[Federal Register Volume 60, Number 26 (Wednesday, February 8, 1995)]
[Notices]
[Pages 7598-7599]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-3109]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35315; File No. SR-CBOE-95-11]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by Chicago Board Options Exchange, Inc. Relating to Listing 
Standards for Options on Securities Issued in Certain Corporate 
Restructuring Transactions

February 1, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on 
January 26, 1995, the Chicago Board Options Exchange, Inc. (``CBOE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') 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.

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

    The Exchange proposes to incorporate in its rules listing standards 
applicable to options on securities issued in certain corporate 
restructuring transactions. 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 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

1. Purpose
    The Exchange proposes to amend its rules to permit the earlier 
listing of options on securities issued by companies in connection with 
certain corporate restructuring transactions (``New Securities''). 
Currently, certain of the Exchange's rules preclude the listing of 
options on any security until that security has been actively traded at 
or above a specific price level for a certain period of time. For 
example, under Exchange Rule 5.3, Interpretation and Policy .01(b)(1), 
trading volume in an underlying security must be at least 2,400,000 
shares during the preceding twelve months (the ``Volume Test''). 
Further, under Exchange Rule 5.3, Interpretation and Policy .01(b)(2), 
the market price for an underlying security must be at least $7.50 for 
the majority of business days during the three calendar month period 
preceding the date the security is selected as an underlying security 
(the ``Price Test'').
    The proposed rule change would facilitate the earlier listing of 
options on New Securities by permitting the Exchange to determine 
whether a New Security satisfies the Volume Test and Price Test by 
reference to the trading volume and market price history of an 
outstanding equity security (the ``Original Security'') previously 
issued by the issuer of the New Security (or an affiliate thereof). 
Specifically, if (a) the aggregate market value, assets or revenue 
attributable to a New Security is at least a stated percentage of the 
same measure attributable to the Original Security and if a stated 
minimum value of assets or revenues represented by the New Security, as 
applicable, is satisfied or (b) the aggregate market value of the New 
Security is not less than $500 million,\1\ then the Exchange would be 
permitted to determine whether a New Security satisfies the Volume Test 
and Price Test by reference to the trading volume and market price 
history of the Original Security. Reference may be made to the trading 
volume and market price history of the Original Security only for 
trading days occurring prior to the ex-date for the transaction in 
which the New Security is issued\2\ and prior to any trading day for 
which these tests are determined to be satisfied by reference to the 
trading volume and market price history of the New Security. If 
reference is made to either the trading volume or market price history 
of the Original Security for this purpose for any period of time, then 
reference must be made to both such criteria in respect of the Original 
Security for that period.

    \1\The proposed rule change would apply to a New Security if at 
least one of the following conditions is met:
    (1) Any one or more of (A) the aggregate market value of the New 
Security, (B) the aggregate book value of the assets attributed to 
the business represented by the New Security, or (C) the revenues 
attributed to the business represented by the New Security are at 
least 25% of the same measure determined with respect to the 
Original Security or the business represented by the Original 
Security, as applicable, calculated in a comparable manner on a 
basis that reflects the inclusion of the business represented by the 
New Security, provided that in the case of the qualification of a 
New Security under clause (B), the aggregate book value of the 
assets attributed to the business represented by the New Security is 
not less than $50 million, and in the case of the qualification of a 
New Security under clause (C), the revenues attributed to the 
business represented by the New Security are not less than $50 
million;
    (2) Any one or more of (A) the aggregate market value of the New 
Security, (B) the aggregate book value of the assets attributed to 
the business represented by the New Security, or (C) the revenues 
attributed to the business represented by the New Security are at 
least 33\1/3\% of the same measure determined with respect to the 
Original Security or the business represented by the Original 
Security, as applicable, calculated in a comparable manner on a 
basis that reflects the exclusion of the business represented by the 
New Security, provided that in the case of the qualification of a 
New Security under clause (B), the aggregate book value of the 
assets attributed to the business represented by the New Security is 
not less than $50 million, and in the case of the qualification of a 
New Security under clause (C), the revenues attributed to the 
business represented by the New Security are not less than $50 
million; or
    (3) The aggregate market value represented by the New Security 
is at least five hundred million dollars ($500,000,000).
    \2\Under the proposed rule change, options contracts may not 
initially be listed for trading in respect of a New Security until 
such time as shares of the New Security are issued and outstanding 
and are the subject of trading that is not on a ``when issued'' 
basis or in any other way contingent on the issuance or distribution 
of the shares.
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    In addition, if the New Security is to be listed on an exchange or 
in an automatic quotation system that has an initial listing 
requirement equivalent to [[Page 7599]] the requirement of paragraph 
(a)(2) of Interpretation and Policy.01 under Exchange Rule 5.3 (number 
of shareholders must be at least 2,000), that requirement would be 
deemed to be satisfied. Finally, if at least 40 million shares of a New 
Security will be outstanding in a restructuring, the Exchange may 
assume that the New Security will satisfy the listing criteria of both 
paragraphs (a)(1) (sufficient public float) and (a)(2) of 
Interpretation and Policy .01 under Exchange Rule 5.3. Before relying 
on either of the assumptions described above, the Exchange must make a 
reasonable investigation as to the number of shareholders and public 
float of the New Security and must not have determined that the 
requirements of paragraphs (a)(1) and (a)(2) will, in fact, not be 
satisfied.
    The proposed rule change also would revise one of the Exchange's 
guidelines relating to the withdrawal of approval of underlying 
securities. Currently, under Exchange Rule 5.4, Interpretation and 
Policy .01(c) and .01(d), an underlying security will not be deemed to 
satisfy the Exchange's listing criteria if the trading volume of the 
underlying security in all markets was less than 1,800,000 shares in 
the preceding twelve months (the ``Maintenance Volume Test'') or if the 
market price of the underlying security closed below $5 on a majority 
of business days during the preceding six months (the ``Market Price 
Test''). Because New Securities have limited trading history, they may 
be unable to satisfy the Maintenance Volume Test or the Market Price 
Test at the time options on such securities are first listed for 
trading on the Exchange. Accordingly, the proposed rule change would 
add a new Interpretation and Policy .01(g) to Exchange Rule 5.4 to 
provide that the Exchange may determine whether a New Security 
satisfies the Maintenance Volume and Market Price Test set forth in 
paragraphs (c) and (d) of that Interpretation, as well as the 
comparable tests set forth in Interpretation and Policy .04 of Exchange 
Rule 5.4, by reference to the trading volume and price history of the 
Original Security prior to commencement of trading in the New Security, 
including ``when issued'' trading.
2. Statutory Basis
    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, by removing impediments to a free and open market in 
options covering securities issued by companies engaged in corporate 
restructuring transactions.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The CBOE does not believe that the proposed rule change will impose 
any burden on competition.

B. 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 publication of this notice in the Federal 
Register or within such other 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, 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. Sec. 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-95-11 and should be 
submitted by March 1, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-3109 Filed 2-7-95; 8:45 am]
BILLING CODE 8010-01-M