[Federal Register Volume 59, Number 67 (Thursday, April 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8281]
[[Page Unknown]]
[Federal Register: April 7, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33843; File No. SR-CBOE-94-04]
Self-Regulatory Organizations; Filing of Proposed Rule Change by
the Chicago Board Options Exchange, Inc., Relating to Listing Criteria
for Certain Hybrid Securities
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 February
25, 1994, 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 CBOE.
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 amend its rules to establish specific listing
criteria for certain hybrid securities. 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 the
Statutory Basis for, the Proposed Rule Change
The purpose of the proposed rule change is to revise certain of the
Exchange's rules to permit the Exchange to list and trade the following
securities:
1. Contingent Value Rights
The Exchange is proposing to add rule 31.5.H. to its rules to
establish specific listing criteria for contingent value rights
(``CVRs''). CVRs are unsecured obligations providing for a possible
cash payment at maturity based on the value of an equity security
issued by an affiliate of the issuer of the CVRs (``related
security''). At maturity, the holder of a CVR would be entitled to a
cash payment at maturity if the market price of the related security is
lower than a predetermined target price. If the market price of the
related security equals or exceeds the target price, the holder of the
CVR would not be entitled to receive such a cash payment.
Under proposed rule 31.5.H., a CVR would be eligible for listing
if:
(1) The issuer satisfies the net worth and earnings requirements
set forth in Exchange Rule 31.5.A.;
(2) The issuer has assets in excess of $100 million;
(3) There is a minimum public distribution of 600,000 CVRs;
(4) There is a minimum of 1,200 public holders of the CVRs;
(5) The aggregate market value of the CVRs equals or exceeds $18
million; and
(6) The CVRs have an original term to maturity of at least one
year. In the alternative, a CVR would be eligible for listing if it
meets the minimum standards as established by another national
securities exchange.
2. Equity-Linked Notes
The Exchange is proposing to add rule 31.5.I. to its rules to
establish specific listing criteria for equity-linked notes (``ELNs'').
ELNs are intermediate-term, non-convertible hybrid instruments whose
value is based, in part, on the performance of a highly capitalized,
actively traded U.S. common stock or foreign security that is traded in
the U.S. in the form of American Depositary Receipts (``ADRs''),
ordinary shares or otherwise. Under proposed rule 31.5.I., the issuer
of ELNs must satisfy the earnings requirements set forth in Exchange
Rule 31.5.A. and must have a minimum tangible net worth of $150
million. In addition, although the Exchange does not believe that ELNs
will have any impact on the market for the underlying linked stock,
ELNs listed for trading on the Exchange also must satisfy the following
criteria:
(1) An ELN must have an original term to maturity of not less than
two and not more than seven years;
(2) The total original issue price of an ELN (when combined with
all of the ELNs issued by the issuer which are listed on a national
securities exchange or traded through the facilities of the National
Association of Securities Dealers Automated Quotation system
(``NASDAQ'')) cannot exceed 25 percent of the issuer's tangible net
worth at the time of issuance;
(3) The underlying stock must be listed for trading on a national
securities exchange or traded through the facilities of NASDAQ;
(4) The issuer of the underlying stock either must be subject to
the reporting requirements set forth in section 13 of the Act or exempt
from such requirements pursuant to SEC rule 12g3-2(b);
(5) The issuer of the underlying stock must have either (x) a
minimum market capitalization of $3 billion and trading volume in the
underlying stock during the 12-month period preceding the listing of
the ELNs must have been at least 2.5 million shares, or (y) a minimum
market capitalization of $1.5 billion and trading volume in the
underlying stock during the 12-month period preceding the listing of
the ELNs has been at least 20 million shares;
(6) The amount of stock underlying an ELN cannot exceed five
percent of the total amount of outstanding common shares of such stock;
and
(7) If the stock underlying an ELN is a foreign stock that is
traded in the U.S. market, then either (x) the Exchange must have in
place a market information sharing agreement with the primary exchange
on which the foreign stock is traded, or (y) the combined U.S. trading
volume of the foreign stock and other related securities\1\ must
represent (on a share equivalent basis with respect to ADRs) at least
50% of the combined worldwide trading volume in the foreign stock and
other related securities over the three month period preceding the date
of selection of the ELNs for listing. Prior to listing ELNs for
trading, the Exchange will distribute a circular providing guidance
regarding member firm compliance responsibilities when handling
transactions in ELNs.
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\1\Related securities include any ADRs overlying the foreign
stock, other classes of common stock related to the foreign stock,
and any ADRs overlying such other stock.
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3. Paired Securities
The Exchange is also proposing to add rule 31.5.J. to its rules to
set forth specific listing criteria for ``paired securities.'' Under
proposed rule 31.5.J., the term ``paired securities'' would be defined
as securities which may be transferred and traded only in combination
with one another as a single economic unit. Under the proposed rule,
the issuers of the paired securities would be required to satisfy the
size and earnings criteria set forth in Exchange Rule 31.5.A. on an
aggregate basis. In the event the pairing agreement between the issuers
of the paired securities is terminated, each issuer and each security
would be required to satisfy the Exchange's continuing listing
guidelines on an individual basis in order for the security to remain
listed for trading on the Exchange.
The CBOE believes that the proposed rule change is consistent with
section 6(b) of the Act in general and furthers the objectives of
section 6(b)(5) of the Act in particular in that it perfects the
mechanism of a free and open market by expanding the types of
securities that may be listed for trading on the Exchange.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The CBOE does not believe that the proposed rule change will impose
a 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 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 in 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 CBOE. All
submissions should refer to File No. SR-CBOE-94-04 and should be
submitted by April 28, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\2\
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\2\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-8281 Filed 4-6-94; 8:45 am]
BILLING CODE 8010-01-M