[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Notices]
[Pages 17741-17743]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9803]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37115; File No. SR-CBOE-96-21]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Chicago Board Options
Exchange, Inc., Relating to the Listing of Options on the CBOE Gold
Index
April 15, 1996.
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 March
28, 1996, the Chicago Board Options Exchange, Inc. (``CBOE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II and III below, which Items have been prepared by the self-
regulatory organization.\1\ The
[[Page 17742]]
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ On April 3, 1996, the CBOE clarified the maintenance
standards for the CBOE Gold Index (``Gold Index'' or ``Index'').
Specifically, the CBOE indicated that the Exchange will monitor the
composition of the Index to determine whether the maintenance
criteria are satisfied, including whether any change has occurred to
cause fewer than 90% of the stocks by weight, or fewer than 80% of
the total number of stocks in the Index, to qualify as stocks
eligible for equity options trading under CBOE Rule 5.3, ``Criteria
for Underlying Securities.'' See Letter from Timothy Thompson,
Senior Attorney, CBOE, to Yvonne Fraticelli, Attorney, Office of
Market Supervision, Division of Market Regulation, Commission, dated
April 3, 1996 (``April 3 Letter'').
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I. Self Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CBOE proposes to list for trading cash-settled, European-style
\2\ options on the Gold Index, an index comprised of the stocks of 10
companies involved primarily in gold mining and production.
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\2\ A European-style option can be exercised only during a
specified period immediately prior to the expiration of the option.
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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 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 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 permit the Exchange
to list and trade cash-settled, European-style options on the Index.
According to the CBOE, the Index meets all of the generic criteria for
listing options on narrow-based indexes as set forth in CBOE Rule 24.2,
``Designation of the Index,'' and in the Commission's order approving
CBOE Rule 24.2.\3\ In accordance with CBOE Rule 24.2, the CBOE proposes
to list and trade options on the Index beginning 30 days from the
filing date of the proposed rule change.
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\3\ See4 Securities Exchange Act Release No. 34157 (June 3,
1994), 59 FR 30062 (June 10, 1994) (``Generic Index Approval
Order'').
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The Index consists of the stocks of 10 companies involved primarily
in gold mining and production.\4\ According to the CBOE, options on the
Index will provide investors with a low-cost means to participate in
the performance of this sector or hedge against the risk of investing
in this sector.
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\4\ The components of the Index are: Amax Gold Inc.; Barrick
Gold Corporation; Battle Mountain Gold Company; Echo Bay Mines Ltd.;
Homestake Mining Company; Newmont Mining Corporation; Placer Dome,
Inc.; Pegasus Gold, Inc.; Santa Fe Pacific Gold Corporation; and TVX
Gold, Inc.
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Index Design: All of the stocks currently comprising the Index are
U.S. securities that trade on the New York Stock Exchange, Inc.
(``NYSE'') or on the American Stock Exchange, Inc. (``Amex'').
Additionally, all of the Index's component stocks are ``reported
securities'' as defined in Rule 11Aa3-1 under the Act.
According to the CBOE, each of the stocks in the Index has a market
capitalization in excess of $580 million. Specifically, as of February
2, 1996, the stocks comprising the Index ranged in capitalization from
$589 million to $11.17 billion, and the Index's total capitalization
was $34.77 billion. In addition, as of February 2, 1996, the mean
capitalization of the Index's component stocks was $3.47 billion and
the median capitalization was $2.04 billion.
The CBOE represents that all of the Index's component stocks have
had monthly trading volume in excess of 1 million shares over the six-
month period through January 1996, and that the average monthly volumes
for these stocks over the six-month period ranged from a low of 3.9
million shares to a high of 25.13 million shares. According to the
CBOE, all of the Index's component stocks are eligible for options
trading.
The Index is an equal dollar-weighted index, with each stock
comprising 10% of the total Index weight. The top five stocks in the
Index account for 50% of the Index. Accordingly, the Index meets the
Exchange's generic listing standards for narrow-based indexes with
respect to market capitalization, weighting constraints, options
eligibility, and trading volume.
Calculation: The Index will be calculated on a real-time basis
using last-sale prices by the CBOE or its designee, and will be
disseminated every 15 seconds by the CBOE. If a component stock is not
being traded currently, the CBOE will use the most recent price at
which the stock traded to calculate the Index. At the close on February
2, 1996, the value of the Index was 146.94.
The Index is equal dollar-weighted and reflects changes in the
prices of the component stocks relative to the Index base date,
December 16, 1994, when the Index was set at 100.00. Specifically, each
of the component securities is initially represented in equal dollar
amounts, with the level of the Index equal to the combined market value
of the assigned number of shares for each of the Index components
divided by the current Index divisor. The Index divisor is adjusted to
maintain continuity in the Index at the time of certain types of
changes, including, but not limited to, quarterly re-balancing, special
dividends, spin-offs, certain rights issuances, and mergers and
acquisitions.
Maintenance: The CBOE will maintain the Index. The Index will be
re-balanced after the close of business on expiration Fridays on the
March quarterly cycle. In addition, the CBOE staff will review the
Index on approximately a monthly basis. The CBOE may change the
composition of the Index at any time to reflect changes affecting the
components of the Index or the gold mining industry generally. If it
becomes necessary to remove a stock from the Index (for example,
because of a takeover or merger), the CBOE will add only a stock having
characteristics that will permit the Index to remain within the
maintenance criteria specified in the CBOE's rules and in the Generic
Index Approval Order.\5\ The CBOE will take into account the
capitalization, liquidity, volatility, and name recognition of any
proposed replacement stock.
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\5\ See note 3, supra.
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Absent prior Commission approval, the CBOE will not increase to
more than 13, or decrease to fewer than 9, the number of stocks in the
Index. In addition, the CBOE will monitor the composition of the Index
to determine whether the maintenance criteria are satisfied, including
whether any change has occurred to cause fewer than 90% of the stocks
by weight, or fewer than 80% of the total number of stocks in the
Index, to qualify as stocks eligible for equity options trading under
CBOE Rule 5.3.\6\
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\6\ See April 3 Letter, supra note 1.
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If the Index fails at any time to satisfy the maintenance criteria,
the Exchange will notify the Commission of the fact immediately and
will not open for trading any additional series of options on the Index
unless the CBOE determines that such failure is not significant and the
Commission concurs in that determination, or unless the Commission
approves the continued listing of options on the Index under Section
19(b)(2) of the Act.
Index Options Trading: The CBOE proposes to base trading in Index
options on the full value of the Index.
[[Page 17743]]
The CBOE may list full-value long-term index option series (``LEAPS''),
as provided in CBOE Rule 24.9, ``Terms of Index Option Contracts.'' The
Exchange also may provide for the listing of reduced-value LEAPS, for
which the underlying value would be computed at one-tenth of the value
of the Index. The current and closing index value of any such reduced-
value LEAP will be rounded to the nearest one-hundredth after the
initial calculation.
Exercise and Settlement: Index options will have European-style
exercise and will be ``A.M.-settled Index Options'' within the meaning
of the rules in Chapter XXIV, ``Index Options,'' of the CBOE's rules,
including CBOE Rule 24.9, ``Terms of Index Option Contracts.'' which
the CBOE is amending to refer specifically to Index options. The
proposed options will expire on the Saturday following the third Friday
of the expiration month. Thus, the last day for trading in an expiring
series will be the second business day (ordinarily a Thursday)
preceding the expiration date.
Exchange Rules Applicable: Except as modified herein, the rules in
Chapter XXIV of the CBOE's rules will apply to the Index. Options based
on the Index will be subject to the position limit requirements of CBOE
Rule 24.4A, ``Position Limits for Industry Index Options.'' Currently,
the position limit for Index options is 12,000 contracts. Ten reduced-
value Index options will equal one full-value Index option for position
and exercise limit purposes.
The CBOE represents that the Exchange has the necessary systems
capacity to support new series that will result from the introduction
of Index options. In addition, the Options Price Reporting Authority
(``OPRA'') has the capacity to support the new series.\7\
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\7\ See Memorandum from Joseph P. Corrigan, Executive Director,
OPRA, to William Speth, CBOE, dated February 23, 1996.
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The CBOE believes that the proposal is consistent with Section 6(b)
of the Act, in general, and, in particular, with Section 6(b)(5), in
that it will permit trading in options based on the Index 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 CBOE does not believe that the proposed rule change will impose
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 either solicited or received with respect
to the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing rule change complies with the standards set
forth in the Generic Index Approval Order,\8\ it has become effective
pursuant to Section 19(b)(3)(A) of the Act and subparagraph (e) of Rule
19b-4 thereunder. Pursuant to the Generic Index Approval Order, the
Exchange may not list Index options for trading prior to 30 days after
March 28, 1996, the date the proposed rule change was filed with the
Commission. At any time within 60 days of the filing of such proposed
rule change, the Commission may summarily abrogate such rule change if
it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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\8\ See note 3, supra.
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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.,
Washington, DC. Copies of such filing will also be available for
inspection and copying at the principal office of the above-mentioned
self-regulatory organization. All submissions should refer to the file
number in the caption above and should be submitted by May 13, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12) (1995).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-9803 Filed 4-19-96; 8:45 am]
BILLING CODE 8010-01-M
