[Federal Register Volume 60, Number 152 (Tuesday, August 8, 1995)]
[Notices]
[Pages 40401-40403]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19521]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36049; International Series Release No. 834 File No. 
SR-CBOE-95-32]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc. Relating to the 
Listing and Maintenance Criteria for Options on American Depository 
Receipts

August 2, 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 July 12, 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).

[[Page 40402]]

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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 CBOE Rules 5.3 and 5.4 relating the 
listing and trading of options on American Depository Receipts 
(``ADRs''). 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 revise certain of the 
Exchange's rules relating to the listing and maintenance criteria for 
options on ADRs, as set forth in two separate Interpretation and 
Policies, one under CBOE Rule 5.3 and one under CBOE Rule 5.4.
Listing Criteria for Options on ADRs
    The first set of changes concern Interpretation .03 under Rule 5.3. 
Currently, the Exchange may list options on ADRs that meet the criteria 
and guidelines set forth in Rule 5.3 and the interpretations thereunder 
if any of the following conditions are satisfied: (i) The Exchange has 
in place an effective surveillance agreement \3\ with the primary 
exchange in the home country in which the security underlying the ADR 
is traded; (ii) the combined trading volume of the ADR, the security 
underlying the ADR, other classes of common stock related to the 
security underlying the ADR, and ADRs overlying such other classes of 
common stock (collectively ``other related ADRs and securities'') 
occurring in the U.S. ADR market represents (on a share equivalent 
basis) at least 50% of the combined worldwide trading volume in the ADR 
and other related ADRs and securities over the three month period 
preceding the date of selection of the ADR for options trading (``50% 
Test''); or (iii) the Commission otherwise authorizes the listing.

    \3\ The Commission defines an effective (i.e., comprehensive 
surveillance agreement as one pursuant to which the Exchange can 
obtain not only information regarding the identity of exchange 
members executing trades, but also the information regarding the 
identity of the ultimate customer.
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    The proposed rule change would amend CBOE Rule 5.3, Interpretation 
.03 in two ways. First, the manner by which the applicable percentage 
of worldwide trading volume is calculated would be revised. Second, a 
new set of criteria for the listing of options on ADRs, based on daily 
trading in the U.S., would be added.
    The 50% Test will be revised so that trading in ADRs and other 
related ADRs and securities in any market with which the Exchange has 
in place an effective surveillance sharing agreement will be added to 
U.S. ADR market volume. Currently, only trading in the U.S. ADR market 
counts towards satisfying the 50% Test. The Exchange believes it is 
legitimate to add the trading volume in the markets with which the 
Exchange has in place comprehensive surveillance sharing agreements to 
U.S. market trading volume because the Exchange is able to monitor 
trading activity in these other markets.
    Interpretation .03 to Rule 5.3 would also be revised by adding a 
fourth set of criteria under which the Exchange could list options on 
ADRs. This new standard (``Daily Trading Volume Standard'') will permit 
the Exchange to list options on ADRs if each of the following three 
conditions is met: (1) The combined trading volume for the ADR and 
other related ADRs and securities occurring in the U.S. ADR market or 
in any market with which the Exchange has in place an effective 
surveillance agreement represents (on a share equivalent basis) at 
least 20% of the combined worldwide trading volume in the ADR and other 
related ADRs and securities over the three month period preceding the 
date of selection of the ADR for options trading, (2) the average 
trading volume for the ADR in the U.S. ADR market over the three months 
preceding the date of selection of the ADR for options trading is at 
least 100,000 shares per day, and (3) the trading volume for the ADR in 
the U.S. ADR market is at least 60,000 shares per day for a majority of 
the trading days for the three months preceding the date of selection 
of the ADR for options trading.
    This new standard, like the 50% Test, will allow the listing of 
options on ADRs in the absence of a surveillance sharing agreement 
between the Exchange and the home country where the security underlying 
the ADR is traded. The Exchange notes that the Daily Trading Volume 
Standard differs from the 50% Test in three respects. First, the 
percentage trading requirement is lowered to 20% from 50%. 
Countervailing this reduced percentage, which by itself would tend to 
relax the listing standards, are two numerical U.S. trading volume 
requirements--one that would require a high average daily U.S. trading 
volume and the other that would require a certain level of trading on a 
majority of days in the preceding three months. The existing criteria 
for listing options on ADRs do not have similar trading volume 
requirements.
    The Exchange believes that the Daily Trading Volume Standard is 
justified because it will enable the Exchange to list options on ADRs 
that are widely followed by U.S. investors but that do not meet the 50% 
Test. At the same time, however, these ADRs must have high trading 
volume in the U.S. ADR market. The Exchange believes that this 
requirement of observable, high trading volumes, should ameliorate any 
regulatory concerns regarding investor protection.
Maintenance Criteria for Options on ADRs
    The proposed rule change would also establish new maintenance 
criteria corresponding to the new listing criteria discussed above. 
Currently, Interpretation .09 to Rule 5.4 prohibits the Exchange from 
opening trading on any additional series of options on an ADR that was 
initially listed under the 50% Test if the U.S. trading volume over a 
subsequent three month period is less than 30% of worldwide trading 
volume, unless either (1) the Exchange has in place an effective 
surveillance agreement with the primary exchange in the home country 
where the security underlying the ADR is traded, or (2) the Commission 
has otherwise authorized the listing.
    The proposed new maintenance criteria would prohibit the Exchange 
from opening trading on any additional series of options on an ADR that 
was initially listed pursuant to the proposed Daily Trading Volume 
Standard unless (A) the percentage of worldwide trading volume in the 
ADR and other related ADRs and securities that takes place in the U.S. 
ADR market or in markets with which the Exchange has in place 
surveillance sharing agreements for any consecutive three month period 
is either (i) at least 30% without regard to the average trading volume 
in the ADR, or (ii) at least 15% when the average U.S. daily trading 
volume in the ADR for the previous three months is at least 70,000 

[[Page 40403]]
shares, or (B) the Exchange then has in place an effective surveillance 
agreement with the primary exchange in the home country where the 
security underlying the ADR is traded or (C) the Commission has 
otherwise authorized the listing. The Exchange believes that the slight 
decrease in the trading volume percentage (i.e., from 20% to 15%) and 
the significant average daily trading volume requirement (70,000 
shares) should be adequate to address any concerns regarding possible 
manipulation without being so high as to unduly interfere with the 
continued trading of option products that have become established on 
the Exchange.
    This second revision merely establishes a maintenance criteria for 
the 50% Test that is consistent with the newly proposed listing 
criteria. Specifically, for purposes of applying the 30% maintenance 
standard, the Exchange will add to U.S. ADR market volume the volume in 
the ADR and other related ADRs and securities occurring in markets with 
which the CBOE has in place effective surveillance agreements.
    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,\4\ in particular, in that it is designed to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system by enabling the Exchange to list 
options on widely followed ADRs without compromising investor 
protection concerns.

    \4\ 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) 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 consent, 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-95-32 and should be 
submitted by August 29, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\

    \5\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-19521 Filed 8-7-95; 8:45 am]
BILLING CODE 8010-01-M