[Federal Register Volume 60, Number 193 (Thursday, October 5, 1995)]
[Notices]
[Pages 52229-52231]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-24716]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36295; File No. SR-CBOE-95-51]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Incorporated Relating to
the Listing and Trading of Options on the CBOE Automotive Index
September 28, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\
[[Page 52230]]
notice is hereby given that on August 31, 1995, the Chicago Board
Options Exchange, Incorporated (``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.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade options on the CBOE
Automotive Index (``Automotive Index'' or ``Index''). The text of the
proposed rule change is available at the Office of the Secretary, the
Exchange, 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. 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 \3\ stock index options
on the Automotive Index.
\3\ European-style options can only be exercised during a
specified period before the options expire.
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Index Design
The Automotive Index consists of ten companies involved in the
design and manufacture of automobiles and automotive parts (replacement
and original equipment).\4\ All of the stocks currently comprising the
Index currently trade on the New York Stock Exchange (``NYSE''). No
proxy for the performance of this industry group is currently available
in the U.S. exchange-traded derivatives markets, and the Exchange
believes that options on the Index will provide investors with a low-
cost means to participate in the performance of or to hedge the risk of
investments in this sector.
\4\ The components of the Index are: Chrysler Corporation
Holding Co. (``C''); Dana Corp. (``DCN''); Echlin Inc. (``ECH'');
Eaton Corp. (``ETN''); Ford Motor Co. (``F''); General Motors Corp.
(``GM''); Genuine Parts Co. (``GPC''); Goodyear Tire and Rubber Co.
(``GT''); Magna International Inc. (``MGA''); and TRW Inc.
(``TRW'').
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The components comprising the Index ranged in capitalization from
$2.3 billion to $36.4 billion as of July 31, 1995. The total
capitalization as of that date was $112.2 billion; the mean
capitalization was $11.2 billion; and the median capitalization was
$4.8 billion. The largest component accounted for 20% of the total
weighting of the Index, while the smallest accounted for 5.00%. The top
five components accounted for 68.33% of the total weight of the Index.
Index 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 security is not currently being traded on its
primary market, the most recent price at which the security traded on
such market will be used in the Index calculation.
The Index is calculated on a ``modified equal-dollar-weighted''
method. Each of the ten component securities is represented in dollar
amounts that approximate the relative sizes of the companies in the
Index. The Exchange believes that this methodology will present a fair
representation of the automotive industry without assigning excessive
weight to the top three securities (GM, F, and C), as measured by
market capitalization. The initial component weights, and the weights
at the time of the last quarterly rebalancing on June 16, 1995, were:
GM--20%, F--17.5%, C--12.5%, GT--10%, ETN--8.33%, GPC--8.33%, TRW--
8.33%, DCN--5%, ECH--5%, and MGA--5%.
The value of the Index equals the current combined 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
benchmark value of 150.00 at the close of trading on December 16, 1994.
The value of the Index at the close on July 31, 1995, was 179.93.
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 to reflect changes
affecting the components of the Index or the Automotive industry
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 9 nor increase the number of
components to more than 13. All replacement securities will be
``reported securities'' as defined in Rule 11Aa3-1 of the Securities
Exchange Act of 1934.
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 90% of the weight of the Index satisfying the initial
listing criteria in CBOE Rule 5.3 (for components which are not the
subject of standardized options trading) or the maintenance criteria in
CBOE Rule 5.4 (for components which are currently the subject of
standardized options trading).
Index Option Trading
The Exchange proposes to base trading in options on the Automotive
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 LEAPS will, after such initial computation, be rounded to
the nearest one-hundredth.
Exercise and Settlement
Automotive 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 Automotive 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 the
second business day (ordinarily a Thursday) preceding the expiration
date.
[[Page 52231]]
Exchange Rules Applicable
Except as modified herein, the Rules in Chapter XXIV will be
applicable to Automotive 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,\5\ and
margin treatment.\6\
\5\ See CBOE Rule 24.7.
\6\ See CBOE Rule 24.11.
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Index option contracts based on the Automotive 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 7,500 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 contract for purposes
of aggregating positions.
CBOE has the necessary systems capacity to support new series that
would result from the introduction of the Automotive Index options.
CBOE has also been informed that OPRA has the capacity to support such
new series.
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 Automotive Index pursuant to rules designed to prevent
fraudulent and manipulative acts and practices and to promote just and
equitable principles of trade.
The rule proposal will also serve to further these objectives by
providing investors with the ability to invest in options based on an
additional index.
(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
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 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 at the
Commission's Public Reference Section, 450 Fifth Street NW.,
Washington, DC 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 SR-CBOE-95-51 and should be submitted by
October 26, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
\7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-24716 Filed 10-4-95; 8:45 am]
BILLING CODE 8010-01-M