95-29688. Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by Chicago Board Options Exchange, Incorporated Relating to Listing Standards for Options on Equity Securities Issued in a Reorganization Transaction Pursuant to a ...  

  • [Federal Register Volume 60, Number 234 (Wednesday, December 6, 1995)]
    [Notices]
    [Pages 62522-62524]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 95-29688]
    
    
    
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    SECURITIES AND EXCHANGE COMMISSION
    [Release No. 34-36528; File No. SR-CBOE-95-58]
    
    
    Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
    Change by Chicago Board Options Exchange, Incorporated Relating to 
    Listing Standards for Options on Equity Securities Issued in a 
    Reorganization Transaction Pursuant to a Public Offering or a Rights 
    Distribution
    
    November 29, 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 19, 1995, the Chicago Board Options Exchange, Incorporated 
    (``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 CBOE. 
    The Commission is publishing this notice to solicit comments on the 
    proposed rule change from interested persons.
    
        \1\15 U.S.C. 78s(b)(1).
        \2\17 CFR 240.19b-4.
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    I. Self-Regulatory Organization's Statement of the Terms of Substance 
    of the Proposed Rule Change
    
        The Chicago Board Options Exchange, Inc. (``CBOE or the Exchange'') 
    proposes to amend its listing standards in respect of options on equity 
    securities issued in a spin-off, reorganization, recapitalization, 
    restructuring or similar transaction where the issuance is made 
    pursuant to a public offering or a rights distribution.
        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 purpose of the proposed rule change is to amend the special 
    listing standards set forth in Interpretation and Policy .05 under 
    Exchange Rule 5.3 that apply to options on equity securities issued in 
    certain spin-offs, reorganizations, recapitalizations, restructurings 
    or similar transactions (referred to herein as ``restructuring 
    transactions'') so as to also include securities issued pursuant to a 
    public offering or a rights distribution that is part of a 
    restructuring transaction.
        Interpretation and Policy .05 under Exchange Rule 5.3 is intended 
    to facilitate the listing of options on equity securities issued in 
    restructuring transactions (referred to as ``Restructure Securities'') 
    by permitting the Exchange to base its determination as to the 
    satisfaction of certain of the listing standards set forth in Exchange 
    Rule 5.3 and Interpretation and Policy .01 thereunder by reference to 
    specified characteristics of the ``Original Security'' in respect of 
    which the Restructure Security was issued or distributed or of the 
    trading market of the Original Security, or by reference to the number 
    of shares of the Restructure Security issued and outstanding or to the 
    listing standards of the exchange on which the Restructure Security is 
    listed. Interpretation and Policy 5.3.05 permits the Exchange to 
    certify a Restructure Security as options eligible sooner than if it 
    had to wait until it could base its certification on characteristics of 
    the Restructure Security itself, but only in circumstances where the 
    factors relied upon make it reasonable to conclude that the Restructure 
    Security will in fact satisfy applicable listing criteria.
        As recently approved by the Commission, CBOE Interpretation and 
    Policy 5.3.05 does not extend to restructuring transactions involving 
    the issuance of a Restructure Security in a public offering or a rights 
    distribution.\3\ Although these kinds of restructuring transactions 
    were included in Interpretation and Policy 5.3.05 as initially filed, 
    CBOE subsequently amended that filing to eliminate them in order to 
    permit the Commission to approve that filing without having to address 
    the special questions raised by public offerings and rights 
    distributions. At that time it was anticipated that CBOE would file a 
    separate rule change proposing the extension of Interpretation and 
    Policy 5.3.05 to restructuring transactions that involve public 
    offerings and rights distributions.\4\
    
        \3\See Securities Exchange Act Release No. 36020 (July 24, 
    1995), 60 FR 39029 (July 31, 1995) (order approving CBOE 
    Interpretation and Policy 5.3.05).
        \4\See Letter from Michael L. Meyer, Attorney, Schiff Hardin & 
    Waite, to Sharon M. Lawson, Assistant Director, Office of Market 
    Supervision (``OMS''), Division of Market Regulation (``Market 
    Regulation''), Commission, dated June 13, 1995 (``File SR-CBOE-95-11 
    Letter'').
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        The question raised by the proposed extension of Interpretation and 
    Policy 5.3.05 to reorganization transactions involving public offerings 
    or rights distributions reflect that when a Restructure Security is 
    issued in a public offering or pursuant to a rights distribution, it 
    cannot automatically be assumed that the shareholder population of the 
    Restructure Security and the Original Security will be the same. 
    Instead, the holders of a Restructure Security issued in a public 
    offering will be those persons who subscribed for and purchased the 
    security in the offering, and the holders of a Restructure Security 
    issued in a rights distribution will be those persons who elected to 
    exercise their rights. Even in the case of a distribution of 
    nontransferable rights to shareholders of the Original Security, not 
    all such shareholders may choose to exercise their rights. As a result, 
    it cannot be assumed that the Restructure Security will necessarily 
    satisfy listing criteria pertaining to minimum number of holders, 
    minimum public float and trading volume simply because the Original 
    Security satisfied these criteria.
        On the other hand, the Exchange believes that the same reasons for 
    wanting to make an options market available without delay to holders of 
    securities issued in reorganizations that do not involve public 
    offerings or rights distributions apply with equal force to securities 
    issued in reorganizations that do involve public offerings or rights 
    distributions, so long as there can be reasonable assurance that the 
    securities satisfy applicable options listing standards. That is, 
    holders of an Original Security who utilize options to manage the risks 
    of their stock positions may well find themselves to be holders of both 
    the Original Security and the Restructure Security following a 
    reorganization because they chose to purchase the Restructure Security 
    in a public offering or to exercise rights in order to maintain the 
    same investment position they had prior to the reorganization. Such 
    holders may want to continue to use options to manage the risks of 
    their combined stock position after the reorganization, but they can do 
    so only if options on the Restructure Security are available. The 
    Exchange 
    
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    believes that it is important to avoid any undue delay in the 
    introduction of options trading in such a Restructure Security in 
    circumstances where there is sound reason to believe that the 
    Restructure Security does in fact satisfy options listing standards.
        Accordingly, CBOE proposes to add new paragraph (d) to 
    Interpretation and Policy .05 under Exchange Rule 5.3, to address 
    situations where a Restructure Security is issued pursuant to a public 
    offering or rights distribution. Pursuant to the proposed rule change, 
    the Exchange may certify the Restructure Security as satisfying minimum 
    shareholder and minimum public float requirements on the basis provided 
    for in approved Interpretation and Policy .05(c), only after at least 
    five days of ``regular way'' trading. Moreover, after due diligence, 
    the Exchange must have no reason to believe that the Restructure 
    Security does not satisfy these requirements. Additionally, in order to 
    base certification on Interpretation and Policy 5.3.05, the closing 
    prices of the Restructure Security on each of the five or more trading 
    days prior to the selection date must be at least $7.50. Finally, as is 
    required for all underlying securities selected for options trading, 
    trading volume in the Restructure Security must be at least 2,400,000 
    shares during a period of twelve months or less up to the time the 
    security is so selected.
        The effect of the proposed rule change is that a Restructure 
    Security issued pursuant to a public offering or a rights distribution 
    that is part of a reorganization will be eligible for options trading 
    only if it satisfies all of the existing standards applicable to the 
    selection of underlying securities generally, except that (A) the 
    Exchange may assume the satisfaction of the minimum public ownership 
    requirement of 7,000,000 shares and the minimum 2,000 shareholders 
    requirement if (i) either the percentage of value tests of subparagraph 
    (a)(1) of Interpretation and Policy 5.3.05 are met or the aggregate 
    market value represented by the Restructure Security is at least 
    $500,000,000, and if (ii) the Restructure Security is listed on an 
    exchange or an automatic quotation system having equivalent listing 
    requirements or at least 40,000,000 shares of the Restructure Security 
    are issued and outstanding, and if (iii) after the Restructure Security 
    has traded ``regular way'' for at least five trading days and after 
    having conducted due diligence in the matter, the Exchange has no 
    reason to believe that these requirements are not met, and (B) subject 
    to the same percentage of value or aggregate market value requirements, 
    the Restructure Security may be deemed to satisfy the minimum market 
    price per share requirement if it has a closing market price per share 
    of at least $7.50 during each of the five or more trading days 
    preceding the date of selection, instead of having to satisfy this 
    requirement over a majority of days over a period of three months. (In 
    the event the Restructure Security has a closing price that is less 
    than $7.50 on any of the trading days preceding its selection, it will 
    have to satisfy this requirement on a majority of trading days over a 
    period of three months before it can be certified as eligible for 
    options trading.) For any Restructure Security issued in a public 
    offering or a rights distribution that does satisfy these requirements, 
    the effect of the proposed rule change will be to permit its 
    certification for options trading to take place as early as on the 
    sixth day after trading in the stock commences, instead of having to 
    wait for three months of trading.
        The Exchange believes that the proposed rule change is consistent 
    with Section 6(b) of the Securities Exchange Act of 1934 in general, 
    and furthers the objectives of Section 6(b)(5) in particular, by 
    removing impediments to a free and open market in options covering 
    securities issued in public offerings or pursuant to rights 
    distributions as part of restructuring transactions and other similar 
    corporate reorganizations.
    
    B. Self-Regulatory Organization's Statement on Burden on Competition
    
        CBOE does not believe that the proposed rule change will impose on 
    any 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 date of 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 such 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, 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 in the 
    Commission's Public Reference Section, 450 Fifth Street, NW., 
    Washington, DC 20549. Copies of such filing with also be available for 
    inspection and copying at the principal office of CBOE. All submissions 
    should refer to the File No. SR-CBOE-95-58 and should be submitted by 
    December 27, 1995.
    
        For the Commission, by the Division of Market Regulation, 
    pursuant to delegated authority.\5\
    
        \5\17 CFR 200.30-3(a)(12).
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    Margaret H. McFarland,
    Deputy Secretary.
    [FR Doc. 95-29688 Filed 12-6-95; 8:45 am]
    BILLING CODE 8010-01-M
    
    

Document Information

Published:
12/06/1995
Department:
Securities and Exchange Commission
Entry Type:
Notice
Document Number:
95-29688
Pages:
62522-62524 (3 pages)
Docket Numbers:
Release No. 34-36528, File No. SR-CBOE-95-58
PDF File:
95-29688.pdf