[Federal Register Volume 61, Number 49 (Tuesday, March 12, 1996)]
[Notices]
[Pages 10043-10045]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-5785]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36920; International Series Release No. 945; File No.
SR-CBOE-96-09]
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 Listing and Trading of Options
on the Mexican Indice de Precios y Cotizaciones
March 5, 1996.
Pursuant to Section 19(b)(1) of the Securities and Exchange Act of
1934 (``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on
February 27, 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. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CBOE proposes to provide for the listing and trading on the
Exchange of options on the Indice de Precios y Cotizaciones (``IPC'' or
``Index''), a cash-settled, broad-based index designed to represent the
overall Mexican equity market. The IPC was created, and is maintained,
by the Mexican Stock Exchange (``Bolsa'') and is widely recognized as
the benchmark index for Mexico.
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
The purpose of the proposed rule change is to permit the Exchange
to list and trade cash-settled, European-style stock index options on
the IPC, a broad-based, capitalization-weighted index comprised of 35
of the largest and most active stocks listed on the Bolsa. The Exchange
believes that options on the Index will provide investors with a low-
cost means of participating in the performance of the Mexican economy
and hedging against the risk of investing in that economy.
Index Design
The Index was designed by and is maintained by the Bolsa. These
stocks were selected for inclusion in the IPC based upon a combination
of criteria relating to their trading volume and market capitalization.
The Bolsa reviews a component's compliance with these criteria every
two months. There are three criteria which could keep a potential
replacement component stock from being added to the Index. First,
suspended issues or those which have a material possibility of being
suspended will not be included in the Index. Second, in the case of
companies with multiple classes of stock, no additional class of the
same company will be included in the Index if the total of the various
classes is greater than 15% of the weight of the Index. For example,
Telefonos de Mexico Class L (``TELMEX L'') represents approximately 21%
of the Index, therefore TELMEX Class A shares are not eligible for
inclusion in the Index. Third, if a company is a subsidiary of another
company that is in the Index and it represents more than 75% of the
assets of the holding company it will not be included.
The IPC is composed of stocks from eighteen (18) industry groups
including: Telecommunications, Diversified Holding Companies, Banks,
Broadcasting, Building Materials, Mining, and Financial Services. The
median capitalization of the firms in the Index on February 2, 1996,
was 6.581 billion Pesos ($889.38 million at the exchange rate of 7.4
pesos per dollar prevailing on February 2, 1996). The average market
capitalization of these firms was $1.553 billion on the same date and
using the same rate of exchange. The individual market capitalization
of these firms ranged from $11.956 billion to $36.29 million on
February 2, 1996. The largest stock accounted for 21.99% of the Index,
while the smallest accounted for 0.07%. The top five stocks in the
Index by weight accounted for 49.71% of the Index.
Calculation
The Index is capitalization weighted and its value is determined by
multiplying the price of each stock times the number of shares
outstanding, adding those sums and then dividing by a divisor which
gave the Index a value of 0.78 on its base date of October 30, 1978.
The Index had a closing value of 2862.59 on February 28, 1996. This
divisor is adjusted for pertinent changes as described below in the
section titled ``Maintenance.''
Maintenance
The Index will be maintained by the Bolsa. To maintain continuity
of the Index, the divisor of the Index will be adjusted to reflect
certain events relating to the component stocks. These events include,
but are not limited to, ordinary cash dividends, changes in the number
of shares outstanding, spin-offs, certain rights issuances, and mergers
and acquisitions. When components are substituted, the Bolsa makes
every effort to notify the public in advance of the upcoming changes.
If it becomes necessary to replace a component between reviews, the
Bolsa maintains a
[[Page 10044]]
list of stocks for substitution. The Bolsa will publicly communicate
these changes (e.g., news release) with as much notice as possible. The
main selection criteria utilized by the Bolsa are trading volume and
market capitalization. Although the IPC is presently comprised of 35
stocks, there have been as many as 50 components and the Bolsa is not
precluded from increasing (or decreasing) this number.
Index Option Trading
The Exchange proposes to base trading in options on the Index on
one-tenth of the value of the Index as expressed in U.S. dollars; these
are known as full-value options. The Exchange also may provide for the
listing of full-value long-term index option series
(``LEAPS'') and reduced-value LEAPS on the Index. For
reduced-value LEAPS, the underlying value would be computed at one-
tenth of the value of the full-value options. The current and closing
index value of any such reduced-value LEAP will, after such initial
computation, be rounded to the nearest one-hundredth. The Exchange will
list expiration months for IPC Index options and Index LEAPS in
accordance with CBOE Rule 24.9.
The trading hours on the Mexican Stock Exchange are the same as
those on the New York Stock Exchange--8:30 a.m. to 3:00 p.m. Chicago
time. The trading hours for options on the Index will be from 8:30 a.m.
to 3:15 p.m. Chicago time.\1\ The Bolsa calculates the value of the IPC
based upon the prices of the component securities as traded or quoted
on the Bolsa and disseminates this value to vendors of financial
information. CBOE or its designee will disseminate the reduced IPC
value (i.e., 1/10th of IPC value) through the Options Price Reporting
Authority (``OPRA'') every 15 seconds throughout the trading day.
\1\ IPC Index options will continue to trade for 15 minutes
after the Bolsa closes. This is consistent with trading times for
other index options and also gives market participants the
opportunity to adjust their positions after the Bolsa closes.
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Exercise and Settlement
The proposed options on the index will be p.m.-settled and expire
on the Saturday following the third Friday of the expiration month.
Thus, trading in the expiring contract month will normally cease on
Friday at 3:15 p.m. (Chicago time) unless a holiday occurs. The
exercise settlement value of Index options at expiration will be based
upon the closing prices of component stocks on the regular Friday
trading sessions in Mexico, ordinarily at 3:00 p.m. Mexico time. If a
stock does not trade during this period or if it fails to open for
trading, the last available price of the stock will be used in the
calculation of the Index. When expirations are moved in accordance with
Exchange holidays, such as when the CBOE is closed on the Friday before
expiration, the last trading day for expiring options will be Thursday
and the exercise settlement value of Index options will be Thursday and
the exercise settlement value of Index options at expiration will be
determined at the close of the regular Thursday trading sessions in
Mexico even if the Mexican markets are open on Friday. If the Mexican
markets will be closed on the Friday before expiration but the CBOE
will not, the last trading day for expiring options will be Thursday.
Surveillance Agreements
The Exchange expects to apply its existing index option
surveillance procedures to Index options. In addition, the Exchange is
aware of a Memorandum of Understanding (``MOU'') between the Commission
and the Comision Nacional Bancaria y de Valores. This MOU will enable
the Commission to obtain information concerning the trading of the
component stocks of the IPC. The Exchange also will make every effort
to enter into an effective surveillance agreement with the Bolsa.
Position Limits
The Exchange is proposing to establish position limits for the
Index options equal to 50,000 contracts on the same side of the market,
with no more than 30,000 contracts in the series with the nearest
expiration date. These limits are roughly equivalent, in dollar terms,
to the limits applicable to options on other indices. Ten reduced-value
options will equal one full-value contract for such purposes.
Furthermore, the hedge exemption rule applicable to broad-based index
options, commentary .01 to CBOE Rule 24.4, will apply to Mexico 30
Index options.\2\
\2\ Telephone conversation between Eileen Smith, CBOE, and
Steven Youhn, SEC, on February 28, 1996.
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Exchange Rules Applicable
Except as modified herein, the Rules in Chapter XXIV will be
applicable to IPC options. CBOE has the necessary systems capacity to
support new series that would result from the introduction of IPC
options. CBOE has also been informed that the Options Price Reporting
Authority (``OPRA'') has the capacity to support such new series.\3\
\3\ See Letter from Joe Corrigan, OPRA, to Eileen Smith, CBOE,
dated February 21, 1996.
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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 options based
on the IPC pursuant to rules designed to 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 options based on an additional index.
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, 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 at the
Commission's Public Reference Section, 450 Fifth Street, NW.,
[[Page 10045]]
Washington, DC 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-96-09 and should be
submitted by April 2, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
\4\ 17 CFR 200.30-3(a)(12) (1994).
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[FR Doc. 96-5785 Filed 3-11-96; 8:45 am]
BILLING CODE 8010-01-M
