[Federal Register Volume 60, Number 214 (Monday, November 6, 1995)]
[Notices]
[Pages 56077-56078]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27425]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36441; File No. SR-CBOE-95-64]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval to Proposed Rule Change by the Chicago 
Board Options Exchange, Incorporated and Amendment Nos. 1 and 2 to the 
Proposed Rule Change, Relating to Position Limits on the S&P 500/Barra 
Growth Index and the S&P 500/Barra Value Index

October 31, 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 October 20, 1995 the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. The Exchange 
submitted to the Commission Amendment Nos. 1 and 2 to the proposal on 
October 26, 1995.\3\ The Commission is approving this proposal, as 
amended, on an accelerated basis.

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Exchange submitted Amendment No. 1 to its proposed rule 
change to reduce the position limits originally proposed in this 
filing to position limits consistent with the rebasing of the Growth 
Index and Value Index. The Exchange proposes to amend the contract 
position limits for the Indexes: (1) From 40,000 contracts on the 
same side of the market as originally proposed to 36,000 contracts; 
(2) from 25,000 contracts in the nearest expiration series as 
originally proposed to 21,500 contracts; and (3) from a 75,000 
contract hedge exemption limit as originally proposed to 65,000 
contracts. Additionally, Amendment No. 2 changes the name of each 
Index from S&P/Barra Growth and S&P/Barra Value to S&P 500/Barra 
Growth and S&P 500/Barra Value, respectively. See Letter from 
Timothy Thompson, Attorney, CBOE, to John Ayanian, Attorney, Office 
of Market Supervision, Division of Market Regulation, Commission, 
dated October 26, 1995.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to revise the positions limits applicable to 
the S&P 500/Barra Growth Index and the S&P 500/Barra Value Index.\4\ 
(The S&P 500/Barra Growth Index is sometimes hereinafter referred to as 
the ``Growth Index,'' the S&P/500 Barra Value Index is sometimes 
hereinafter referred to as the ``Value Index,'' and the Growth Index 
and the Value Index are sometimes hereinafter collectively referred to 
as the ``Indexes.'') The position limits are being revised to account 
for the rebasing of the Indexes. The text of the proposed rule change 
is available at the Office of the Secretary of CBOE and at the 
Commission.

    \4\ Exercise limits will be set at the same level as position 
limits. See CBOE Rule 24.5.
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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 those statements may be examined at 
the places specified in Item IV below and is set forth in sections (A), 
(B), and (C) below.

(A) Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

    The purpose of the proposed rule change is to reduce the contract 
position limits for the Indexes consistent with the recent rebasing of 
the Indexes by Standard & Poor's (``S&P''). The Indexes are maintained 
by Barra, Inc. (``Barra'') pursuant to an agreement between Barra and 
Standards & Poor's (``S&P''). The Value Index and Growth Index 
represent a partition of the S&P 500 Stock Index and, like options on 
the S&P 500 (``SPX options''), Value options and Growth options are 
cash-settled, European-style and A.M.-settled. The Indexes are 
described in more detail in File No. SR-CBOE-93-36 and in the 
Commission order approving the Indexes for options trading on the 
Exchange.\5\ The Exchange represents that it intends to begin trading 
options on both Indexes on or about November 7, 1995.

    \5\ See Securities Exchange Act Release No. 34124 (May 27, 
1994), 59 FR 29310 (June 6, 1994).
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    Rebasing of the Indexes. On July 20, 1995, Standard & Poor's 
announced that the S&P 500/Barra Growth Index and the S&P 500/Barra 
Value Index will be rebased effective Friday, July 28, 1995. The 
Indexes were set at a base value of 10 for December 31, 1974. The new 
base value for the Indexes will be 35 and all historical values of the 
Indexes will be adjusted accordingly by a factor of 3.5. The rebasing 
serves to bring the value of the combined Indexes into line with the 
value of the S&P 500, the index from which the Indexes are derived.
    As an example, the Growth Index and the Value Index closed at 78.64 
and 84.59, respectively, on Tuesday, July 25, 1995. On an adjusted 
basis those levels are 275.24 and 296.07. The sum of those values is 
571.31, as compared to the closing level of the S&P 500 on that date of 
561.10.
    Position Limits. Currently, under CBOE Rule 24.4(a), position 
limits for Growth options and position limits for Value options are 
125,000 contracts on the same side of the market, with no more than 
75,000 contracts in the series with the nearest expiration date. 
Positions in both classes of options must be aggregated, pursuant to 
the Rule, in determining compliance with the position limits. In 
addition, currently under Interpretation .01 to Rule 24.4, the maximum 
combined position in the Indexes may not exceed 225,000 same-side of 
the market option contracts 

[[Page 56078]]
under CBOE's hedge exemption rule provisions.
    The rebasing of the Growth Index and the Value Index now makes it 
necessary to reduce the contract position limits to maintain the 
appropriate same maximum dollar value afforded under the originally 
approved limits. In order to reflect the same dollar value as that 
originally approved, the current position limits would need to be 
divided by 3.5. Dividing the current level of 125,000 contracts on the 
same side of the market by 3.5 would yield 35,714 contracts. However, 
in order to establish position limits of a round number for ease of 
administration and compliance, the Exchange is proposing an aggregate 
position limit of 36,000 contracts on the same side of the market for 
the Growth and Value Indexes. In addition, the Exchange is proposing to 
similarly reduce the amount of contracts in the series that may be in 
the nearest expiration date from 75,000 contracts to 21,500 
contracts.\6\

    \6\ This new proposed nearest expiration date limit of 21,500 
contracts is slightly less than 60% of the new proposed 36,000 
contract limit, just as the current nearest expiration date 
restriction of 75,000 contracts is 60% of the current position limit 
of 125,000 contracts.
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    The Exchange is also proposing to revise the 225,000 hedge 
exemption limit under Interpretation .01, as this amount was also 
designed to have a numerical relationship to the general position 
limits. The Exchange is proposing that this limit be reduced to 65,000 
contracts. The 65,000 contract position limit is 1.805 times the new 
proposed position limit of 36,000 contracts. Similarly, under the 
current rule, the 225,000 contract hedge exemption position limit is 
1.8 times the 125,000 contract position limit.
    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 promote just and 
equitable principles of trade by revising position limits in light of 
the recent rebasing of the two Indexes.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The proposed amendments will not impose any burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received from Members, Participants or Others

    Comments were neither solicited nor received.

III. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    The Exchange has requested that the proposed rule change, as 
amended, be given accelerated effectiveness pursuant to Section 
19(b)(2) of the Act to accommodate for the trading of Index options on 
or about November 7, 1995. The Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange, 
and, in particular the requirements of section 6(b)(5) thereunder. 
Specifically, the Commission believes that the CBOE proposal to reduce 
the contract position and exercise limits applicable to the Indexes 
should enhance investor protection and protect the public interest by 
helping to ensure that market participants cannot control unduly large 
positions in the Indexes in light of the Indexes' adjusted base values 
which, otherwise, would increase the manipulation potential of trading 
options thereon.
    The Commission finds good cause for approving the proposed rule 
change, as amended, prior to the thirtieth day after the date of 
publication of the notice thereof in the Federal Register. As noted 
above, the Commission has approved the Value Index and the Growth Index 
for options trading, and the Exchange intends to list each Index for 
options trading on or about November 7, 1995. By accelerating approval, 
the proposed rule change, as amended, can become effective before the 
Exchange begins trading the applicable Index options and provide market 
participants adequate notice of the applicable position and exercise 
limits. Accordingly, the Commission believes that it is consistent with 
Sections 6(b)(5) and 19(b)(2) of the Act to approve this proposed rule 
change on an accelerated basis.
    For the same reasons, the Commission finds good cause for approving 
Amendment No. 1 to the proposed rule change prior to the thirtieth day 
after the date of publication of the notice thereof in the Federal 
Register. Specifically, Amendment No. 1 proposes to reduce the position 
limits as originally proposed in this filing to position limits more in 
line with the rebasing of the Growth Index and Value Index.\7\ The 
Commission believes that these position limits are appropriate in light 
of the rebasing of the Indexes by a factor of 3.5. Accordingly, the 
Commission believes that it is consistent with Sections 6(b)(5) and 
19(b)(2) of the Act to approve Amendment No. 1 to the CBOE proposal on 
an accelerated basis.

    \7\  See supra note 3.
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    The Commission also finds good cause for approving Amendment No. 2 
to the proposed rule change prior to the thirtieth day after the date 
of publication of the notice thereof in the Federal Register. 
Specifically, Amendment No. 2 proposes to change the name of each Index 
from S&P/Barra Growth and S&P/Barra Value to S&P 500/Barra Growth and 
S&P 500/Barra Value, respectively. The Commission notes that changing 
the name of each Index does not raise any new regulatory issues. 
Accordingly, the Commission believes that it is consistent with 
Sections 6(b)(5) and 19(b)(2) of the Act to approve Amendment No. 2 to 
the CBOE proposal on an accelerated basis.

IV. Solicitation of Comments

     Interested persons are invited to submit written data, views and 
arguments concerning the foregoing proposal including Amendment Nos. 1 
and 2. 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 SR-CBOE-
95-64 and should be submitted by November 27, 1995.
    It is therefore ordered, pursuant to Section 19(b)(2) of Act,\8\ 
that the proposed rule change (File No. SR-CBOE-95-64), as amended, is 
hereby approved on an accelerated basis.

    \8\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\

    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-27425 Filed 11-3-95; 8:45 am]
BILLING CODE 8010-01-M