[Federal Register Volume 63, Number 141 (Thursday, July 23, 1998)]
[Notices]
[Pages 39610-39611]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19649]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40221; File No. SR-CBOE-98-21]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Incorporated Relating to
Minimum Opening Transaction Size in FLEX Equity Options
July 16, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on May 18, 1998, the Chicago
Board Options Exchange, Incorporated (``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 CBOE. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The CBOE proposes to change the required minimum value size for an
opening transaction in any FLEX Equity Option \2\ series which has no
open interest, such that the minimum value size shall be the lesser of
250 contracts or the number of contracts overlying $1 million of the
underlying securities.
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\2\ FLEX equity options are flexible exchange-traded options
contracts which overlie equity securities. In addition, FLEX equity
options provide investors with the ability to customize basic option
features including size, expiration date, exercise style, and
certain exercise prices.
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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 CBOE included statements
concerning the purpose of, and statutory 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 parts of such
statements.
[[Page 39611]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Purpose
The Exchange is proposing to change the minimum value size for
opening transactions (other than FLEX Quotes responsive to a FLEX
Request for Quotes) in any FLEX Equity Option series in which there is
no open interest at the time the Request for Quotes is submitted.
Currently, CBOE Rule 24A.4 states that the minimum value size for these
opening transactions shall be 250 contracts. The Exchange is proposing
to change this rule such that the minimum value size for these
transactions shall be the lesser of 250 contracts or the number of
contracts overlying $1 million of the underlying securities.
The Exchange is proposing this change because it believes the
current rule is unduly restrictive. The rule was originally put in
place in to limit participation in FLEX Equity options to
sophisticated, high net worth individuals. However, the Exchange
believes that limiting participation in FLEX Equity Options based
solely on the number of contracts purchased may diminish liquidity and
trading interest in FLEX Equity Options for higher priced equities. The
Exchange believes the value of the securities underlying the FLEX
Equity Options is an equally valid restraint as the number of contracts
and if set at the right limit can also prevent the participation of
investors who do not have adequate resources. In fact, the limitation
on the minimum value size for opening transactions in FLEX Index
Options is tied to the same type of standard, the underlying equivalent
value.\3\ The Exchange believes the number of contracts overlying $1
million in underlying securities is adequate to provide the requisite
amount of investor protection. An opening transaction in a FLEX Equity
series on a stock priced at $40.01 or more would reach this $1 million
limit before it would reach the contract size limit, i.e., 250
contracts times the multiplier (100) times the stock price ($40.01)
totals $1,000,250 million in underlying value.\4\ It should be noted
that, currently, an investor can purchase 250 contracts in a FLEX
Equity series on low priced stocks, meeting the minimum requirement
without investing a minimum of $1 million. For example, a purchase of
FLEX Equity Options overlying a $10 stock is permitted although the
underlying value for the Options would be $250,000, i.e., 250 contracts
times the multiplier (100) times the stock price ($10).
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\3\ The term ``underlying equivalent value'' is defined in CBOE
Rule 24A.1(r) for FLEX Index options, but it is not a defined term
for FLEX Equity options.
\4\ Example amended per conversation between Gail Marshall-
Smith, Division of Market Regulation, SEC, and Tim Thompson, CBOE,
dated June 15, 1998.
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Statutory Basis
The Exchange believes the proposed rule change is consistent with
and furthers the objectives of Section 6(b)(5) of the Act \5\ by
facilitating transactions in securities, removing impediments to and
perfecting the mechanism of a free and open market in securities and
otherwise serving to protect investors and the public interest. The
Exchange believes that the proposal maintains the current investor
protection principles while providing more investors an opportunity to
trade FLEX Equity Options.
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\5\ 15 U.S.C. 78f(b)(5).
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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 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, 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, 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 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. Copies of such filing will also be available for
inspection and copying at the principle office of the CBOE. All
submissions should refer to the file number SR-CBOE-98-21 and should be
submitted by August 13, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to the delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-19649 Filed 7-22-98; 8:45 am]
BILLING CODE 8010-01-M
