[Federal Register Volume 60, Number 142 (Tuesday, July 25, 1995)]
[Notices]
[Pages 38066-38068]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18215]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35989; File No. SR-CBOE-95-37]
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
Technology Index
July 18, 1995.
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 July 14,
1995, 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 Technology
Index (``Tech 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 Tech Index. The Exchange represents that the Tech Index meets
the generic criteria for listing options on narrow-based indexes 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 CBOE
Rule 24.2. In accordance with Rule 24.2, the CBOE proposes to list and
trade options on the Tech Index beginning 30 days from July 14, 1995,
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'').
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The Tech Index consists of the stocks of 30 issuers involved in
various high technology industries, including: computer services,
telecommunications equipment, server software and hardware, design
software, PC software and hardware, networking, peripherals, and
semiconductors.\3\ The Exchange represents that no proxy for the
performance of the high technology sector is currently available in the
U.S. derivative markets. The Exchange believes, therefore, that options
on the Index will provide investors with a low-
[[Page 38067]]
cost means of participating in the performance of the high technology
sector or hedging against the risks of investing in high tech
industries.
\3\ The components of the Index are: Apple Computer, Inc.; Adobe
Systems Inc.; ADC Telecommunications Inc.; Adaptec Inc.; Advanced
Micro Devices Inc.; Bay Networks Inc.; Computer Associates
International; 3Com Corp; Compaq Computer Corp; Cirrus Logic Inc.;
Cabletron Systems Inc.; Computer Sciences Corp.; Cisco Systems Inc.;
Digital Equipment Corp.; DSC Communications Corp.; Hewlett Packard
Co.; IBM; Intel Corp.; Motorola Inc.; Microsoft Corp.; Micron
Technology Inc.; Novell Inc.; Oracle Corporation; Picturetel Corp.;
Parametric Technology Corp.; Seagate Technology Inc.; Silicon
Graphics Inc.; Synopsys Inc.; Tellabs Inc.; and Xilinx Inc.
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Stocks Comprising the Index
All of the stocks in the Index are securities of U.S. issuers and
currently trade on the New York Stock Exchange (``NYSE'') or as
National market securities traded through Nasdaq. Additionally, all of
the stocks are ``reported securities'' as defined in Rule 11Aa3-1 under
the Exchange Act.
The Exchange represents that all of the stocks in the Index meet
the CBOE's listing criteria for equity options as set forth in CBOE
Rule 5.3. Accordingly, 100% of the stocks in the index--both by number
and by weight--are eligible for standardized options trading pursuant
to CBOE rules. In fact, all of the stocks are currently the subject of
listed options trading in the U.S.
In accordance with CBOE Rule 24.2, the Exchange further represents
that each of the stocks in the index has a market capitalization well
in excess of $75 million. Specifically, the stocks comprising the Index
ranged in capitalization from $736 million to $55.4 billion as of June
27, 1995. The total capitalization as of that date was $370.4 billion,
and the mean and median capitalizations were $12.3 billion and $5.0
billion, respectively.
In addition, each of the component stocks in the index has had
monthly trading volumes in excess of one million shares over the six
month period ending on May 31, 1995. The average monthly trading
volumes per Index component over this six month period ranged from a
low of 4.5 million shares to a high of 265.4 million shares. As of June
27, 1995, the largest stock in the Index, by weight, accounted for
5.97% of the Index, while the smallest represented 0.35% of the Index.
Also on that date, the top 5 stocks in the Index accounted for 26.14%
of the weight of the Index.
Accordingly, the Exchange represents that the Index satisfies the
CBOE's generic listing standards for options on narrow-based stock
indexes.
Calculation
The Index is price-weighted and reflects changes in the prices of
the component stocks relative to the Index base date, January 3, 1995,
when the Index was set to 200.00. Specifically, the Index value is
calculated by adding the prices of the component stocks and then
dividing this sum by the Index divisor. The Index divisor is adjusted
to reflect non-market related changes in the prices of the component
securities as well as changes in the composition of the Index. Changes
which may result in divisor changes include, but are not limited to,
stock splits and dividends, spin-offs, certain rights issuances and
mergers and acquisitions.
The value of 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
currently being traded, the most recent price at which the stock traded
will be used in the Index calculation. The value of the Index at the
close on June 27, 1995 was 289.07.
Maintenance
The Index will be maintained by the CBOE. The Index is reviewed on
approximately a monthly basis by the CBOE staff. The CBOE may change
the composition of the Index at any time to reflect changes affecting
the components of the Index or the technology industry generally. If it
becomes necessary to remove a stock from the Index (for example,
because of a takeover or merger), the CBOE will only add a stock having
characteristics that will permit the Index to remain within the
maintenance criteria specified in CBOE's Rules and the Generic Index
Approval Order.\4\ The CBOE will take into account the capitalization,
liquidity, volatility, and name recognition of any proposed replacement
stock.
\4\ These maintenance criteria provide, among other things, that
each component security must have (1) a market capitalization of at
least $75 million, except that securities accounting for no more
than 10% of the weight of the Index may have market capitalizations
of at least $50 million, and (2) trading volume of at least 500,000
shares in each of the last six months, except that securities
accounting for no more than 10% of the weight of the Index may have
trading volumes of at least 400,000 shares in each of the last six
months. Additionally, no single security may account for over 25% of
the weight of the Index and no five securities may account for over
50% of the weight of the Index. Furthermore, each component security
must be a reported security as defined in Rule 11Aa3-1 of the Act.
Finally, at least 90% of the weight of the Index and 80% of the
number of components in the Index must be eligible for standardized
options trading pursuant to CBOE Rule 5.3. See CBOE Rule 24.2 and
Generic Index Approval Order, supra note 2.
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Absent prior Commission approval, the CBOE will not increase to
more than 40, or decrease to fewer than 20, the number of stocks in the
Index. Additionally, the CBOE will not 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 qualify as stocks eligible for equity options trading under
CBOE Rule 5.3.
If the Index fails at any time to satisfy the maintenance criteria
discussed above, 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 Tech Index has been
approved by the Commission under Section 19(b)(2) of the Exchange Act.
Index Option Trading
The Exchange proposes to base trading in options on the Tech Index
on the full value of that Index. The Exchange may also list full-value
long-term index option series (``Index LEAPS'') on the Tech Index
having expirations of up to 60 months from the date of issuance, as
provided in CBOE 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
Tech 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 Tech 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 Tech Index options. Index option contracts based on the
Tech Index will be subject to the position limit requirements of Rule
24.4A, which presently would result in position limits for full-value
Tech Index options of 10,500 contracts. Positions in Index options and
full and reduced-value Index LEAPS will be aggregated for position and
exercise limit purposes. 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 Tech
Index options. The
[[Page 38068]]
CBOE also represents that the Options Price Reporting Authority
(``OPRA'') has the capacity to support such new series.\5\
\5\ See Letter from Joe Corrigan, Executive Director, OPRA, to
Eileen Smith, Director, Product Development, Research Department,
CBOE, dated June 29, 1995.
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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 will permit
trading in options based on the Tech 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 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 CBOE Rule 24.2 and the Generic Index Approval
Order,\6\ it has become effective pursuant to section 19(b)(3)(A) of
the Act. Pursuant to CBOE Rule 24.2 and the Generic Index Approval
Order, the Exchange may not list Tech Index options for trading until
30 days after July 14, 1995, the date the proposed rule change was
filed with the Commission.
\6\See supra note 2.
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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. Sec. 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-95-37 and should be
submitted by August 15, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
\7\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-18215 Filed 7-24-95; 8:45 am]
BILLING CODE 8010-01-M
