[Federal Register Volume 59, Number 124 (Wednesday, June 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15712]


[[Page Unknown]]

[Federal Register: June 29, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34241; International Series Release No. 676; File No. 
SR-CBOE-94-18]

 

Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc. Relating to Options on the CBOE Mexico Index

June 22, 1994.
    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 June 16, 
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 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 Mexico 
Index (``Mexico 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 Mexico Index. The Exchange represents that the Mexico Index 
meets the generic criteria for listing options on narrow-based indexes 
as 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 
the Generic Index Approval Order. In accordance with the Generic Index 
Approval Order, the CBOE proposes to list and trade options on the 
Mexico Index at a time no sooner than 30 days after June 16, 1994, the 
filing date of this proposed rule change.
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    \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 Mexico Index consists of the stocks of ten Mexican 
companies.\3\ The Exchange represents that no proxy for the performance 
of the Mexican economy is currently available in the U.S. derivative 
markets. The Exchange believes, therefore, that options on the Index 
will provide investors with a low-cost means of participating in the 
performance of the Mexican economy or hedging against the risk of 
investing in that economy.
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    \3\The components of the Index are: Consorcio G Grupo Dina SA de 
CV; Empresas La Moderna SA de CV; Grupo Mexicano de Desarro; Grupo 
Tribasa SA de CV; Empresas ICA Sociedad Con; Coca Cola Femsa SA de 
CV; Grupo Financiero Serfin SA de CV; Transportacion Maritima Mexi; 
Telefonos de Mexico SA de CV; and Grupo Televisa SA Global.
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Stocks Comprising the Index
    All of the stocks in the Index currently trade in the U.S. on the 
New York Stock Exchange either as American Depositary Receipts or 
American Depositary Shares (collectively ``ADRs''). Moreover, the CBOE 
represents that the U.S. is the primary market for nine of the stocks, 
representing 90% of the stocks in the Index and 90% of the weight of 
the Index. According to the CBOE, the primary market for the tenth 
security (Grupo Financiero Serfin SA de CV) is the Bolsa Mexicana de 
Valores or Mexican Stock Exchange.
    The Generic Index Approval Order specifies that no more than 20% of 
the stocks in the index, by weight, may be comprised of foreign 
securities or ADRs overlying foreign securities that are not subject to 
comprehensive surveillance sharing agreements.\4\ The Commission, 
however, further specified that an ADR would not be subject to this 
limitation if at least 50% of the worldwide trading volume in the 
foreign security occurs in the U.S. market.\5\ Because nine of the ten 
stocks in the Mexico Index meet that standard, the CBOE believes that 
the Mexico Index satisfies this criteria for options trading under the 
Generic Index Approval Order.
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    \4\See Generic Index Approval Order, supra note 2.
    \5\Id. at note 18.
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    The Exchange also represents that nine of the ten stocks in the 
Mexico Index presently meet the Exchange's listing criteria for equity 
options.\6\ According to the Exchange, therefore, 90% of the stocks in 
the index, both by number and by weight, are eligible to be underlying 
securities pursuant to the CBOE's rules. The Exchange further 
represents that all nine of such stocks are currently the subject of 
listed options trading in the U.S.\7\
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    \6\The CBOE's options listing standards, which are uniform among 
the options exchanges, provide that a security underlying an option 
must, among other things, meet the following requirements: (1) the 
public float must be at least 7,000,000; (2) there must be a minimum 
of 2,000 stockholders; (3) trading volume must have been at least 
2.4 million over the preceding twelve months; and (4) the market 
price must have been at least $7.50 for a majority of the business 
days during the preceding three calendar months. See CBOE Rule 5.3. 
With respect to ADRs, in addition to the above standards: (1) the 
Exchange must have in place a comprehensive surveillance agreement 
with the primary exchange in the home country where the security 
underlying the ADR is traded: or (2) the trading volume in the U.S. 
markets where the ADR is traded represents (on a share-equivalent 
basis) at least 50% of the worldwide trading volume in the security 
underlying the ADR over the three month period preceding the date of 
selection of the ADR for options trading; or (3) the SEC must 
otherwise authorize the listing. See Securities Exchange Act Release 
No. 33554 (January 31, 1994), 59 FR 5622 (February 7, 1994).
    \7\Grupo Financiero Serfin SA de CV is the only component of the 
Index on which standardized options currently are not traded in the 
U.S.
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    As of June 7, 1994, the stocks comprising the Index ranged in 
capitalization from $477.17 million to $26.01 billion. The mean and 
median capitalizations of the components as of that date were $7.882 
billion and $2.781 billion, respectively. The Exchange represents that 
each of the stocks in the index has a market capitalization well in 
excess of $75 million. The Exchange further represents that each of the 
component stocks in the index has had average monthly trading volume 
well in excess of one million shares over the six month period from 
December 1, 1993 through May 31, 1994. Accordingly, the Exchange 
represents that its generic listing standards set forth in CBOE Rule 
24.2 are satisfied with respect to the criteria for market 
capitalization and trading volume.
Calculation
    The Index will be calculated on a real-time basis by the CBOE or 
its designee using last-sale prices, 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 trade will be used in 
the Index calculation. The value of the Index at the close on June 7, 
1994 was 161.87, which reflects the changes in the prices of the 
component stocks relative to the base date established by the CBOE of 
January 3, 1994.
    The Index is calculated using an ``equal dollar-weighting'' method, 
meaning that each of the component stocks is represented in 
approximately equal dollar amounts. To determine the initial dollar 
weighting of the stocks, the exchange calculated the number of shares 
(to the nearest whole share) that would represent an investment of 
$10,000 in each of the stocks continued in the Index using closing 
prices of the component stocks on December 17, 1993. The value of the 
Index equals the current market value (based on U.S. primary market 
prices) of the assigned number of shares of each of the stocks in the 
Index divided by the current Index divisor. The Index divisor was 
initially calculated to yield a benchmark value of 200.00 at the close 
of trading on January 3, 1994.
Maintenance
    The Index will be maintained by the CBOE. The Index composition 
will be rebalanced quarterly, following the close of trading on the 
third Friday of each March, June, September, and December, by changing 
the number of shares of each component stock so that each company is 
again represented in $10,000 ``equal'' dollar amounts. If necessary, a 
divisor adjustment will be made to ensure continuity of the value of 
the Index. The newly adjusted portfolio becomes the basis for the 
Index's values on the first trading day following the quarterly 
adjustment.
    In addition, to maintain continuity in the Index following an 
adjustment to a component security, the divisor will be adjusted. 
Changes which may result in divisor changes include, but are not 
limited to, spin-offs, certain rights issuances, and mergers and 
acquisitions.
    The Index will be reviewed on approximately a monthly basis by the 
CBOE staff. The CBOE may change the composition of the Index at any 
time or from time to time to reflect changes affecting the components 
of the Index or the Mexican economy generally. If it becomes necessary 
to remove a stock from the Index (for example, because of a takeover or 
merger), the CBOE will either add a Mexican stock having 
characteristics that will permit the Index to remain within the 
maintenance criteria specified in the CBOE's Rules and the Generic 
Index Approval Order or make no change to the composition of the Index 
provided the Index is still comprised of at least nine components. The 
CBOE will take into account the capitalization, liquidity, volatility, 
and name recognition of any proposed replacement stock.
    If the Index fails at any time to satisfy the maintenance criteria 
set forth in the Generic Index Approval Order, 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 Mexico Index has been approved by the 
Commission under Section 19(b)(2) of the Exchange Act.
    Absent prior Commission approval, the Exchange will not increase to 
more than 13, or decrease to fewer than 9, the number of stocks in the 
Index, nor will the CBOE 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 quality 
as stocks eligible for equity options trading under CBOE Rule 5.3.\8\
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    \8\See supra note 6.
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Index Option Trading
    The Exchange proposes to base trading in options on the Mexico 
Index on the full value of that Index. The Exchange may also list full-
value long-term index option series (``Index LEAPS'') on the Mexico 
Index, as provided in 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
    Mexico 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 Mexico 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 Mexico Index options. Index option contracts based on the 
Mexico Index will be subject to the position limit requirements of Rule 
24.4A, which presently would result in position limits for Mexico Index 
options of 10,500 contracts. 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 Mexico 
Index options. The CBOE also represents that the Options Price 
Reporting Authority (``OPRA'') has the capacity to support such new 
series.9
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    \9\See Letter from Joe Corrigan, Executive Director, OPRA, to 
Eileen Smith, Director, Product Development, Research Department, 
CBOE, dated June 9, 1994.
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    The CBOE represents 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)10 in particular in that it will permit trading in 
options based on the Mexico Index pursuant to rules designed to prevent 
fraudulent and manipulative acts and practices and to promote just and 
equitable principles of trade.
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    \1\015 U.S.C. section 78f(b)(5) (1988).
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(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 the Generic Index Approval Order, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act. Pursuant to the 
Generic Index Approval Order, the Exchange may not list Mexico Index 
options for trading prior to 30 days after June 16, 1994, the date the 
proposed rule change was filed with the Commission. 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. section 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-94-18 and should be 
submitted by July 20, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.11
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    \1\117 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-15712 Filed 6-28-94; 8:45 am]
BILLING CODE 8010-01-M