[Federal Register Volume 60, Number 221 (Thursday, November 16, 1995)]
[Notices]
[Pages 57607-57608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28249]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-36464; International Series Release No. 879; File No. 
SR-CBOE-95-54]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc. Relating to Currency 
Warrants Based on the Value of the U.S. Dollar in Relation to the 
Brazilian Real

November 8, 1995
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on 
September 13, 1995, the Chicago Board Options Exchange, Inc. (``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 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 approve for listing and trading currency 
warrants based upon the value of the U.S. dollar in relation to the 
Brazilian Real. 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, CBOE 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 Exchange is permitted to list and trade currency warrants under 
CBOE Rule 31.5(E). The Exchange is now proposing to list and trade 
currency warrants based upon the value of the U.S. dollar in relation 
to the Brazilian Real (``Brazilian Real warrants''). The listing and 
trading of currency warrants relating to the Brazil Real will comply in 
all respects with CBOE Rule 31.5(E).
1. Currency Warrant Trading
    Brazilian Real warrants will be unsecured obligations of their 
issuers and will be cash-settled in U.S. dollars. The warrants will be 
either exercisable throughout their life (i.e., American style) or 
exercisable only on their expiration date (i.e., European style). Upon 
exercise, the holder of a warrant structured as a ``put'' would receive 
payment in U.S. dollars to the extent that the value of the Brazilian 
Real has declined in relation to the U.S. dollar below a pre-stated 
base price. Conversely, holders of a warrant structured as a ``call'' 
would, upon exercise, receive payment in U.S. dollars to the extent 
that the value of the Brazilian Real in relation to the U.S. dollar has 
increased above the pre-stated base price. Warrants that are out-of-
the-money at the time of expiration will expire worthless.
2. Warrant Listing Standards and Customer Safeguards
    In SR-CBOE-90-08,\1\ the Exchange established generic listing 
standards for currency warrants, which are contained in CBOE Rule 
31.5(E). On August 29, 1995, the Commission approved SR-CBOE-94-34,\2\ 
which amended Rule 31.5(E) and established customer protection and 
margin requirements for currency warrants.

    \1\ See Securities Exchange Act Release No. 28556 (October 19, 
1990), 55 FR 43233 (October 26, 1990).
    \2\ See Securities Exchange Act Release No. 36169 (August 29, 
1995), 60 FR 46644 (September 7, 1995).
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    CBOE Rule 31.5(E) sets forth the criteria applicable to listing 
currency warrants. Any issue of Brazilian Real warrants will conform to 
the listing criteria under Rule 31.5(E) which provide that: (1) The 
issuer shall have minimum tangible net worth in excess of $150,000,000 
and otherwise substantially exceed the size and earnings requirements 
in Rule 31.5(A); (2) the term of the warrants shall be for a period 
ranging from one to five years from date of issuance; and (3) the 
minimum public distribution of such issues shall be 1,000,000 warrants, 
together with a minimum of 400 public holders, and have a minimum 
aggregate market value of $4,000,000. In addition, where an issuer has 
a minimum tangible net worth in excess of $150,000,000 but less than 
$250,000,000, the Exchange shall not list Brazilian Real warrants of 
the issuer if the value of such warrants plus the aggregate value, 
based upon the original issuing price, of all outstanding stock index, 
currency index and currency warrants of the issuer (and its affiliates) 
that are listed for trading on a national securities exchange or traded 
through the facilities of the National Association of Securities 
Dealers Automated Quotation System (``NASDAQ'') exceeds 25% of the 
issuer's net worth.
    Among the consequences of the recently approved rule amendments, 
Brazilian Real warrants may be sold only to customers whose accounts 
have been approved for options trading pursuant to Exchange Rule 9.7. 
Moreover, the suitability standards of Exchange Rule 9.9 apply to 
recommendations in currency warrants. Also, the standards of Rule 
9.10(a), regarding discretionary orders, will be applicable to currency 
warrants.
3. Margin Requirements
    Recently approved SR-CBOE-94-34 also establishes margin 
requirements for currency warrants. New Exchange Rule 30.53 requires 
minimum margin on any currency warrant carried ``short'' in a 
customer's account to be 100% of the current market value of each such 
warrant plus an ``add-on'' percentage of the produce of the units of 
underlying currency per warrant and the spot price for such currency. 
The Exchange has calculated frequency distributions reflecting 
percentage price returns for all one (1) and five (5) day periods for 
the Brazilian Real for the period of September 1, 1992 through August 
30, 1995. These distributions demonstrate that more than 97.5% of all 
five (5) day 

[[Page 57608]]
returns for the three (3) year period would have been covered by 10.0% 
of the underlying Real value. Based upon these results, the Exchange is 
proposing to set the margin ``add-on'' percentage for Brazilian Real 
warrants at 10% for both initial and maintenance margin, with a minimum 
add-on for out-of-the money warrants of 2%. If as the result of the 
Exchange's routine monitoring of margin adequacy, the Exchange 
determines that a different percentage would be appropriate, CBOE will 
file a proposal with the Commission to modify the add-on percentages.
    The Exchange believes that the listing and trading of Brazilian 
Real warrants is consistent with Section 6(b) of the Act in general, 
and with Section 6(b)(5) in particular, because it will help remove 
impediments to a free and open securities market and facilitate 
transactions in securities by providing investors with a low-cost means 
to participate in the performance of the Brazilian economy or to hedge 
against the risk of investing in that economy.

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

    The Exchange believes the proposed rule change will impose no 
inappropriate burden on competition.

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

    The Exchange has neither solicited nor received written comments on 
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 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 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, 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 File No. SR-CBOE-95-54 and should be 
submitted by December 7, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\3\

    \3\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-28249 Filed 11-15-95; 8:45 am]
BILLING CODE 8010-01-M