[Federal Register Volume 60, Number 179 (Friday, September 15, 1995)]
[Notices]
[Pages 47970-47972]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-22965]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36207; File No. SR-CBOE-95-38]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment Nos. 1, 2, and 3 to the Proposed Rule Change by
the Chicago Board Options Exchange, Inc., Relating to the Listing of
Warrants Based on the CBOE Technology 50 Index
September 8, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on August 1, 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 CBOE subsequently filed
Amendment No. 1 to the proposed rule change on August 2, 1995,\2\
Amendment No. 2 on August 3, 1995,\3\ and Amendment No. 3 on August 29,
1995.\4\ The Commission is publishing this notice to solicit comments
on the proposed rule change, as amended, from interested persons.
\1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
\2\ As a result of the Commission's approval of the Exchange's
Generic Warrant Listing Standards (as defined herein), Amendment No.
1 has been rendered moot.
\3\ In Amendment No. 2, as discussed herein, the CBOE amended
certain of the objective standards set forth in the section of its
proposal entitled ``Classification of the Index as Broad-Based.''
See Letter from Timothy Thompson, Senior Attorney, Legal Department,
CBOE, to Michael Walinskas, Branch Chief, Office of Market
Supervision (``OMS''), Division of Market Regulation (``Division''),
Commission, dated August 3, 1995 (``Amendment No. 2'').
\4\ In Amendment No. 3, as discussed herein, the Exchange
amended the composition of the Index to, in the Exchange's opinion,
provide better balance between the technology industry subsectors
represented in the Index. See Letter from William Speth, Jr., Senior
Research Analyst, Research Department, CBOE, to Brad Ritter, Senior
Counsel, OMS, Division, Commission, dated August 29, 1995
(``Amendment No. 3'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes list and trade warrants on the CBOE
Technology 50 Index (``Tech 50 Index'' or ``Index''), which the
Exchange represents is a broad-based index. The text of the proposed
rule change is available at the Office of the Secretary, the Exchange,
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 Exchange 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 index warrants based on the Tech 50
Index (``Index Warrants''). On August 29, 1995, the Commission approved
the Exchange's proposal to amend its standards for the listing and
trading of currency warrants and index warrants (``Generic Warrant
Listing Standards'').\5\ The Exchange states that the listing and
trading of warrants based on the Tech 50 Index will comply in all
respects with the Generic Warrant Listing Standards.
\5\ See Securities Exchange Act Release No. 36169 (August 29,
1995).
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Index Design
The Exchange represents that the Tech 50 Index is a broad-based
index comprised of stocks of 50 of the largest domestic technology
companies, representing various industries within that general economic
category. The Index was designed by and will be maintained by the CBOE.
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 an initial level of 200.00.
On August 15, 1995,\6\ the 50 stocks in the Index ranged in market
capitalization from a low of approximately $829.28 million to a high of
approximately $82.47 billion. Total market capitalization for the Index
on August 15, 1995, was approximately $578.53 billion. The highest
weighted stock in the Index on that date accounted for 5.62% of the
weight of the Index and the lowest weighted security in the Index
accounted for 0.68% of the weight of the Index. In aggregate, the five
highest weighted components on that date accounted for 21.45% of the
weight of the Index. Currently, the Exchange represents that all of the
component stocks are eligible for the listing of standardized options
on the Exchange pursuant to CBOE Rule 5.3.
\6\ See Amendment No. 3, supra note 4.
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As of August 15, 1995, the Exchange represents that the industry
breakdown for the Index, by weight, was as follows: (1) computer
hardware--8.20%; (2) computer software--14.63%; (3) computers systems
and services--11.12%; (4) integrated circuit components--10.43%; (5)
semiconductors--12.66%; (6) precision instrumentation--3.15%; (7)
medical technology--8.74%; (8) network and server systems--10.14%; (9)
telecommunication components--12.62%; and (10) telecommunications--
8.31%.\7\
\7\ Id.
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Warrant Terms
Index Warrants will be direct obligations of the issuing entity and
will be cash-settled in U.S. dollars. Upon exercise (or at the warrant
expiration date in the case of warrants with European-style exercise),
the holder of an Index Warrant structured as a ``put'' will receive
payment in U.S. dollars to the extent that the value of the Index has
declined below a pre-stated cash settlement value. Conversely, upon
exercise (or at the warrant expiration date in the case of warrants
with European-style exercise), the holder of an Index Warrant
structures as a ``call'' will receive payment in U.S. dollars to the
extent that the Index value has increased above a pre-stated cash
settlement value. Index Warrants that are out-of-the-money at the time
of expiration will expire worthless.
[[Page 47971]]
Maintenance of the Index
The Index will be maintained by the Exchange and will be reviewed
monthly.\8\ The CBOE may change the composition of the Index at any
time to reflect changes affecting the components of the Index or the
various technology industry subsectors represented in the Index. If it
becomes necessary to remove a stock from the Index (e.g., because of a
takeover or merger), the CBOE will take into account the
capitalization, liquidity, volatility, and name recognition of any
proposed replacement security.\9\
\8\ These reviews are mainly for the purpose of determining
whether to make composition changes to the Index. These monthly
reviews generally are not for the purpose of applying the proposed
objective standards for ensuring that the Index remains broad-based
(see ``Classification of the Index as Broad-Based,'' infra).
Telephone conversation among Timothy Thompson, Senior Attorney,
Legal Department, CBOE, Eileen Smith, Director, Product Department,
Research Department, CBOE, and Brad Ritter, Senior Counsel, OMS,
Division, Commission, on August 3, 1995 (``August 3 Conversation'').
\9\ Whenever a new component is added to the Index, the CBOE
will apply those objective standards proposed for ensuring that the
Index remains broad-based (see ``Classification of the Index as
Broad-Based,'' infra) that could be affected by the addition of a
new component security to the Index. Telephone conversation between
Timothy Thompson, Senior Attorney, Legal Department, CBOE, and Brad
Ritter, Senior Counsel, OMS, Division, Commission, on August 4, 1995
(``August 4 Conversation'').
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The Exchange intends to maintain the Index with 50 components,
however, the Exchange may increase the number of components in the
Index by up to 33%, i.e., 66 stocks.\10\
\10\ The Commission notes that the Exchange will be required to
distribute a circular to members notifying them of any change in the
components of the Index. Further, if the Exchange determines to
maintain the Index with some number of components other than 50, the
Exchange will be required to change the name of the Index. In such
an event, the Exchange should immediately notify the Commission to
determine whether a rule filing pursuant to Section 19(b) of the Act
will be required.
Calculation and Dissemination of the Value of the Index
The Index value will be calculated by the CBOE or its designee on a
real-time bases using last-sale prices, and will be publicly
disseminated \11\ every 15 seconds. If a component stock is not
currently being traded, the most recent price at which the stock traded
will be used in the Index value calculation. The value of the Index as
of the close of trading on July 17, 1995, was 335.10.
\11\ See August 3 Conversation, supra note 8.
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The Index is price-weighted and reflects changes in the prices of
the component stocks relative to the base date of January 3, 1995, when
the Index was set to an initial value of 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.\12\ The Index divisor
is adjusted to reflect non-market changes in the prices of the
component securities as well as changes in the composition of the
Index. Changes that may result in divisor changes include, but are not
limited to, stock splits and dividends (other than ordinary cash
dividends),\13\ spin-offs, certain rights issuances, and mergers and
acquisitions.
\12\ As of August 15, 1995, the share prices of the Index
components ranged from a high of $158.13 to a low of $19.00. See
Amendment No. 3, supra note 4.
\13\ See August 3 Conversation, supra note 8.
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Classification of the Index as Broad-Based \14\
The CBOE has designed the Index to meet certain objective criteria
which it believes are appropriate to classify the Index as broad-based.
To ensure that the Index remains representative of a broad spectrum of
the various high technology industries and that stocks with low trading
volumes are not included in the Index, the Exchange chose the current
components and will maintain the Index according to the following
guidelines: (1) Each underlying security selected for inclusion in the
Index must have an average daily trading volume of at least 75,000
shares during the preceding six months; (2) each underlying security
included in the Index must maintain an average daily trading volume of
at least 50,000 shares during the preceding six months; \15\ (3) no
underlying security will represent more than 15% of the total weight of
the Index; (4) the five most heavily weighted securities in the Index
will not represent more than 40% of the total weight of the Index; (5)
the Index will be comprised of at least ten technology industry
subsectors representing a total of no less than 50 underlying
securities; and (6) at least 75% of the total weight of the Index will
be represented by underlying securities that are eligible for the
listing of standardized options pursuant to CBOE Rule 5.3. The Exchange
will conduct semi-annual reviews of the underlying securities included
in the Index to assure that the Index continues to meet the standards
set forth above. The Exchange represents that the above guidelines are
similar to the requirements set forth in Interpretation .01 to Rule 7.3
of the Pacific Stock Exchange (``PSE'') regarding the designation of
the PSE's High Technology Index as a broad-based index for purposes of
the trading of standardized options.
\14\ See Amendment No. 2, supra note 3.
\15\ See August 4 Conversation, supra note 9.
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The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act in general and with Section 6(b)(5) in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation with persons engaged in
facilitating and clearing transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and to protect investors and the public
interest.
(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
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
[[Page 47972]]
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,
NW., Washington, DC 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 SR-CBOE-95-38 and should be submitted by
October 6, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
\16\ 17 CFR 200.30-3(a)(12) (1994)
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-22965 Filed 9-14-95; 8:45 am]
BILLING CODE 8010-01-M
