[Federal Register Volume 59, Number 243 (Tuesday, December 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31204]
[[Page Unknown]]
[Federal Register: December 20, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35087; File No. SR-CHX-94-21]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 to Proposed Rule Change by the Chicago Stock
Exchange, Incorporated Relating to the Rules for the Listing and
Trading of Stock Index and Currency Warrants
December 12, 1994.
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 November
3, 1994, the Chicago Stock Exchange, Incorporated (``CHX'' 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 Organizations Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to (1) amend Article XXVIII, Rule 8 to revise
the listing criteria for stock index (``stock index'' or ``index'')
warrants and currency warrants (``currency warrants''),\1\ (2) add a
new Part V to the Rules of the Exchange to provide rules for the
trading of index warrants, and (3) amend Article X, Rule 3 of the
Exchange's rules to specify the customer margin requirements for the
purchase or short sale of index warrants. On Dec. 5, 1994, the CHX
amended certain surveillance related matters addressed in the filing.
See footnote 3, infra.
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\1\Currency warrants, as used in this filing, may refer to
warrants on individual currencies (or cross currencies) or to
warrants on a specific currency index group (``currency index
warrants'').
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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 these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in section (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
Purpose
The Exchange proposes to: (1) amend its listing guidelines for
stock index and currency warrants, (2) establish various new rules for
the trading of stock index and currency warrants, and (3) establish
special customer margin requirements for positions in stock index and
currency warrants.
Description of the Proposed Rules
CHX seeks to amend Article XXVIII, Rule 8 of the Exchange's rules
to provide a higher standard for warrant issuers than currently exists.
Specifically, future warrant issuers would be expected to have a
minimum tangible net worth in excess of $150,000,000. Moreover, the
aggregate original issue price of all of a particular issuer's warrant
offerings (combined with offerings by its affiliates) that are listed
on a national securities exchange or on NASDAQ would not be permitted
to exceed 25% of the issuer's net worth. The proposed amendment will
require that each warrant issue will be automatically exercised on
either the delisting date (if the issue is not listed upon another
organized securities market) or upon expiration. Article XXVIII, Rule 8
also will be amended to provide that, for stock index warrants where 25
percent or more of the value of the underlying index is represented by
securities that are traded primarily in the U.S., the opening prices of
the U.S. traded securities in the index will be used to determine the
settlement value of the underlying index.
Article X, Rule 3 is being amended to apply the customer margin
requirements used for broad based index and currency options to index
warrants and currency warrants, respectively. Thus, purchases of stock
index and currency warrants will require payment in full, and short
sales of stock index warrants will require initial margin of: (i) 100
percent of the current value of the warrant plus (ii) 15 percent of the
current value of the underlying broad stock index less the amount by
which the warrant is out of the money up to a maximum of five percent
of the index value. Short sales of currency warrants similarly will
follow the margin requirements applicable to listed currency options.
The Exchange proposes that the index and currency warrant margin
requirements be permitted offset treatment for spread, straddle and
covered positions.\2\
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\2\The staff of the Commission has indicated to the Exchange
that it must request and obtain appropriate interpretive or no-
action relief from the Commission in order to permit its index and
currency warrant margin requirements to allow offset treatment for
spread, straddle and covered positions.
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Article LI is being amended to add definitions related to the
listing, trading, and margin requirements of stock index, currency, and
currency index warrants.
Proposed Part V of the Exchange rules applies to the trading of
index warrants and currency warrants. Proposed Article LIII, Rule 1
provides that, unless the context otherwise requires or a specific rule
in Part V applies, the provisions of the Constitution and all other
rules and policies of the Exchange apply to trading of such securities.
Proposed Article LIII, Rule 2 states that no member or member
organization shall accept an order from a customer for the purchase or
sale of an index or currency warrant unless the customer's account has
been approved for options trading pursuant to Exchange Article XXVIII,
Rule 3.
Proposed Article LIII, Rules 3, 4, 5, and 6 require that the
options rules for suitability, discretionary account trading,
supervision of accounts and customer complaints be applied to stock
index and currency warrants.
Proposed Article LIII, Rule 7 requires approval by a Compliance
Registered Options Principal of all advertisements, sales literature
and educational material issued by a member organization pertaining to
stock index and currency warrants. The rule further requires Exchange
approval of all advertisements and educational materials pertaining to
stock index and currency warrants.
Proposed Article LIII, Rule 8 provides that position limits for
stock index warrants on the same index with original issue prices of
ten dollars or less will be fifteen million warrants covering all such
issues. In addition, with respect to warrants on the Standard & Poor's
MidCap 400 Index, the position limit will be seven and one half million
warrants covering all such issues, provided the original issue prices
of the warrants are not greater than $10. Further, with respect to
warrants on the Russell 2000 Index, the position limit will be twelve
and one half million warrants. The rule provides that warrants with an
original issue price of ten dollars or more will be weighted more
heavily than warrants with an original issue price of ten dollars or
less in calculating position limits. The rule gives the Exchange the
authority to require the liquidation of a position in stock index
warrants that is in excess of the position limits set forth in the
rule, and commentary to the rule provides procedures for allowing
limited exceptions to the position limits.
Proposed Article LIII, Rule 9 provides for exercise limits on stock
index warrants analogous to those found in stock index options and
states that such limits are separate and distinct from any exercise
limits that may be imposed by the issuers of stock index warrants.
Proposed Article LIII, Rule 10, requires that the trading halt
provisions in Article IX, Rule 10A shall be applied to the trading of
stock index warrants.
Upon SEC approval of the foregoing amendments, the Exchange
proposes that it will only file rule changes for specific warrant
issues where there is no corresponding option or warrant on the same
underlying index already listed on a national securities exchange or
NASDAQ. Accordingly, when a listed option or warrant overlies a
particular broad based index, the Exchange proposes it be able to list
warrants on that index without further SEC review and approval pursuant
to Section 19(b) of the Act.
Both initial and maintenance listing standards for stock index
warrants will require that no more than 20% of the securities in the
underlying index, by weight, may be comprised of foreign securities or
American depositary receipts (``ADRs'') overlying foreign securities
that are not subject to comprehensive surveillance sharing agreements
between the CHX and the primary exchange on which the foreign security
(including a foreign security underlying an ADR) is traded.\3\ Finally,
prior to trading index or currency warrants, the Exchange will
distribute a circular to its membership providing guidance regarding
member firm compliance responsibilities (including suitability
recommendations) when handling transactions in index or currency
warrants.
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\3\Telephone conversation between David T. Rusoff, Foley &
Lardner, and Stephen M. Youhn, SEC, on December 5, 1994 (``Amendment
No. 1''). The Exchange proposes that the ``20% test'' be applied in
the same manner as that contained in Securities Exchange Act Release
No. 34157 (June 3, 1994), 59 FR 30062 (June 10, 1994) (Commission
approval order allowing the expedited trading approval of certain
narrow-based index options).
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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 goals of Section
6(b)(5) in particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose a burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to 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 other 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 submission
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the submissions, 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
principal office of the above-referenced self-regulatory organization.
All submissions should refer to file number in the caption above and
should be submitted by January 10, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
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\4\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-31204 Filed 12-19-94; 8:45 am]
BILLING CODE 8010-01-M
