[Federal Register Volume 63, Number 56 (Tuesday, March 24, 1998)]
[Notices]
[Pages 14146-14151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-7514]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39766; International Series Release No. 1123; File No.
SR-CBOE-97-64]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change and Notice of Filing and Order Granting Accelerated Approval of
Amendment Nos. 1 and 2 by the Chicago Board Options Exchange,
Incorporated, Relating to the Listing and Trading of Warrants on the
Asia Tiger 100 Index
March 17, 1998.
I. Introduction
On December 5, 1997, the Chicago Board Options Exchange,
Incorporated (``CBOE'' or ``Exchange'') filed with the Securities and
Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4
thereunder,\2\ the proposed rule change to list and trade warrants on
the Asia Tiger 100 Index (``Asia 100'' or ``Index''). Notice of the
filing appeared in the Federal Register on February 4, 1998.\3\ No
comments were received concerning the proposed rule change. On February
24, 1998 and March 13, 1998 the Exchange filed Amendment Nos. 1 and 2,
respectively, to the proposed rule change.\4\ This order
[[Page 14147]]
approves the CBOE's proposal, as amended.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 37584 (January 27, 1998)
63 FR 5825.
\4\ See letters from Timothy Thompson, Senior Attorney, CBOE to
Michael Walinskas, Senior Special Counsel, Division of Market
Regulation, SEC dated February 24, 1998 (```Amendment No. 1'') and
March 13, 1998 (``Amendment No. 2''). Amendment No. 1 sets forth
maintenance standards for the Index and provides information
regarding the calculation and dissemination of the Index value.
Amendment No. 2 provides technical clarifications to the Index
maintenance standards and rebalancing procedures.
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II. Description of the Proposal
The purpose of the proposed rule change is to permit the Exchange
to list and trade warrants based on the Index.
A. Design of the Index
The Exchange represents that the Index is comprised of the 100
highest capitalized stocks from eight major Asian markets.\5\ The
stocks were selected for their market capitalization and liquidity. The
CBOE believes that they are representatives of the composition of the
broader equity markets in each of the eight countries. The component
securities represent several industry groups including: Airlines;
financial institutions; high technology; real estate;
telecommunications; and utilities.
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\5\ The eight Asian markets included in the index are: Hong
Kong; Indonesia; Malaysia; the Philippines; Singapore; South Korea;
Taiwan; and Thailand.
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The total capitalization of the component securities in the Index
on February 11, 1998 was approximately $549 billion.\6\ The average
capitalization on that date was approximately $5.49 billion. The
individual market capitalization of these component securities ranged
from approximately $682 million to $46 billion on February 11, 1998.
The component securities had average U.S. dollar volume per day for
1997 that ranged from $146 million to $38 billion. As of February 11,
1998, the highest weighted component security (HSBC Holdings, PLC of
Hong Kong) comprised approximately 6.00% of the Index weight while the
lowest weighted component security (Hang Lung Development, Co. of Hong
Kong) comprised approximately 0.15% of the Index weight. The five
highest weighted securities comprised approximately 21.54% of the Index
weight.\7\
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\6\ All values are express in U.S. dollars at the prevailing
rates on February 11, 1998.
\7\ The text of the proposed rule change and Amendment No. 1
contains a list of the component securities including the countries
they represent, the individual component security weights, the
country Index weights, average daily trading value for each security
and country and market capitalization for each security and country.
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The CBOE represents that the Asia 100 is a modified capitalization-
weighted index. The Index will be adjusted annually to ensure that each
represented country's stocks are capitalization-weighted and reflected
in a manner that ensures the weighting of each stock is based on its
market value in relation to the market value of the other stocks from
that country. Separately, each country is weighted based on the
relative size of its stock market in relation to that of other Asia 100
countries. The CBOE believes this design gives the Index significant
coverage of the countries' largest and most liquid stocks and a proxy
for the stock portfolios held by foreign investors in these countries.
The CBOE also believes that warrants on the Index will provide
investors with a low-cost means of participating in the performance of
the Asian economy and hedging against the risk of investing in those
economies.
Country weights will be based upon the relative size of each
country's stock market at the time the Index is established. Country
weights will be rounded to the nearest 2% based on the International
Federation of Stock Exchange month-end market values used in the
country rebalancing. For example, a country with an Asia 100 market
share of 28.68% will have a country weight of 28%. Once a country's
weight is determined, the individual stocks within a country will be
selected based on the Stock Selection Criteria, as defined below.
When required to make the country weights sum up to 100% due to
rounding, the country whose weight would normally be rounded up (down)
will be rounded down (up) if the weight is the closest to the midpoint
between two weights. Country weights are capped at 40% for the largest
country and at 15% for a country with which there is not a
comprehensive surveillance sharing agreement (``CSSA''), as defined
below.
B. Initial Listing and Maintenance Criteria and Rebalancing
To be included and maintained in the Index, a stock must meet the
following minimum Stock Selection Criteria: (1) The minimum market
value of the company during the past year must have been greater than
$200 million; (2) the minimum dollar trading value of turnover of the
stock must have been $100 million in the past year;\8\ (3) the minimum
monthly trading value of the stock in any month during the past year
must have been greater than $5 million,\9\ (4) the stock must have
traded on at least 95% of the country's trading days; and (5) at least
20% of a company's common stock (measured by outstanding shares) must
be available to foreign investors. In addition to the five maintenance
criteria discussed above, the CBOE will notify the Commission prior to:
adding a country to, or deleting a country from, the Index; or reducing
the number of component securities below 95 securities.\10\
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\8\ To calculate this figure, the CBOE staff takes the following
steps: first, an average daily volume (``ADV'') is obtained for each
component security for the previous year from Bloomberg; second,
each component security's ADV is multiplied by the number of trading
days in the year for the relevant country; and third, the turnover
value is converted to U.S. dollars using Bloomberg's calculation of
the average exchange rate in the previous year for the relevant
country. See Amendment No. 1, supra note 4.
\9\ To calculate this figure, the CBOE staff multiplies the
average daily price by the total monthly trading volume. See letter
from Amendment No. 2, supra note 4.
\10\ The Commission notes that if the Index fails to meet the
established maintenance or notification criteria, CBOE may be
required to: re-classify the Index as narrow-based; remove certain
securities from the Index; or discontinue listing new series of
Index warrants. In addition, if the composition of the Index was to
substantially change, the Commission's decision regarding the
appropriateness of the Index's current maintenance standards would
be reevaluated and additional approval under Section 19(b) of the
Act may be necessary to continue to list Index products. In
addition, the Commission notes that the CBOE has inquired whether it
would be required to submit to a Section 19(b) filing in order to
list equity linked notes overlying the Index. The staff does not
believe that a new filing is warranted provided that the
requirements of CBOE Rule 31.5(F) are met.
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The country weights will be rebalanced annually (most likely in
March) to address, among other things, a country's stock market
expansion or contraction in relation to the markets of the other
countries represented in the Index. There will be a 4% limit on the
change that will be made to a country's weight at the rebalancing so
that a single year aberration for a particular market does not
improperly affect the Index. The weights of other countries will be
adjusted accordingly. A country's whose weight falls below 1% may be
retained in the Index based on the Exchange's determination of foreign
investment in the country and other factors. CBOE staff may determine
to retain a country's weight in the Asia 100 Index at no more than the
maximum 2% level after its weight has fallen below 1% of the market
value of the countries represented in the Index. Weights of the other
countries will be adjusted accordingly.
In addition, stock weights within a country will be rebalanced
semi-annually (most likely in March and September) according to the
five criteria listed above and based on the capitalization of stocks
and the country weights determined at the annual country weighting
rebalancing as of the last business day of the previous. year.\11\ Each
stock's price on the day of the rebalancing will be multiplied by the
[[Page 14148]]
number of shares (rounded to the fourth decimal place) so that the
stock weight in the Index represents its share of the market value of
the stocks selected within the country. Stock weights will be capped
such that the weight of the largest stock in a country may not be
greater than 50% of that country's weight at rebalancing. Weights of
the other stocks of the country will be adjusted accordingly. For
example, if a stock represents 60% of the market value within a
country, its weight within the country will be adjusted down to 50%.
The weights of the remaining component securities from that country
will be increased proportionally, in the aggregate 10%, by their pre-
adjustment weights. Further, if the stock represents 30% of the market
value in a country with an Asia 100 country weight of 28%, the stock's
weight in the entire Asia 100 Index will be 8.4%, i.e., 30% share
within the country x 28% country weight = 8.4%. The weight of each
selected stock will remain constant until the next stock rebalancing,
except for adjustments due to circumstances described below.
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\11\ See Amendment No. 1, supra note 4.
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Stocks in the Asia 100 Index may need to be replaced between
rebalancings due to corporate, governmental or regulatory actions or
when the stock no longer meets the Stock Selection Criteria. Eligible
stocks will be ranked in a replacement list by market capitalization on
the date of the rebalancing. In these cases, Exchange staff will
replace the stock with a stock from the replacement list. If the
highest capitalized replacement stock has low trading volume or would
cause an uncovered country to exceed 15% of the Index, the Exchange
staff would choose the next succeeding replacement stock. Also, the
Exchange staff will, where the circumstances permit, endeavor to
provide at least three business days notice prior to making such
changes. 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, spin-offs,
certain rights issuances, mergers and acquisitions.
C. Trading of the Index Warrants (Exercise and Settlement)
The proposed warrants will be direct obligations of their issuer
subject to cash-settlement in U.S. dollars, and either exercisable
throughout their life (i.e., American style) or exercisable only on
their expiration date (i.e., European style). Upon exercise, or at the
warrant expiration date (if not exercisable prior to such date), the
holder of a warrant structured as a ``put'' would receive payment in
U.S. dollars to the extent that the Index value has declined below a
pre-stated cash settlement value. Conversely, holders of a warrant
structured as a ``call'' would, upon exercise or at expiration, receive
payment in U.S. dollars to the extent that the Index value has
increased above the pre-stated cash settlement value. If ``out-of-the-
money'' at the time of expiration, the warrants would expire worthless.
The procedures for determining the cash settlement value for the
warrants have not yet been determined by the CBOE. Once those
procedures have been determined by the CBOE, they will be fully set
forth in the prospectus and in the Information Circular distributed by
the Exchange to its membership prior to the commencement of trading the
warrant.\12\
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\12\ Phone conversation between Timothy Thompson, Senior
Attorney, CBOE and Marianne H. Duffy, Special Counsel, Division of
Market Regulation, Commission on January 22, 1998.
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D. Calculation and Dissemination of the Value of the Index
The CBOE asserts that the methodology used to calculate the value
of the Index is similar to the methodology used to calculate the value
of other stock indices. The Index base value was established at 200 on
November 17, 1997. The level of the Index reflects the total market
value of all 100 component stocks relative to a particular base period.
The daily calculation of the Asia 100 Index is computed by dividing the
total market value of the 100 companies in the Index by the Index
divisor. The divisor keeps the Index comparable over time and is
adjusted periodically to maintain the Index. Similar to other stock
index values based on Asian markets, the value of the Index will be
calculated by CBOE and disseminated once per day prior to the opening
in the U.S. via the Options Price Reporting Authority or the
Consolidated Tape Association.\13\
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\13\ None of the Asian markets represented in the Index are open
for trading during U.S. market trading hours.
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In the event that a security does not trade on a given day, the
previous day's last sale price is used for purposes of calculating the
Index. Prices used to value the stocks will be based upon the closing
prices for the stocks at the primary exchanges for the respective
stocks. Primary and backup pricing sources, including Bloomberg, will
be used to obtain the closing prices for the stocks.\14\ Stocks in the
Asia 100 Index will be valued in U.S. dollars using each country's
cross-rate to the U.S. dollar. Bloomberg's Composite New York rates, or
comparable rates, quoted at 7:00 a.m. Chicago time will be used to
convert the stock prices from the respective countries to U.S. dollars.
If there are several quotes at 7:00 a.m. for the currency, the first
quoted rate in that minute will be used to calculate the Asia 100
Index. In the event that there is no Bloomberg exchange rate for a
country's currency at 7:00 a.m., stocks will be valued at the first
U.S. dollar cross-rate quoted prior to 7:00 a.m.
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\14\ CBOE represents that the data provided by Bloomberg comes
directly from the stock exchanges of the various countries. See
Amendment No. 1, supra note 4.
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E. Warrant Listing Standards and Customer Safeguards
The CBOE proposes to list the warrants on the Asia 100 pursuant to
its stock index warrant listing standards in CBOE Rule 31.5(E).\15\ The
CBOE proposes that the Index be deemed broad-based for purposes of
determining applicable position limits and margin treatment. As
discussed further below in the Surveillance section, the Asia 100
warrants will comply with all aspects of CBOE Rule 31.5(E) except
paragraph (7) which states that foreign country securities or ADRs that
are not subject to a CSSA and have less than 50% of their global
trading volume in dollar value in the United States, cannot, in the
aggregate, represent more than 20% of the weight of an index.
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\15\ See Amendment No. 2, supra note 4.
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Sales practice rules applicable to the trading of Index warrants
are provided for in Exchange Rule 30.50 and to the extent provided by
Rule 30.52 they are also contained in Chapter IX of the Exchange's
Rules. Rule 30.50 governs, among other things, communications with the
public. Rule 30.52 subjects the transaction of customer business in
stock index warrants to many of the requirements of Chapter IX of the
Exchange's rules dealing with public customer business, including
suitability. For example, no member organization may accept an order
from a customer to purchase a stock index warrant unless that
customer's account has been approved for options transactions. The
listing and trading of warrants on the Asia 100 Index will be subject
to these guidelines and rules.
The margin requirement for a short Index warrant will be 100% of
the premium plus 15% of the underlying value, less out-of-the-money
dollar amount, if any, to a minimum of 10% of the Index value. A long
Index warrant position must be paid for in full. Straddles will be
permitted for call and put Index warrants covering the same underlying
value. The margin
[[Page 14149]]
requirements are provided for under Exchange Rules 30.53 and 12.3.
The applicable position and exercise limits will be determined
pursuant to Exchange Rule 30.35(a). Pursuant to Exchange Rules 4.13(a)
and 30.35(e) each member will be required to file a report with the
Department of Market Regulation of the Exchange identifying those
customer accounts with an aggregate position in excess of 100,000 Index
warrants.
F. Surveillance
The CBOE entered into a CSSA with the Stock Exchange of Hong Kong
(``HKSE'') on October 1, 1992, pursuant to which the CBOE will be able
to obtain market surveillance information from the HKSE. The CBOE also
entered into a CSSA with the Taiwan Stock Exchange (``TSE'') in October
1997. Moreover, the CBOE entered into an information sharing agreement
with the Kuala Lumpur (Malaysia) Stock Exchange which is currently
being reviewed by the Commission to determine its effectiveness. In
addition, the CBOE notes that no single uncovered country in the Index
may represent more than 15% of the Index weight.
As of February 1, 1998, stocks from Hong Kong (32% Index weight)
and Taiwan (22% Index weight) represent 54% of the Index weight.
Therefore, a majority of the weight of the Index is currently composed
of stocks traded on marketplaces with which the CBOE has a CSSA. No
single uncovered country represents more than 14% (Malaysia) of the
Index weight and no two uncovered countries represent more than 26%
(Malaysia and Singapore) of the Index weight. As previously stated, the
Asia 100 does not comply fully with CBOE Rule 31.5(E)(7), which states
that foreign country securities or ADRs that are not subject to a CSSA
and have less than 50% of their global trading volume in dollar value
in the United States, cannot, in the aggregate, represent more than 20%
of the weight of an index. The CBOE believes, however, that its
existing CSSAs, along with the fact that the Index contains 100
component securities from eight countries, effectively eliminates the
possibility of manipulation.
III. Commission Findings and Conclusions
The Commission finds that the proposed rule change by the Exchange
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) of the Act.\16\
Specifically, the Commission finds that the listing and trading of
warrants based on the Index will serve to promote the public interest
and help to remove impediments to a free and open securities market by
providing investors with a means to hedge exposure to market risk
associated with the Asian equity markets \17\ and promote efficiency,
competition, and capital formation.\18\
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\16\ 15 U.S.C. 78f(b)(5).
\17\ Pursuant to Section 6(b)(5) of the Act, the Commission must
predicate approval of any new securities product upon a finding that
the introduction of such product is in the public interest. Such a
finding would be difficult with respect to a warrant that served no
hedging or other economic function, because any benefits that might
be derived by market participants likely would be outweighed by the
potential for manipulation, diminished public confidence in the
integrity of the markets, and other valid regulatory concerns.
\18\ 15 U.S.C. 78c(f).
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Nevertheless, the trading of warrants on the Index raises several
concerns related to the design and maintenance of the Index, customer
protection, surveillance and market impact. The Commission believes,
however, for the reasons discussed below, that the CBOE has adequately
addressed these concerns.
A. Design and Maintenance of the Index
The Commission finds that it is appropriate and consistent with the
Act for the CBOE to apply its broad-based index warrant listing
standards and trading rules to the Index. First, the Index is composed
of 100 companies from several industry groups including: Airlines;
financial institutions; high technology; real estate;
telecommunications; and utilities. Second, no particular stock or group
of stocks dominates the Index. Specifically, as of February 11, 1998,
the highest weighted component security (HSBC Holdings, PLC of Hong
Kong) comprised approximately 6.00% of the Index weight while the
lowest weighted component security (Hang Lung Development, Co. of Hong
Kong) comprised approximately 0.15% of the Index weight. The five
highest weighted securities comprised approximately 21.54% of the Index
weight. Accordingly, the Commission believes that it is appropriate for
the CBOE to apply its broad-based index warrant listing standards and
trading rules, including those for position limits and margin
requirements, to the Index.
The Commission notes that with respect to the maintenance of the
Index, the CBOE has implemented several safeguards in connection with
the listing and trading of Index warrants that will serve to ensure
that the Index component securities are relatively highly capitalized,
diversified and actively traded. In this regard, CBOE will maintain the
Index so that: (1) The minimum market value of the company during the
past year must have been greater than $200 million; (2) the minimum
dollar trading value of turnover of the stock must have been $100
million in the past year; \19\ (3) the minimum monthly trading volume
of the stock in any month during the past year must have been greater
than $5 million; (4) the stock must have traded on at least 95% of the
country's trading days; and (5) at least 20% of a company's stock must
be available to foreign investors. In addition to the five maintenance
criteria discussed above, the CBOE will notify the Commission prior to:
adding a country to, or deleting a country from, the Index; or reducing
the number of component securities below 95 securities.\20\
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\19\ See note 8, supra.
\20\ See note 10, supra.
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B. Customer Protection
The Commission notes that the rules and procedures of the Exchange
adequately address the special concerns attendant to the trading of
Index warrants. Specifically, the applicable suitability, account
approval, disclosure and compliance requirements of the CBOE warrant
listing standards satisfactorily address potential public concerns.
Moreover, the CBOE plans to distribute a circular to its membership
calling attention to specific risks associated with warrants on the
Index. Pursuant to the Exchange's listing guidelines, only companies
capable of meeting the CBOE's index warrant issuer standards will be
eligible to issue Index warrants.
C. Surveillance
In evaluating new derivative instruments, the Commission,
consistent with the protection of investors, considers the degree to
which the derivative instrument is susceptible to manipulation. The
ability to obtain information necessary to detect and deter market
manipulation and other trading abuses is a critical factor in the
Commission's evaluation. It is for this reason that the Commission
requires that there be a CSSA in place between an exchange listing or
trading a derivative product and the exchanges trading the stocks
underlying the derivative contract that specifically enables officials
to survey trading in the derivative product and its underlying
[[Page 14150]]
stocks.\21\ Such agreements provide a necessary deterrent to
manipulation because they facilitate the availability of information
needed to fully investigate a potential manipulation if it were to
occur. For foreign stock index derivative products, these agreements
are especially important to facilitate the collection of necessary
regulatory, surveillance and other information from foreign
jurisdictions.
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\21\ The Commission believes that the ability to obtain relevant
surveillance information, including, among other things, the
identity of the ultimate purchasers and sellers of securities, is an
essential and necessary component of a CSSA. A CSSA should provide
the parties thereto with the ability to obtain information necessary
to detect and deter market manipulation and other trading abuses.
Consequently, the Commission generally requires that a CSSA require
that the parties to the agreement provide each other, upon request,
information about market trading activity, clearing activity and
customer identity. See Securities Exchange Act Release No. 31529
(November 27, 1992).
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In order to address the above concerns, the Commission notes that
the CBOE has entered into a CSSA with the HKSE on October 1, 1992,
pursuant to which the CBOE will be able to obtain market surveillance
information from the HKSE. The CBOE also entered into a CSSA with the
TSE in October 1997. In addition, the CBOE entered into an information
sharing agreement with the Kuala Lumpur (Malaysia) Stock Exchange on
January 6, 1995 which is currently being reviewed by the Commission to
determine its effectiveness.
Based upon calculations made on February 11, 1998, stocks from Hong
Kong (32% Index weight) and Taiwan (22% Index weight) represent 54% of
the Index weight. Therefore, a majority of the weight of the Index is
currently composed of stocks traded on marketplaces with which the CBOE
has a CSSA. No single uncovered country represents more than 14%
(Malaysia) of the Index weight and no two uncovered countries represent
more than 26% (Malaysia and Singapore) of the Index weight. The Asia
100 does not comply fully with CBOE Rule 31.5(E)(7), which states that
foreign country securities or ADRs that are not subject to a CSSA and
have less than 50% of their global trading volume in dollar value in
the United States, cannot, in the aggregate, represent more than 20% of
the weight of the an index.\22\
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\22\ As previously stated, as of February 11, 1998, stocks from
countries with CSSAs represent 54% of the Index weight.
Additionally, the CBOE has entered into an agreement with the Kuala
Lumpur (Malaysia) Stock Exchange representing 14% of the Index
weight which is currently being reviewed by the Commission to
determine its effectiveness.
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The Commission has considered the adequacy of survelliance sharing
arrangements in the context of numerous types of derivative products,
including derivative products based on stock indices composed of
component securities from several countries. In such cases, the
Commission traditionally has considered multiple factors in evaluating
whether the subject instruments are readily susceptible to
manipulation. In many cases, without CSSA's, the Commission would be
unable to approve the proposed product. The Commission, however,
recognizes that the construction of an index can mitigate against the
need to require that CSSA's be concluded with all the markets whose
securities underlie an index. Specifically, an index composed of a
large number of relatively highly capitalized and liquid securities,
traded across multiple markets, should be difficult to manipulate
because there will be greater execution costs and timing difficulties
associated with coordinating trades on multiple markets. Indeed, the
Commission has approved or commented favorably upon deriative products
based on the Eurotrack 200, the Eurotop 100, the International Market
Index (``IMI''), and the Europe, Australia and Far East (``EAFE'')
Index, even though all of the stocks comprising these indices were not
covered by a CSSA. \23\ In these cases, stocks from countries with a
major index weighting were covered by CSSAs and no single uncovered
country's securities accounted for more than a small percentage of the
indices' weight.
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\23\ See Securities Exchange Act Release No. 30462 (March 11,
1992) 57 FR 9290 (order approving the listing and trading of
warrants on the Eurotrack 200 on the CBOE and the New York Stock
Exchange, Inc. and the listing and trading of options on the
Eurotrack 200 on the CBOE); Securities and Exchange Act Release No.
30463 (March 11, 1992) 57 FR 9284 (order approving the listing and
trading of warrants and options on the Eurotop 100 on the American
Stock Exchange, Inc. (``Amex'')); Securities Exchange Act Release
No. 26653 (March 21, 1989), 54 FR 12705) (order approving the
listing and trading of options on the IMI on the Amex); and letter
from Jonathan G. Katz, Secretary, SEC to Dr. Paula Tosini, Director,
Division of Economic Analysis, Commodity Futures Trading Commission,
dated October 11, 1988 (letter not objecting to the designation of
the Chicago Merchantile Exchange as a contract market to trade EAFE
index futures).
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The Commission believes that this is also the case with the Asia
100 even though the Asia 100 does not comply fully with CBOE Rule
31.5(e)(7). The Commission believes that the CBOE has established
sufficient CSSAs, representing a majority of the Index weight, to
assist in the policing of the Index warrants. In addition, the
Commission believes that the unique design of the Index, including the
required maintenance and notification criteria, justifies approval of
the Index for warrant trading. Specifically, the large number of
component securities and countries, relatively highly capitalized and
actively traded component securities and the requirement that no single
uncovered country represent more than 15% of the Index weight
sufficiently reduces the likelihood that the Index could be
manipulated. Nonetheless, the Commission encourages the CBOE to
continue its efforts in securing CSSAs with additional countries in the
Index.
D. Market Impact
The Commission believes that the listing and trading of Index
warrants on the CBOE should not adversely impact the securities markets
in the U.S. or Asia. First, the existing index warrant listing
standards and customer safeguard rules of the CBOE will apply to
warrants based on the Index. Second, the Commission notes that the
Index is diversified and includes relatively highly capitalized
securities that are actively traded in their home markets. Accordingly,
the Commission does not believe that the introduction of Index warrants
on the CBOE will have a significant effect on the underlying Asian
securities markets.
The Commission finds good cause to approve Amendment Nos. 1 and 2
prior to the thirtieth day after the date of publication of notice of
filing thereof in the Federal Register. Specifically, Amendment No. 1
provides, among other things: that the minimum market value of a
component company during the past year must have been greater than $200
million; that no single country uncovered by a CSSA may represent more
than 15% of the Index weight; and that the CBOE will notify the
Commission prior to adding a country to, or deleting a country from,
the Index; or reducing the number of component securities below 95
securities.\24\ Amendment No. 2 provides, among other things, technical
clarifications regarding the Index rebalancing replacement of component
securities. The Commission notes that no comments were received when
the original notice of the proposed rule change was published and that
no new regulatory issues are presented in Amendment Nos. 1 and 2.
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\24\ See note 10, supra.
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Accordingly, the Commission believes that it is consistent with
Sections 6(b)(5) and 19(b)(2) \25\ of the Act, to find good
[[Page 14151]]
cause exists to approve Amendments No. 1 on an accelerated basis.
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\25\ 15 U.S.C. 78s(b)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning Amendment Nos. 1 and 2, including whether the
proposed rule change is consistent with the Act. 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 Room, 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 CBOE.
All submissions should refer to File No. SR-CBOE-97-64 and should be
submitted by April 14, 1998.
For the foregoing reasons, the Commission finds that the CBOE's
proposal to list and trade warrants based on the Asia Tiger 100 Index
is consistent with the requirements of the Act and the rules and
regulations thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-CBOE-97-64), as amended, is approved.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-7514 Filed 3-23-98; 8:45 am]
BILLING CODE 8010-01-M
