[Federal Register Volume 60, Number 234 (Wednesday, December 6, 1995)]
[Notices]
[Pages 62511-62513]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29690]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36525; File No. SR-CBOE-95-67]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 to Proposed Rule Change by the Chicago Board
Options Exchange, Inc. Relating to the Establishment of Uniform Listing
and Trading Guidelines for Narrow-based Stock Index Warrants
November 29, 1995.
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
November 9, 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. On November 20, 1995, the CBOE submitted Amendment No. 1
(``Amendment No. 1'') to the filing to clarify issues relating to
settlement values for both narrow-based and broad-based index warrants
and also the reporting of hedge unwinding transactions.\1\ The
Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons.
\1\See Letter from Timothy Thompson, CBOE, to Steve Youhn, SEC,
dated November 15, 1995. Specifically, as discussed below, Amendment
No. 1 clarifies that narrow-based index warrants will be governed by
the same settlement procedures applicable to broad-based index
warrants. Furthermore, it clarifies that certain hedge unwinding
transactions in narrow-based index warrants which are undertaken as
a result of early exercises will be reported to the Exchange in the
same manner as with broad-based index warrants.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CBOE proposes to amend Exchange rules 30.35, 30.53, and 31.5 to
establish uniform listing and trading guidelines applicable to narrow-
based stock index warrants.
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
1. Purpose
On August 29, 1995, the Commission approved SR-CBOE-94-34 which
established uniform listing and trading guidelines for broad-based
stock index, currency, and currency index warrants.\2\ this filing
proposes rules governing the listing and trading of narrow-based
indexes, i.e., indexes that do not meet the Commission's criteria for
broad-based treatment. This filing would modify the recently approved
regulatory framework for the trading of broad-based stock index
warrants, by adopting certain rules for the trading of warrants on
narrow-based indexes that are now applicable to the trading of narrow-
based index options.
\2\See Securities Exchange Act Release No. 36169.
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The Exchange first traded narrow-based index options in September
1983. Exchange rules governing the trading of warrants, including stock
index warrants, were approved in October 1990\3\ and similar rules were
approved for another exchange as early as 1988.\4\ Because of the years
of experience the Exchange has with trading index options and the
Commission has with regulating index option and warrant trading, the
Exchange believes that the trading of warrants based on narrow-based
indexes presents no new or novel regulatory issues and should be
permitted subject to the same restrictions that apply to the trading of
narrow-based stock index options.
\3\See Securities Exchange Act Release No. 28556 (Oct. 26,
1990).
\4\See Securities Exchange Act Release No. 26152 (Oct. 3, 1988).
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Specifically, the Exchange proposes that the margin requirements
applicable to the short sales of narrow-based index options would apply
to the short sale of narrow-based index warrants, and the reduced
position limits applicable to narrow-based index options would apply to
narrow-based index warrants. The Exchange proposes that the narrow-
based index warrant position limit be set at 75% of the levels recently
approved by the Commission for narrow-based index options.\5\ In all
other respects, the rules applicable to broad-based and narrow-based
options are the same. Consequently, all other rules applicable to
broad-based index warrants would apply to warrants on narrow-based
indexes. In addition, the Exchange would conduct the surveillance of
trading in narrow-based index warrants in a similar manner to its
surveillance of trading in broad-based index warrants.
\5\See Securities Exchange Act Release No. 36439 (Oct. 31,
1995). Accordingly, the Exchange proposes that position limits for
narrow-based index warrants be set at 4,500,000, 6,750,000, and
9,000,000, which are equivalent to 75% of the 6,000, 9,000, and
12,000 position limit levels currently applicable to narrow-based
index option trading.
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The Exchange proposes that, upon Commission approval of this
filing, the Exchange be permitted, without further Commission review,
to list a warrant on any narrow-based index that the Commission has
previously approved for options or warrant trading. In order to
expedite the review of a particular warrant issue, the Exchange
proposes employing procedures similar to those set forth in Rule
24.2(b) to file for approval of the index underlying a proposed
issuance of warrants.\6\ However, the Exchange will not list a warrant
on an index consisting of fewer than nine stocks, nor will it allow any
of the indexes upon which warrants are traded to consist of fewer than
nine stocks, unless the Commission separately approves such index for
warrant trading.
\6\These criteria establish streamlined procedures for listing
options on stock industry groups (i.e., narrow-based). Accordingly,
the Exchange proposes that the same criteria apply to subsequent
proposals to establish narrow-based indexes which underlie proposed
warrant issuances.
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The Exchange also proposes to amend Rule 31.5(E)(5) in order to
clarify that the settlement mechanism for narrow-based index warrants
will be the same as that for broad-based index warrants.\7\
Accordingly, an issuer may elect to use closing prices for the
securities underlying a stock index to determine settlement values at
all times other than the day on which the final settlement value is to
be determined (``valuation date''), as well as during the two business
days preceding valuation date.\8\
\7\See Amendment No. 1.
\8\See Amendment No. 1. The Commission notes that although the
recently approved regulatory framework for broad-based index
warrants establishes uniform settlement valuation provisions adopted
by several exchanges, including CBOE, the CBOE in this filing
proposes to amend Rule 31.5(E)(5) to clarify such provisions.
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2. Statutory Basis
CBOE 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 will permit trading in warrants based
on the Mexico 30 Index pursuant to rules designed to
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prevent fraudulent and manipulative acts and practices and to promote
just and equitable principles of trade, and thereby will provide
investors with the ability to invest in warrants based on additional
indexes.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes the proposed rule change will impose no
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, 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. 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-95-67 and should be
submitted by December 27, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
\9\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-29690 Filed 12-5-95; 8:45 am]
BILLING CODE 8010-01-M
