[Federal Register Volume 59, Number 124 (Wednesday, June 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15712]
[[Page Unknown]]
[Federal Register: June 29, 1994]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34241; International Series Release No. 676; File No.
SR-CBOE-94-18]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Chicago Board Options
Exchange, Inc. Relating to Options on the CBOE Mexico Index
June 22, 1994.
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 June 16,
1994, 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 Exchange. 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 list and trade options on the CBOE Mexico
Index (``Mexico Index'' or ``Index''). The text of the proposed rule
change is available at the Office of the Secretary, the 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. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Section (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\1\ stock index options
on the Mexico Index. The Exchange represents that the Mexico Index
meets the generic criteria for listing options on narrow-based indexes
as set forth in Exchange Rule 24.2 and the Commission's order approving
that Rule.\2\ Accordingly, the CBOE is submitting this proposed rule
change pursuant to, and in accordance with, the procedures set forth in
the Generic Index Approval Order. In accordance with the Generic Index
Approval Order, the CBOE proposes to list and trade options on the
Mexico Index at a time no sooner than 30 days after June 16, 1994, the
filing date of this proposed rule change.
---------------------------------------------------------------------------
\1\European-style options may only be exercised during a
specified period prior to expiration of the options.
\2\See Securities Exchange Act Release NO. 34157 (June 3, 1994),
59 FR 30062 (June 10, 1994) (``Generic Index Approval Order'').
---------------------------------------------------------------------------
The Mexico Index consists of the stocks of ten Mexican
companies.\3\ The Exchange represents that no proxy for the performance
of the Mexican economy is currently available in the U.S. derivative
markets. The Exchange believes, therefore, that options on the Index
will provide investors with a low-cost means of participating in the
performance of the Mexican economy or hedging against the risk of
investing in that economy.
---------------------------------------------------------------------------
\3\The components of the Index are: Consorcio G Grupo Dina SA de
CV; Empresas La Moderna SA de CV; Grupo Mexicano de Desarro; Grupo
Tribasa SA de CV; Empresas ICA Sociedad Con; Coca Cola Femsa SA de
CV; Grupo Financiero Serfin SA de CV; Transportacion Maritima Mexi;
Telefonos de Mexico SA de CV; and Grupo Televisa SA Global.
---------------------------------------------------------------------------
Stocks Comprising the Index
All of the stocks in the Index currently trade in the U.S. on the
New York Stock Exchange either as American Depositary Receipts or
American Depositary Shares (collectively ``ADRs''). Moreover, the CBOE
represents that the U.S. is the primary market for nine of the stocks,
representing 90% of the stocks in the Index and 90% of the weight of
the Index. According to the CBOE, the primary market for the tenth
security (Grupo Financiero Serfin SA de CV) is the Bolsa Mexicana de
Valores or Mexican Stock Exchange.
The Generic Index Approval Order specifies that no more than 20% of
the stocks in the index, by weight, may be comprised of foreign
securities or ADRs overlying foreign securities that are not subject to
comprehensive surveillance sharing agreements.\4\ The Commission,
however, further specified that an ADR would not be subject to this
limitation if at least 50% of the worldwide trading volume in the
foreign security occurs in the U.S. market.\5\ Because nine of the ten
stocks in the Mexico Index meet that standard, the CBOE believes that
the Mexico Index satisfies this criteria for options trading under the
Generic Index Approval Order.
---------------------------------------------------------------------------
\4\See Generic Index Approval Order, supra note 2.
\5\Id. at note 18.
---------------------------------------------------------------------------
The Exchange also represents that nine of the ten stocks in the
Mexico Index presently meet the Exchange's listing criteria for equity
options.\6\ According to the Exchange, therefore, 90% of the stocks in
the index, both by number and by weight, are eligible to be underlying
securities pursuant to the CBOE's rules. The Exchange further
represents that all nine of such stocks are currently the subject of
listed options trading in the U.S.\7\
---------------------------------------------------------------------------
\6\The CBOE's options listing standards, which are uniform among
the options exchanges, provide that a security underlying an option
must, among other things, meet the following requirements: (1) the
public float must be at least 7,000,000; (2) there must be a minimum
of 2,000 stockholders; (3) trading volume must have been at least
2.4 million over the preceding twelve months; and (4) the market
price must have been at least $7.50 for a majority of the business
days during the preceding three calendar months. See CBOE Rule 5.3.
With respect to ADRs, in addition to the above standards: (1) the
Exchange must have in place a comprehensive surveillance agreement
with the primary exchange in the home country where the security
underlying the ADR is traded: or (2) the trading volume in the U.S.
markets where the ADR is traded represents (on a share-equivalent
basis) at least 50% of the worldwide trading volume in the security
underlying the ADR over the three month period preceding the date of
selection of the ADR for options trading; or (3) the SEC must
otherwise authorize the listing. See Securities Exchange Act Release
No. 33554 (January 31, 1994), 59 FR 5622 (February 7, 1994).
\7\Grupo Financiero Serfin SA de CV is the only component of the
Index on which standardized options currently are not traded in the
U.S.
---------------------------------------------------------------------------
As of June 7, 1994, the stocks comprising the Index ranged in
capitalization from $477.17 million to $26.01 billion. The mean and
median capitalizations of the components as of that date were $7.882
billion and $2.781 billion, respectively. The Exchange represents that
each of the stocks in the index has a market capitalization well in
excess of $75 million. The Exchange further represents that each of the
component stocks in the index has had average monthly trading volume
well in excess of one million shares over the six month period from
December 1, 1993 through May 31, 1994. Accordingly, the Exchange
represents that its generic listing standards set forth in CBOE Rule
24.2 are satisfied with respect to the criteria for market
capitalization and trading volume.
Calculation
The Index will be calculated on a real-time basis by the CBOE or
its designee using last-sale prices, and will be disseminated every 15
seconds by the CBOE. If a component stock is not currently being
traded, the most recent price at which the stock trade will be used in
the Index calculation. The value of the Index at the close on June 7,
1994 was 161.87, which reflects the changes in the prices of the
component stocks relative to the base date established by the CBOE of
January 3, 1994.
The Index is calculated using an ``equal dollar-weighting'' method,
meaning that each of the component stocks is represented in
approximately equal dollar amounts. To determine the initial dollar
weighting of the stocks, the exchange calculated the number of shares
(to the nearest whole share) that would represent an investment of
$10,000 in each of the stocks continued in the Index using closing
prices of the component stocks on December 17, 1993. The value of the
Index equals the current market value (based on U.S. primary market
prices) of the assigned number of shares of each of the stocks in the
Index divided by the current Index divisor. The Index divisor was
initially calculated to yield a benchmark value of 200.00 at the close
of trading on January 3, 1994.
Maintenance
The Index will be maintained by the CBOE. The Index composition
will be rebalanced quarterly, following the close of trading on the
third Friday of each March, June, September, and December, by changing
the number of shares of each component stock so that each company is
again represented in $10,000 ``equal'' dollar amounts. If necessary, a
divisor adjustment will be made to ensure continuity of the value of
the Index. The newly adjusted portfolio becomes the basis for the
Index's values on the first trading day following the quarterly
adjustment.
In addition, to maintain continuity in the Index following an
adjustment to a component security, the divisor will be adjusted.
Changes which may result in divisor changes include, but are not
limited to, spin-offs, certain rights issuances, and mergers and
acquisitions.
The Index will be reviewed on approximately a monthly basis by the
CBOE staff. The CBOE may change the composition of the Index at any
time or from time to time to reflect changes affecting the components
of the Index or the Mexican economy generally. If it becomes necessary
to remove a stock from the Index (for example, because of a takeover or
merger), the CBOE will either add a Mexican stock having
characteristics that will permit the Index to remain within the
maintenance criteria specified in the CBOE's Rules and the Generic
Index Approval Order or make no change to the composition of the Index
provided the Index is still comprised of at least nine components. The
CBOE will take into account the capitalization, liquidity, volatility,
and name recognition of any proposed replacement stock.
If the Index fails at any time to satisfy the maintenance criteria
set forth in the Generic Index Approval Order, the Exchange will
immediately notify the Commission of that fact and will not open for
trading any additional series of options on the Index unless such
failure is determined by the Exchange not to be significant and the
Commission concurs in that determination, or unless the continued
listing of options on the Mexico Index has been approved by the
Commission under Section 19(b)(2) of the Exchange Act.
Absent prior Commission approval, the Exchange will not increase to
more than 13, or decrease to fewer than 9, the number of stocks in the
Index, nor will the CBOE make any change in the composition of the
Index that would cause fewer than 90% of the stocks, by weight, or
fewer than 80% of the total number of stocks in the index, to quality
as stocks eligible for equity options trading under CBOE Rule 5.3.\8\
---------------------------------------------------------------------------
\8\See supra note 6.
---------------------------------------------------------------------------
Index Option Trading
The Exchange proposes to base trading in options on the Mexico
Index on the full value of that Index. The Exchange may also list full-
value long-term index option series (``Index LEAPS'') on the Mexico
Index, as provided in Rule 24.9. The Exchange also may provide for the
listing of reduced-value Index 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 Index LEAPS will,
after such initial computation, be rounded to the nearest one-
hundredth.
Exercise and Settlement
Mexico Index options will have European-style exercise and will be
``A.M.-settled index options'' within the meaning of the Rules in
Chapter XXIV, including Rule 24.9, which is being amended to refer
specifically to Mexico Index options. The Index options will expire on
the Saturday following the third Friday of the expiration month. Thus,
the last day for trading in a 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 will be
applicable to Mexico Index options. Index option contracts based on the
Mexico Index will be subject to the position limit requirements of Rule
24.4A, which presently would result in position limits for Mexico Index
options of 10,500 contracts. Ten reduced-value options will equal one
full-value contract for such purposes.
The CBOE represents that it has the necessary systems capacity to
support new series that would result from the introduction of Mexico
Index options. The CBOE also represents that the Options Price
Reporting Authority (``OPRA'') has the capacity to support such new
series.9
---------------------------------------------------------------------------
\9\See Letter from Joe Corrigan, Executive Director, OPRA, to
Eileen Smith, Director, Product Development, Research Department,
CBOE, dated June 9, 1994.
---------------------------------------------------------------------------
The CBOE represents 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)10 in particular in that it will permit trading in
options based on the Mexico Index pursuant to rules designed to prevent
fraudulent and manipulative acts and practices and to promote just and
equitable principles of trade.
---------------------------------------------------------------------------
\1\015 U.S.C. section 78f(b)(5) (1988).
---------------------------------------------------------------------------
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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 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 proposed rule change complies with the
standards set forth in the Generic Index Approval Order, it has become
effective pursuant to Section 19(b)(3)(A) of the Act. Pursuant to the
Generic Index Approval Order, the Exchange may not list Mexico Index
options for trading prior to 30 days after June 16, 1994, the date the
proposed rule change was filed with the Commission. At any time within
60 days of the filing of the 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.
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. section 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-94-18 and should be
submitted by July 20, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.11
---------------------------------------------------------------------------
\1\117 CFR 200.30-3(a)(12) (1993).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-15712 Filed 6-28-94; 8:45 am]
BILLING CODE 8010-01-M
