[Federal Register Volume 60, Number 71 (Thursday, April 13, 1995)]
[Notices]
[Pages 18862-18864]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-9077]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35573; International Series Release No. 800 File No.
SR-CBOE-95-20]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Inc. Relating to the
Listing and Trading of Options on the CBOE Latin 15 Index
April 6, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 20, 1995, the Chicago Board Options Exchange (``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 CBOE. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1994).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The CBOE proposes to list for trading options on the CBOE Latin 15
Index (``Latin 15 Index'' or ``Index''). 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 Exchange 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
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\3\ stock index options
on the Latin 15 Index, a narrow-based index created by the Exchange.
\3\European-style options can only be exercised during a
specified period before the options expire.
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The Latin 15 Index consists of fifteen components, including
American Depositary Receipts (``ADRs''), American Depositary Shares
(``ADSs''), and closed-end country funds from four Latin American
countries: Argentina, Brazil, Chile, and Mexico.\4\ The exchange
represents that no proxy for the performance of these emerging
economies is currently available in the U.S. derivative markets, and
options on the Index will provide investors with a low-cost means to
participate in the performance of these markets or to hedge the risk of
emerging markets investments.
\4\The components of the Index are: Argentina Fund Inc.;
Telefonica de Argentina S.A.; YPF Sociedad Anonima S.A.; Aracruz
Celulose S.A.; Brazil Fund, Inc.; Brazilian Equity Fund, Inc.; Banco
Osorno Y La Union; Compania de Telefonos de Chile; Empresa Nacional
Electricidad S.A.; Empresas La Moderna S.A. de C.V.; Grupo Tribasa
S.A. de C.V.; Coca Cola Femsa S.A.; Telofonos de Mexico S.A.; Grupo
Televisa S.A.; and Vitro Sociedad Anonima.
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Index Design
As noted above, the Latin 15 Index consists of fifteen components,
consisting of ADRs, ADSs, and closed-end country funds. All of the
components of the Index currently trade on the New York Stock Exchange
(``NYSE'').
The components comprising the Index ranged in capitalization from
$77.2 million to $10.6 billion as of March 14, 1995. The total
capitalization as of that date was $38.8 billion; the mean
capitalization was $2.6 billion;
[[Page 18863]]
and the median capitalization was $812.5 million. The largest component
accounted for 11.67% of the total weight of the Index, and the five
largest components accounted for 46.67% of the total weight of the
Index. On that same date, the smallest component accounted for 5.00% of
the total weight of the Index. The components of the Index were
initially balanced to have a combined weight for each country as
follows: Argentina--17.5%, Brazil--35%, Chile--17.5%, and Mexico--30%.
Calculation
The Index will be calculated by CBOE or its designee on a real-time
basis using last-sale prices and will be disseminated every 15 seconds
by CBOE. If a component share is not currently being traded on its
primary market, the most recent price at which the share traded on such
market will be used in the Index calculation.
The Index is calculated on a ``modified equal-dollar-weighted''
basis, meaning that each of the components (fund shares or individual
stocks) from each of the four countries is represented in approximately
equal dollar amounts in relation to the other shares from that country.
The countries in the index are then weighted, at the beginning of each
quarter, as follows: Argentina--17.5%, Brazil--35%, Chile--17.5%, and
Mexico--30%. The Exchange believes this methodology will present a
fairer representation of the respective economies. The ``modified''
description refers to the fact that the dollar-weighting is done on a
country by country basis and not between shares of different countries.
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 components in the Index divided by the current Index divisor. The
Index divisor was initially calculated to yield a bench-mark value of
150.00 at the close of trading on January 3, 1994. The value of the
Index at the close on March 14, 1995, was 111.68.
Maintenance
The Index will be maintained by CBOE. 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, certain rights issuances, quarterly re-balancing,
and component security changes.
The Index is re-balanced after the close of business on Expiration
Fridays on the March quarterly cycle. In addition, 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
Latin American markets generally. If it becomes necessary to remove a
component from the Index, every effort will be made to add a component
that preserves the character of the Index. In such circumstances, CBOE
will take into account the capitalization, liquidity, volatility, and
name recognition of the proposed replacement component. CBOE will not
decrease the number of components to less than 10.
Additionally, the Exchange will not make any composition change to
the Index that would result in less than 80% of the number of
components or 85% of the weight of the Index satisfying the initial
equity option listing criteria set forth in CBOE Rule 5.3,
Interpretation and Policy .01 (for components which are not the subject
of standardized options trading) or the maintenance criteria in CBOE
Rule 5.4, Interpretation and Policy .01 (for components which are
currently the subject of standardized options trading).\5\
\5\Telephone conversation between Eileen Smith, Director,
Product Development, Research, CBOE, and Brad Ritter, Senior
Counsel, Office of Market Supervision, Division, Commission, on
April 5, 1995.
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Index Option Trading
The Exchange proposes to base trading in options on the Latin 15
Index on the full value of that Index. The Exchange may list full-value
long-term index option series (``LEAPS''), as provided in Rule 24.9.
The Exchange also may provide for the listing of reduced-value 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 LEAP will, after such initial computation, be rounded to
the nearest one-hundredth.
Exercise and Settlement
Latin 15 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 Latin 15 Index options. The proposed options will
expire on the Saturday following the third Friday of the expiration
month. Thus, the last day for trading in an expiring series will be
second business day (ordinarily a Thursday) preceding the expiration
date.
Exchange Rules Applicable
Except as modified herein, the rules in Chapter XXIV of the CBOE
Rules will be applicable to Latin 15 Index options. In accordance with
Chapter XXIV of CBOE's Rules, the Index will be treated as a narrow-
based index for purposes of policies regarding trading halts and
suspensions,\6\ and margin treatment.\7\
\6\See CBOE Rule 24.7.
\7\See CBOE Rule 24.11.
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Index option contracts based on the Latin 15 Index will be subject
to the position limit requirements of Rule 24.4, pursuant to which
position and exercise limits for options on the Index would currently
be set at 10,500 contracts. Positions in Index LEAPS will be aggregated
with positions in Index options on a one-for-one basis. Ten reduced-
value options will equal one full-value Index option or Index LEAP for
purposes of aggregating position.
CBOE has the necessary systems capacity to support new series that
would result from the introduction of the Latin 15 Index options.
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act, in general, and furthers the objectives of
Section 6(b)(5) of the Act,\8\ in particular, in that it will provide
investors with an opportunity to invest in options based upon the Latin
15 Index pursuant to rules designed to prevent fraudulent and
manipulative acts and practices, promote just and equitable principles
of trade, foster cooperation and coordination with persons facilitating
transactions in securities, remove impediments to and perfect the
mechanism of a free and open market, and protect investors and the
public interest.
\8\15 U.S.C. 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 inappropriate burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
Written comments on the proposed rule change were neither solicited
nor received.
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)
[[Page 18864]]
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 Exchange 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, 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. 552, will be available for inspection and copying in the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 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-95-20 and should be
submitted by May 4, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
\9\17 CFR 200.30-3(a)(12) (1994).
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Jonathan G. Katz,
Secretary.
[FR Doc. 95-9077 Filed 4-12-95; 8:45 am]
BILLING CODE 8010-01-M