[Federal Register Volume 60, Number 214 (Monday, November 6, 1995)]
[Notices]
[Pages 56077-56078]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27425]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36441; File No. SR-CBOE-95-64]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval to Proposed Rule Change by the Chicago
Board Options Exchange, Incorporated and Amendment Nos. 1 and 2 to the
Proposed Rule Change, Relating to Position Limits on the S&P 500/Barra
Growth Index and the S&P 500/Barra Value Index
October 31, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 20, 1995 the Chicago Board Options Exchange, Incorporated
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange
Commission the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Exchange
submitted to the Commission Amendment Nos. 1 and 2 to the proposal on
October 26, 1995.\3\ The Commission is approving this proposal, as
amended, on an accelerated basis.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The Exchange submitted Amendment No. 1 to its proposed rule
change to reduce the position limits originally proposed in this
filing to position limits consistent with the rebasing of the Growth
Index and Value Index. The Exchange proposes to amend the contract
position limits for the Indexes: (1) From 40,000 contracts on the
same side of the market as originally proposed to 36,000 contracts;
(2) from 25,000 contracts in the nearest expiration series as
originally proposed to 21,500 contracts; and (3) from a 75,000
contract hedge exemption limit as originally proposed to 65,000
contracts. Additionally, Amendment No. 2 changes the name of each
Index from S&P/Barra Growth and S&P/Barra Value to S&P 500/Barra
Growth and S&P 500/Barra Value, respectively. See Letter from
Timothy Thompson, Attorney, CBOE, to John Ayanian, Attorney, Office
of Market Supervision, Division of Market Regulation, Commission,
dated October 26, 1995.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to revise the positions limits applicable to
the S&P 500/Barra Growth Index and the S&P 500/Barra Value Index.\4\
(The S&P 500/Barra Growth Index is sometimes hereinafter referred to as
the ``Growth Index,'' the S&P/500 Barra Value Index is sometimes
hereinafter referred to as the ``Value Index,'' and the Growth Index
and the Value Index are sometimes hereinafter collectively referred to
as the ``Indexes.'') The position limits are being revised to account
for the rebasing of the Indexes. The text of the proposed rule change
is available at the Office of the Secretary of CBOE and at the
Commission.
\4\ Exercise limits will be set at the same level as position
limits. See CBOE Rule 24.5.
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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 those statements may be examined at
the places specified in Item IV below and is set forth in sections (A),
(B), and (C) below.
(A) Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
The purpose of the proposed rule change is to reduce the contract
position limits for the Indexes consistent with the recent rebasing of
the Indexes by Standard & Poor's (``S&P''). The Indexes are maintained
by Barra, Inc. (``Barra'') pursuant to an agreement between Barra and
Standards & Poor's (``S&P''). The Value Index and Growth Index
represent a partition of the S&P 500 Stock Index and, like options on
the S&P 500 (``SPX options''), Value options and Growth options are
cash-settled, European-style and A.M.-settled. The Indexes are
described in more detail in File No. SR-CBOE-93-36 and in the
Commission order approving the Indexes for options trading on the
Exchange.\5\ The Exchange represents that it intends to begin trading
options on both Indexes on or about November 7, 1995.
\5\ See Securities Exchange Act Release No. 34124 (May 27,
1994), 59 FR 29310 (June 6, 1994).
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Rebasing of the Indexes. On July 20, 1995, Standard & Poor's
announced that the S&P 500/Barra Growth Index and the S&P 500/Barra
Value Index will be rebased effective Friday, July 28, 1995. The
Indexes were set at a base value of 10 for December 31, 1974. The new
base value for the Indexes will be 35 and all historical values of the
Indexes will be adjusted accordingly by a factor of 3.5. The rebasing
serves to bring the value of the combined Indexes into line with the
value of the S&P 500, the index from which the Indexes are derived.
As an example, the Growth Index and the Value Index closed at 78.64
and 84.59, respectively, on Tuesday, July 25, 1995. On an adjusted
basis those levels are 275.24 and 296.07. The sum of those values is
571.31, as compared to the closing level of the S&P 500 on that date of
561.10.
Position Limits. Currently, under CBOE Rule 24.4(a), position
limits for Growth options and position limits for Value options are
125,000 contracts on the same side of the market, with no more than
75,000 contracts in the series with the nearest expiration date.
Positions in both classes of options must be aggregated, pursuant to
the Rule, in determining compliance with the position limits. In
addition, currently under Interpretation .01 to Rule 24.4, the maximum
combined position in the Indexes may not exceed 225,000 same-side of
the market option contracts
[[Page 56078]]
under CBOE's hedge exemption rule provisions.
The rebasing of the Growth Index and the Value Index now makes it
necessary to reduce the contract position limits to maintain the
appropriate same maximum dollar value afforded under the originally
approved limits. In order to reflect the same dollar value as that
originally approved, the current position limits would need to be
divided by 3.5. Dividing the current level of 125,000 contracts on the
same side of the market by 3.5 would yield 35,714 contracts. However,
in order to establish position limits of a round number for ease of
administration and compliance, the Exchange is proposing an aggregate
position limit of 36,000 contracts on the same side of the market for
the Growth and Value Indexes. In addition, the Exchange is proposing to
similarly reduce the amount of contracts in the series that may be in
the nearest expiration date from 75,000 contracts to 21,500
contracts.\6\
\6\ This new proposed nearest expiration date limit of 21,500
contracts is slightly less than 60% of the new proposed 36,000
contract limit, just as the current nearest expiration date
restriction of 75,000 contracts is 60% of the current position limit
of 125,000 contracts.
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The Exchange is also proposing to revise the 225,000 hedge
exemption limit under Interpretation .01, as this amount was also
designed to have a numerical relationship to the general position
limits. The Exchange is proposing that this limit be reduced to 65,000
contracts. The 65,000 contract position limit is 1.805 times the new
proposed position limit of 36,000 contracts. Similarly, under the
current rule, the 225,000 contract hedge exemption position limit is
1.8 times the 125,000 contract position limit.
The Exchange believes that 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 will promote just and
equitable principles of trade by revising position limits in light of
the recent rebasing of the two Indexes.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The proposed 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. Commission's Findings and Order Granting Accelerated Approval
of Proposed Rule Change
The Exchange has requested that the proposed rule change, as
amended, be given accelerated effectiveness pursuant to Section
19(b)(2) of the Act to accommodate for the trading of Index options on
or about November 7, 1995. The Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange,
and, in particular the requirements of section 6(b)(5) thereunder.
Specifically, the Commission believes that the CBOE proposal to reduce
the contract position and exercise limits applicable to the Indexes
should enhance investor protection and protect the public interest by
helping to ensure that market participants cannot control unduly large
positions in the Indexes in light of the Indexes' adjusted base values
which, otherwise, would increase the manipulation potential of trading
options thereon.
The Commission finds good cause for approving the proposed rule
change, as amended, prior to the thirtieth day after the date of
publication of the notice thereof in the Federal Register. As noted
above, the Commission has approved the Value Index and the Growth Index
for options trading, and the Exchange intends to list each Index for
options trading on or about November 7, 1995. By accelerating approval,
the proposed rule change, as amended, can become effective before the
Exchange begins trading the applicable Index options and provide market
participants adequate notice of the applicable position and exercise
limits. Accordingly, the Commission believes that it is consistent with
Sections 6(b)(5) and 19(b)(2) of the Act to approve this proposed rule
change on an accelerated basis.
For the same reasons, the Commission finds good cause for approving
Amendment No. 1 to the proposed rule change prior to the thirtieth day
after the date of publication of the notice thereof in the Federal
Register. Specifically, Amendment No. 1 proposes to reduce the position
limits as originally proposed in this filing to position limits more in
line with the rebasing of the Growth Index and Value Index.\7\ The
Commission believes that these position limits are appropriate in light
of the rebasing of the Indexes by a factor of 3.5. Accordingly, the
Commission believes that it is consistent with Sections 6(b)(5) and
19(b)(2) of the Act to approve Amendment No. 1 to the CBOE proposal on
an accelerated basis.
\7\ See supra note 3.
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The Commission also finds good cause for approving Amendment No. 2
to the proposed rule change prior to the thirtieth day after the date
of publication of the notice thereof in the Federal Register.
Specifically, Amendment No. 2 proposes to change the name of each Index
from S&P/Barra Growth and S&P/Barra Value to S&P 500/Barra Growth and
S&P 500/Barra Value, respectively. The Commission notes that changing
the name of each Index does not raise any new regulatory issues.
Accordingly, the Commission believes that it is consistent with
Sections 6(b)(5) and 19(b)(2) of the Act to approve Amendment No. 2 to
the CBOE proposal on an accelerated basis.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing proposal including Amendment Nos. 1
and 2. 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. 552, will be
available for inspection and copying in the Commission's Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. Copies of
such filing will also be available for inspection and copying at the
principal office of the CBOE. All submissions should refer to SR-CBOE-
95-64 and should be submitted by November 27, 1995.
It is therefore ordered, pursuant to Section 19(b)(2) of Act,\8\
that the proposed rule change (File No. SR-CBOE-95-64), as amended, is
hereby approved on an accelerated basis.
\8\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
\9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-27425 Filed 11-3-95; 8:45 am]
BILLING CODE 8010-01-M
