchange's rules:
A. Eliminate the requirement that an issuer of debt satisfy net
worth and earnings standards applicable to issuers listing common
stock. [Proposed Rule 31.5.C.(1)].
B. Eliminate the requirement that an issuer demonstrate that it is
able to satisfy interest and principal when due. [Proposed Rule
31.5.C.(1)].
C. Permit the Exchange to list a debt issue if it has an aggregate
market value or principal amount of at least $5 million. [Proposed Rule
31.5.C.(1)].
D. Permit the Exchange to list debt securities that are issued or
guaranteed by an issuer which has equity securities listed on the
Exchange, AMEX or NYSE. [Proposed Rule 31.5.C.(2)(a)]. Alternatively,
the issuer of debt securities may list on the Exchange if a majority
interest of the issuer of debt is directly or indirectly owned, or
under common control with the issuer of equity securities listed on the
Exchange, AMEX or NYSE. [Proposed Rule 31.5.C.(2)(b)].
E. Eliminate the public distribution requirement that listed and
non-listed issuers have at least 100 holders. [Proposed Rule
31.5.C.(2)].
F. In lieu of the criteria specified in D above, permit the
Exchange to list the debt securities of an issuer if an NRSRO has
assigned a current rating to the debt security that is no lower than an
S&P Corporation ``B'' rating (i.e., B- or better) or the equivalent
rating of another NRSRO. A ``B'' rating indicates that the debt issuer
currently has the capacity to meet interest payments and principal
repayments, and that such capacity is not dependent upon favorable
business, financial or economic conditions. If no NRSRO has assigned a
rating to the issue, an NRSRO must have currently
[[Page 56727]]
assigned either an investment grade rating (i.e., an S&P or equivalent
rating no lower than ``BBB-'') to a senior issue or a rating that is no
lower than an S&P) ``B'' rating (or equivalent) to a pari passu or
junior issue. [Proposed Rule 31.5.C.(21)(d)].
Suspension and Delisting Policies
Exchange Rule 31.94 sets forth the minimum criteria which a
security must meet to continue to be listed on the Exchange. Under
Exchange Rule 31.94 as proposed, the Exchange will consider delisting a
debt issue if (1) its aggregate market value or principal amount is
less than $400,000 or (2) if the debt issuer is unable to meet its
obligations on the listed debt securities. The standards in Rule
31.94(b)(iii) will permit, but not require, the delisting of the bond
or debenture if the debt issuer fails to meet the criteria set forth in
the rule. Consistent with policy statements adopted by the Amex, in
applying these standards, the Exchange will normally not delist the
debt if there is value in the security and continued Exchange trading
is in the best interests of investors. However, if an issuer is unable
to meet its financial obligations and there is minimal or no value in
the security, the Exchange will give serious consideration to delisting
the bond issue.
As stated in Rule 31.94.C, the criteria set forth in the rule in no
way restricts the Exchange's right to delist a security, and the
Exchange may at any time delist a security from listing when in its
opinion such security is unsuitable for continued trading on the
Exchange. The determination of whether a debt security is suitable for
exchange trading would include whether or not there were sufficient
holders of the debt security.
In the case of debt securities which are convertible into equity
securities, the Exchange proposes to review the continued listing of
the debt security when the underlying equity security is delisted. The
Exchange will delist the convertible bond when the underlying equity
security is no longer subject to real-time trade reporting or if the
Exchange delists the underlying equity security for violation of
certain specified Exchange rules related to corporate governance
(Exchange Rules 31.9--31.14).
Listing Procedures
The Exchange also proposes to reduce the number of supporting
documents that an applicant must file in support of its debt listing
application. In proposing similar changes, the AMEX stated that its
review of the listing process revealed that ``several documents were
either unnecessary, duplicative or unduly burdensome to issuers.''\4\
The Exchange proposes the following changes to conform Exchange
procedures to those of the AMEX:
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\4\ See Release No. 36594.
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A. Form 5--Distribution of Bonds. Since the Exchange is proposing
to eliminate the requirement that debt securities have 100 holders,
Form 5 will no longer be necessary.
B. Trustee's Certificate. The Exchange currently requires a
certificate from the trustee which shows (i) acceptance of the trust;
(ii) that the securities have been issued in accordance with the terms
of the indenture; (iii) what disposition has been made of securities
redeemed or refunded; (iv) that pledged collateral has been deposited;
and (v) what disposition has been made of prior obligations. In its
filing proposing revisions to the Trustee's Certificate, the AMEX
stated that ``[i]ssuers often complain that it is unduly burdensome for
them to obtain the trustee's certificate because many trustees are
reluctant to certify the issuer-specific information'' required by
Items (ii)-(v).\5\ Therefore, the AMEX proposed to require that the
certificate show only the trustee's acceptance of the trust. The
Exchange proposes to conform its practice to that of the AMEX and
therefore require that the certificate show only the trustee's
acceptance of the trust.
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\5\ Id.
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C. Listing Resolution. The Exchange currently requires bond issuers
to obtain a resolution of the board of directors authorizing the filing
of the listing application. In its filing proposing revisions to the
listing resolution, the AMEX stated that ``[t]his requirement is often
burdensome to comply with, and can delay a listing if the company's
board is not scheduled to meet for a month or more.'' The AMEX further
stated that ``[t]he requirement to obtain a listing resolution is
essentially ceremonial in nature and does not serve any significant
purpose.''\6\ The Exchange proposes to conform its practice to that of
the AMEX.
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\6\ Id.
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The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Act in general and furthers the objectives of
Section 6(b)(5) in particular in that it is designed to prevent
fraudulent and manipulative acts and practices, promote just and
equitable principles of trade, remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe 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
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
Because the foregoing proposed rule change, as amended: (1) does
not significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) was provided to the Commission for its review prior to the
filing date,\7\ the rule change proposal, as amended, has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(e)(6) thereunder.
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\7\ Although there is usually a five day pre-filing requirement
for rule changes submitted pursuant to Rule 19b-4(e)(6), subsection
(iii) authorizes the Commission to shorten this pre-filing
requirement.
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A proposed rule change filed under Rule 19b-4(e) does not become
operative prior to thirty days after the date of filing or such shorter
time as the Commission may designate if such action is consistent with
the protection of investors and the public interest. CBOE has requested
that the Commission accelerate the implementation of the proposed rule
change so that it may take effect prior to the thirty days specified
under Rule 19b-4(e)(6)(iii). In particular, the Commission believes the
proposal qualifies as a ``noncontroversial filing'' in that the
proposed amendments do not significantly affect the protection of
investors or the public interest and do not impose any significant
burden on competition. In making this determination, the Commission
notes that the rule change makes CBOE's debt listing standards almost
identical to those of other exchanges, which were approved and found by
the Commission to be consistent with Section 6(b)(5) of the Act.\8\
Accordingly, the Commission finds that the proposed rule change, as
amended, is consistent with the protection of investors and the public
interest and therefore has determined to
[[Page 56728]]
make the proposed rule change operative as of the date of this order.
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\8\ See, e.g., Release No. 36594.
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
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 provsisions
of 5 U.S.C. Sec. 552, will be available for inspection and copying at
the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 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-96-64 and should be
submitted by November 25, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-28182 Filed 11-1-96; 8:45 am]
BILLING CODE 8010-01-M
