[Federal Register Volume 61, Number 155 (Friday, August 9, 1996)]
[Notices]
[Pages 41671-41673]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20310]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37519; File No. SR-CBOE-96-43]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Incorporated Relating to
the Listing and Trading of Options on the Goldman Sachs Technology
Composite Index
August 2, 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 July 2,
1996, 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 self-regulatory
organization.\1\ The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ Concurrent with this proposal, CBOE has filed for approval
to list and trade options on six different sub-indexes, each of
which is a narrow-based index, composed of components of the Goldman
Sachs Technology Composite Index proposed in this filing. See SR-
CBOE-96-44.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The CBOE proposes to provide for the listing and trading on the
Exchange of options on the Goldman Sachs Technology Composite Index
(``GSTI Composite Index'' or ``Index''), a cash-settled, broad-based
index designed to measure the performance of high capitalization
technology stocks.\2\
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\2\ A list of the securities comprising the GSTI Composite
Index, as well as listed shares outstanding and prices as of April
30, 1996, was submitted by the Exchange as Exhibit B, and is
available at the Office of the Secretary, CBOE and at the
Commission.
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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 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to permit the Exchange
to list and trade cash-settled, European-style stock index options on
the GSTI Composite Index. The GSTI Composite Index is a capitalization-
weighted index of the universe of technology-related company stocks
which meet certain objective criteria.
Index Design. The GSTI Composite Index has been designed to measure
the performance of high capitalization technology stocks. The GSTI
Composite Index is a capitalization-weighted index with each stock
affecting the Index in proportion to its market capitalization.
As mentioned above, the GSTI Composite Index will consist of the
universe of technology-related stocks that meet certain objective
criteria. First, the company's stock must trade on the New York Stock
Exchange, the American Stock Exchange, or through the facilities of the
NASDAQ and be ``reported securities'' under Rule 11Aa3-1. Only
outstanding common shares are eligible for inclusion; American
Depositary Receipts are not eligible. Second, the total market
capitalization of the company's stock must be equal to or greater than
the capitalization ``cutoff'' value. The base period ``cutoff'' value
will be $600 million, but this value will be adjusted on each
semiannual rebalancing date (as described below) to reflect the price
performance of the GSTI Composite Index since the base period and
rounded up to the nearest $50 million. Index constituents with
capitalization below 50% of the ``cutoff'' value on a semiannual
rebalancing date shall be removed after the close on the effective date
of the rebalancing. Third, company stocks with a public float below 20%
of shares issued and outstanding are not eligible for inclusion in the
GSTI Composite Index.\3\ Fourth, the company stock must have annualized
share turnover over 30% or more based on its average daily share volume
for the six calendar months prior to inclusion in the Index. Finally,
the components must be from a group of specified Standard Industrial
Classification codes or Russell Industry codes.
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\3\ The public float is determined by dividing the number of
shares which are owned by persons other than those required to
report their stock holdings under Section 16(a) of the Act by the
total number of shares outstanding. With respect to options on
underlying individual components, CBOE Rule 5.3, Interpretations and
Policies .01(a)(1) requires a minimum of 7,000,000 shares of the
underlying security which are owned by persons other than those
required to report their stock holdings under Section 16(a) of the
Act. Telephone conversation with Eileen Smith, CBOE and Janice
Mitnick, SEC, on July 30, 1996.
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As of April 30, 1995, the GSTI Composite Index was comprised of 177
stocks ranged in capitalization from $604 million to $67.3 billion. The
largest stock accounted for 8.5% of the total weighting of the Index,
while the smallest accounted for 0.08%. The median capitalization of
the firms in the Index was $1.5 billion.
Calculation. The methodology used to calculate the value of the
Index is similar to the methodology used to calculate the value of
other well-known broad-based indices. The level of the Index reflects
the total market value of all the component stocks relative to a
particular based period. The GSTI Composite Index base date is April
30, 1996, when the Index value was set to 100. The daily calculation of
the GSTI Composite Index is computed by dividing the total market value
of the components in the Index by the Index Divisor. The divisor is
adjusted as needed to ensure continuity in the Index whenever there are
additions and deletions from the Index, share changes, or adjustments
to a component's price to reflect offerings, spinoffs, or extraordinary
cash dividends. The values of the Index will be calculated by CBOE or a
designee of Goldman Sachs, and disseminated at 15-second intervals
[[Page 41672]]
during regular CBOE trading hours to market information vendors via the
Options Price Reporting Authority (``OPRA'').
Maintenance. The GSTI Composite Index will be maintained by the
Exchange. Index maintenance includes monitoring and completing the
adjustments for company additions and deletions, share changes, stock
splits, stock dividends, and stock price adjustments due to such events
as company restructuring or spinoffs.
Stocks may be added or deleted from the Index at a time other than
at the rebalancing according to the ``Fast Add and Delete'' Rule. All
Index constituent changes made in accordance with this rule will be
announced by the Exchange at least five trading days prior to the
effective date of the Fast Add or Delete whenever possible.
Any technology-related company whose shares start trading between
semiannual rebalancings is eligible to be Fast Added to the Index if
all the inclusion criteria described above are met and the stock ranks
in the top quartile of market capitalization of the GSTI Composite
Index on the previous month-end closing prices. No minimum share
turnover ratio is required.
If two companies in the Index merge or if an Index constituent
merges with a company not currently in the Index, the merged company
shall remain in the Index if it meets all the Index inclusion criteria.
If the target company is currently in the Index, it will be Fast
Deleted after the close on the date the merger is completed.
If a GSTI Composite Index constituent is acquired by a non-Index
company, the acquiring company may be added to the Index if it meets
the inclusion criteria; otherwise, the target company will be Fast
Deleted. Any such additions or deletions will be effective after the
close on the date the acquisition is completed.
If a company in the Index spins off another company, the parent and
the spinoff will remain in the Index provided that each meets the Index
inclusion criteria. If either the parent of the spinoff fails to meet
the inclusion criteria, it will be removed from the Index.
In the event that a company represented in the Index files for
bankruptcy, its stock will be removed from the Index effective after
the close on the date of filing. In the event that trading in an Index
constituent is suspended for thirty (30) trading days, a decision will
be made whether the stock will be removed from the Index. Any such
removal will be preannounced and, for purposes of minimizing impact to
the Index, the stock to be removed will be removed at the value at
which it last traded.
The GSTI Index will be rebalanced for additions and deletions on a
semiannual basis. Stocks will be added or deleted from the Index at the
rebalancing based on the inclusion criteria described in the ``Index
Design'' section above. Index share changes will be made to reflect the
outstanding shares and closing prices of all Index constituents on the
``rebalancing'' date. The changes will be implemented after the close
on the ``effective'' date. The effective dates shall be the third
Friday of January and July. The rebalancing date shall be 7 business
days inclusive prior to the effective date. The Exchange will screen
the technology stocks for inclusion in the Index and will determine the
components of the Index. Notice of the new component list will be
disseminated by the Exchange to the public before trading begins on
Monday. Therefore, Goldman Sachs will not learn of the new composition
during regular U.S. trading hours.
Except for stocks which meet the criteria for Fast Add or Delete
(as described above), stocks can only be added or deleted from the
Index at the time of the semiannual rebalancing.
Index Option Trading. In addition to regular Index options, the
Exchange may provide for the listing of long-term index option series
(``LEAPS '') and reduced-value LEAPS on the Index. For
reduced-value LEAPS, the underlying value would be computed at one-
tenth of the Index level. The current and closing Index value of any
such reduced-value LEAP will, after such initial computation, be
rounded to the nearest one-hundredth.
Strike prices will be set to bracket the Index in a minimum of 2\1/
2\ point increments for strikes below 200 and in 5 point increments
above 200. The minimum tick size for series trading below $3 will be
\1/16\th and for series trading above $3 the minimum tick will be \1/
8\th. The trading hours for options on the Index will be from 8:30 a.m.
to 3:15 p.m. Chicago time.
Exercise and Settlement. The proposed options on the Index will
expire on the Saturday following the third Friday of the expiration
month. Trading in the expiring contract month will normally cease at
3:15 p.m. (Chicago time) on the business day preceding the last day of
trading in the component securities of the Index (ordinarily the
Thursday before expiration Saturday, unless there is an intervening
holiday). The exercise settlement value of the Index at option
expiration will be calculated based on the opening prices of the
component securities on the business day prior to expiration. If a
stock fails to open for trading, the last available price on the stock
will be used in the calculation of the Index, as is done for currently
listed indexes. When the trading day is moved because of Exchange
holidays (such as when CBOE is closed on the Friday before expiration),
the last trading day for expiring options will be Wednesday and the
exercise settlement value of Index options at expiration will be
determined at the opening of regular Thursday trading.
Surveillance. The Exchange will use the same surveillance
procedures currently utilized for each of the Exchange's other index
options to monitor trading in Index options and Index LEAPS on the GSTI
Composite Index.
Position Limits. The Exchange proposes to establish position limits
for options on the Index at 100,000 contracts on either side of the
market, with no more than 60,000 of such contract permitted to be in
the series in the nearest expiration month. These limits are roughly
equivalent, in dollar terms, to the limits applicable to options on
other indices.
Exchange Rules Applicable. As modified herein, the Rules in Chapter
XXIV will be applicable to GSTI Composite Index options.
CBOE has the necessary systems capacity to support new series that
would result from the introduction of GSTI Composite Index options.
CBOE has also been informed that the OPRA has the capacity to support
such new series.\4\
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\4\ See memo from Joe Corrigan, Executive Director, OPRA, to
Eileen Smith, Director of Product Research, CBOE, dated June 26,
1996 (confirming that the traffic generated is within the OPRA's
capacity).
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CBOE believes the proposed rule change is consistent with Section
6(b) of the Act in general and furthers the objectives of Section
6(b)(5) in particular 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.
2. Statutory Basis
CBOE believes the proposed rule change is consistent with Section
6(b) of the Act in general and furthers the objectives of Section
6(b)(5) in particular in that it will permit trading in options based
on the IPC pursuant to rules designed to prevent fradulent and
[[Page 41673]]
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 believes the proposed rule change will impose no
burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the 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 the 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, N.W., Washington, D.C. 20549.
Copies of the submission, all subsequent amendments, will 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 Room. 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-96-43 and should
be submitted by August 30, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\ 17 C.F.R. 200.30-3(a)(12) (1994).
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Jonathan G. Katz,
Secretary.
[FR Doc. 96-20310 Filed 8-8-96; 8:45 am]
BILLING CODE 8010-01-M
