[Federal Register Volume 59, Number 67 (Thursday, April 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8281]


[[Page Unknown]]

[Federal Register: April 7, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-33843; File No. SR-CBOE-94-04]

 

Self-Regulatory Organizations; Filing of Proposed Rule Change by 
the Chicago Board Options Exchange, Inc., Relating to Listing Criteria 
for Certain Hybrid Securities

    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 February 
25, 1994, the Chicago Board Options Exchange, Inc. (``CBOE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE proposes to amend its rules to establish specific listing 
criteria for certain hybrid securities. 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 the 
Statutory Basis for, the Proposed Rule Change

    The purpose of the proposed rule change is to revise certain of the 
Exchange's rules to permit the Exchange to list and trade the following 
securities:
1. Contingent Value Rights
    The Exchange is proposing to add rule 31.5.H. to its rules to 
establish specific listing criteria for contingent value rights 
(``CVRs''). CVRs are unsecured obligations providing for a possible 
cash payment at maturity based on the value of an equity security 
issued by an affiliate of the issuer of the CVRs (``related 
security''). At maturity, the holder of a CVR would be entitled to a 
cash payment at maturity if the market price of the related security is 
lower than a predetermined target price. If the market price of the 
related security equals or exceeds the target price, the holder of the 
CVR would not be entitled to receive such a cash payment.
    Under proposed rule 31.5.H., a CVR would be eligible for listing 
if:
    (1) The issuer satisfies the net worth and earnings requirements 
set forth in Exchange Rule 31.5.A.;
    (2) The issuer has assets in excess of $100 million;
    (3) There is a minimum public distribution of 600,000 CVRs;
    (4) There is a minimum of 1,200 public holders of the CVRs;
    (5) The aggregate market value of the CVRs equals or exceeds $18 
million; and
    (6) The CVRs have an original term to maturity of at least one 
year. In the alternative, a CVR would be eligible for listing if it 
meets the minimum standards as established by another national 
securities exchange.
2. Equity-Linked Notes
    The Exchange is proposing to add rule 31.5.I. to its rules to 
establish specific listing criteria for equity-linked notes (``ELNs''). 
ELNs are intermediate-term, non-convertible hybrid instruments whose 
value is based, in part, on the performance of a highly capitalized, 
actively traded U.S. common stock or foreign security that is traded in 
the U.S. in the form of American Depositary Receipts (``ADRs''), 
ordinary shares or otherwise. Under proposed rule 31.5.I., the issuer 
of ELNs must satisfy the earnings requirements set forth in Exchange 
Rule 31.5.A. and must have a minimum tangible net worth of $150 
million. In addition, although the Exchange does not believe that ELNs 
will have any impact on the market for the underlying linked stock, 
ELNs listed for trading on the Exchange also must satisfy the following 
criteria:
    (1) An ELN must have an original term to maturity of not less than 
two and not more than seven years;
    (2) The total original issue price of an ELN (when combined with 
all of the ELNs issued by the issuer which are listed on a national 
securities exchange or traded through the facilities of the National 
Association of Securities Dealers Automated Quotation system 
(``NASDAQ'')) cannot exceed 25 percent of the issuer's tangible net 
worth at the time of issuance;
    (3) The underlying stock must be listed for trading on a national 
securities exchange or traded through the facilities of NASDAQ;
    (4) The issuer of the underlying stock either must be subject to 
the reporting requirements set forth in section 13 of the Act or exempt 
from such requirements pursuant to SEC rule 12g3-2(b);
    (5) The issuer of the underlying stock must have either (x) a 
minimum market capitalization of $3 billion and trading volume in the 
underlying stock during the 12-month period preceding the listing of 
the ELNs must have been at least 2.5 million shares, or (y) a minimum 
market capitalization of $1.5 billion and trading volume in the 
underlying stock during the 12-month period preceding the listing of 
the ELNs has been at least 20 million shares;
    (6) The amount of stock underlying an ELN cannot exceed five 
percent of the total amount of outstanding common shares of such stock; 
and
    (7) If the stock underlying an ELN is a foreign stock that is 
traded in the U.S. market, then either (x) the Exchange must have in 
place a market information sharing agreement with the primary exchange 
on which the foreign stock is traded, or (y) the combined U.S. trading 
volume of the foreign stock and other related securities\1\ must 
represent (on a share equivalent basis with respect to ADRs) at least 
50% of the combined worldwide trading volume in the foreign stock and 
other related securities over the three month period preceding the date 
of selection of the ELNs for listing. Prior to listing ELNs for 
trading, the Exchange will distribute a circular providing guidance 
regarding member firm compliance responsibilities when handling 
transactions in ELNs.
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    \1\Related securities include any ADRs overlying the foreign 
stock, other classes of common stock related to the foreign stock, 
and any ADRs overlying such other stock.
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3. Paired Securities
    The Exchange is also proposing to add rule 31.5.J. to its rules to 
set forth specific listing criteria for ``paired securities.'' Under 
proposed rule 31.5.J., the term ``paired securities'' would be defined 
as securities which may be transferred and traded only in combination 
with one another as a single economic unit. Under the proposed rule, 
the issuers of the paired securities would be required to satisfy the 
size and earnings criteria set forth in Exchange Rule 31.5.A. on an 
aggregate basis. In the event the pairing agreement between the issuers 
of the paired securities is terminated, each issuer and each security 
would be required to satisfy the Exchange's continuing listing 
guidelines on an individual basis in order for the security to remain 
listed for trading on the Exchange.
    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 perfects the 
mechanism of a free and open market by expanding the types of 
securities that may be listed for trading on the Exchange.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The CBOE does not believe that the proposed rule change will impose 
a 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 provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
commission's Public Reference Section, 450 Fifth Street NW., 
Washington, DC. 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-94-04 and should be 
submitted by April 28, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\2\
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    \2\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-8281 Filed 4-6-94; 8:45 am]
BILLING CODE 8010-01-M