[Federal Register Volume 59, Number 99 (Tuesday, May 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12634]


[[Page Unknown]]

[Federal Register: May 24, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34077; International Series Release No. 668; File No. 
SR-CBOE-94-14]

 

Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc., Relating to Options 
on the Nikkei Stock Index 300

May 18, 1994.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on April 19, 1994, 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 self-regulatory organization. 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 amend certain of its rules to provide for the 
listing and trading on the Exchange of options on the Nikkei Stock 
Index 300 (``Nikkei 300'' or ``Index''),\2\ a cash-settled broad-based 
index with European-style exercise.
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    \2\The CBOE has represented that the designations ``Nikkei Stock 
Index 300'' and ``Nikkei 300'' are property of Nihon Keizai Shimbun, 
Inc.
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    The text of the proposal 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 self-regulatory organization 
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 self-regulatory organization 
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

    The purpose of the proposed rule change is to permit the Exchange 
to amend its rules to provide for the listing and trading of options on 
the Nikkei Stock Index 300. The Index is comprised of 300 
representative stocks of the first section of the Tokyo Stock Exchange 
(``TSE'').\3\ The Exchange believes that options on the Index will 
provide investors with a low-cost means of participating in the 
performance of the Japanese economy and hedging against the risk of 
investing in that economy.
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    \3\First section stocks are distinguished from second section 
stocks by more stringent listing standards. Telephone conversation 
between Eileen Smith, Director, Product Development, Research 
Department, CBOE, and Francois Mazur, Attorney, Office of 
Derivatives and Equity Regulation, Division of Market Regulation, 
Commission (May 16, 1994).
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    Index Design: The Index was designed by and is maintained by Nihon 
Keizai Shimbun, Inc. The CBOE represents that Index component stocks 
were selected by Nihon Keizai Shimbun, Inc. for their high market 
capitalization and their high degree of liquidity, and are 
representative of the industrial composition of the broader Japanese 
equity market. The Index is weighted by the market capitalization of 
the component stocks.
    The median capitalization of the firms in the Index on March 31, 
1994, was 340.1 billion.\4\ The average market capitalization of 
these firms was US$7.5 billion on the same date using the same rate of 
exchange. The individual market capitalization of these firms ranged 
from US$875 million to US$76.5 billion on March 31, 1994. The largest 
stock accounted for 3.41% of the total weighting of the Index, while 
the smallest accounted for 0.04%.
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    \4\US$3.3 billion at the exchange rate of 102.75 per dollar 
prevailing on March 31, 1994.
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    Calculation: The value of the Index is determined by adding the 
price of each stock times the number of shares outstanding. This sum is 
then divided by a divisor which gives the Index a value of 100 on its 
base date of October 1, 1982. This divisor is adjusted for pertinent 
changes as described below in the section titled ``Maintenance.'' The 
Index had a closing value of 296.35 on April 13, 1994.
    Maintenance: The Index will be maintained by Nihon Keizai Shimbun, 
Inc. To maintain continuity of the Index, the divisor of the Index will 
be adjusted to reflect certain events relating to the component stocks. 
These events include, but are not limited to, changes in the number of 
shares outstanding, spinoffs, certain rights issuances, and mergers and 
acquisitions. The composition of the Index will be reviewed 
periodically by Nihon Keizai Shimbun, Inc.
    Index Option Trading: The Exchange proposes to base trading in 
options on the Index on the full value of the Index as expressed in 
U.S. dollars. The Exchange also may provide for the listing of full-
value, long-term options series (``LEAPS'') and reduced-value LEAPS on 
the Index. For reduced-value LEAPS, 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 LEAP will, after such 
initial computation, be rounded to the nearest one-hundredth. The 
trading hours for options on the Index will be from 8 a.m. to 3:15 
p.m., Chicago time. Because the TSE does not operate during the 
Exchange's trading hours, the Exchange will disseminate the value of 
the Index based on the most recent closing value of the Index.
    Exercise and Settlement: The proposed options on the Index will 
expire on the Saturday following the third Friday of the expiration 
month. Thus, trading in the expiring contract month will normally cease 
on a Thursday at 3:15 p.m., Chicago time, unless a holiday occurs. The 
exercise settlement value of Index options at expiration will be 
determined at the close of the regular Friday trading sessions in 
Japan, ordinarily at 3 p.m., Tokyo time. If a stock does not trade 
during this interval or if it fails to open for trading, the last 
available price of the stock will be used in the calculation of the 
Index. When option expiration dates are changed in accordance with 
Exchange holidays, such as when the CBOE is closed on the Friday before 
expiration, the last trading day for expiring options will be Wednesday 
and the exercise settlement value of the Index will be determined at 
the close of the regular Thursday trading sessions in Japan even if the 
Japanese markets are open on Friday. If the Japanese markets will be 
closed on the Friday before expiration but the CBOE will not, the last 
trading day for expiring options will be Wednesday.
    Surveillance Agreements: The Exchange expects to apply its existing 
index options surveillance procedures to Index options. The Exchange is 
pursuing market surveillance agreements with the Japanese Ministry of 
Finance and the TSE. These agreements will enable the Exchange to carry 
out its regulatory responsibilities with respect to the surveillance of 
trading in the stocks comprising the Index.
    Position Limits: The Exchange is proposing to establish position 
limits for Nikkei 300 Index options equal to 50,000 contracts on the 
same side of the market, with no more than 30,000 contracts in the 
series with the nearest expiration date. Ten reduced-value options will 
equal one full-value contract for such purposes.
    Exchange Rules Applicable: Except as modified herein, the Rules in 
Chapter XXIV will be applicable to Nikkei 300 Index options.
    CBOE has represented that it has the necessary systems capacity to 
support new series that would result from the introduction of Nikkei 
300 Index options.
    The Exchange 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) in particular in that it will permit trading in options 
based on the Nikkei Stock Index 300 pursuant to rules designed to 
prevent fraudulent and manipulative acts and practices and to promote 
just and equitable principals 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

    CBOE does not believe that the proposed rule change will impose any 
inappropriate 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 above-mentioned 
self-regulatory organization. All submissions should refer to File No. 
SR-CBOE-94-14 and should be submitted by June 14, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-12634 Filed 5-23-94; 8:45 am]
BILLING CODE 8010-01-M