[Federal Register Volume 60, Number 234 (Wednesday, December 6, 1995)]
[Notices]
[Pages 62522-62524]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29688]



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[[Page 62523]]


SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36528; File No. SR-CBOE-95-58]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by Chicago Board Options Exchange, Incorporated Relating to 
Listing Standards for Options on Equity Securities Issued in a 
Reorganization Transaction Pursuant to a Public Offering or a Rights 
Distribution

November 29, 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 19, 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 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).
    \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 Chicago Board Options Exchange, Inc. (``CBOE or the Exchange'') 
proposes to amend its listing standards in respect of options on equity 
securities issued in a spin-off, reorganization, recapitalization, 
restructuring or similar transaction where the issuance is made 
pursuant to a public offering or a rights distribution.
    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 purpose of the proposed rule change is to amend the special 
listing standards set forth in Interpretation and Policy .05 under 
Exchange Rule 5.3 that apply to options on equity securities issued in 
certain spin-offs, reorganizations, recapitalizations, restructurings 
or similar transactions (referred to herein as ``restructuring 
transactions'') so as to also include securities issued pursuant to a 
public offering or a rights distribution that is part of a 
restructuring transaction.
    Interpretation and Policy .05 under Exchange Rule 5.3 is intended 
to facilitate the listing of options on equity securities issued in 
restructuring transactions (referred to as ``Restructure Securities'') 
by permitting the Exchange to base its determination as to the 
satisfaction of certain of the listing standards set forth in Exchange 
Rule 5.3 and Interpretation and Policy .01 thereunder by reference to 
specified characteristics of the ``Original Security'' in respect of 
which the Restructure Security was issued or distributed or of the 
trading market of the Original Security, or by reference to the number 
of shares of the Restructure Security issued and outstanding or to the 
listing standards of the exchange on which the Restructure Security is 
listed. Interpretation and Policy 5.3.05 permits the Exchange to 
certify a Restructure Security as options eligible sooner than if it 
had to wait until it could base its certification on characteristics of 
the Restructure Security itself, but only in circumstances where the 
factors relied upon make it reasonable to conclude that the Restructure 
Security will in fact satisfy applicable listing criteria.
    As recently approved by the Commission, CBOE Interpretation and 
Policy 5.3.05 does not extend to restructuring transactions involving 
the issuance of a Restructure Security in a public offering or a rights 
distribution.\3\ Although these kinds of restructuring transactions 
were included in Interpretation and Policy 5.3.05 as initially filed, 
CBOE subsequently amended that filing to eliminate them in order to 
permit the Commission to approve that filing without having to address 
the special questions raised by public offerings and rights 
distributions. At that time it was anticipated that CBOE would file a 
separate rule change proposing the extension of Interpretation and 
Policy 5.3.05 to restructuring transactions that involve public 
offerings and rights distributions.\4\

    \3\See Securities Exchange Act Release No. 36020 (July 24, 
1995), 60 FR 39029 (July 31, 1995) (order approving CBOE 
Interpretation and Policy 5.3.05).
    \4\See Letter from Michael L. Meyer, Attorney, Schiff Hardin & 
Waite, to Sharon M. Lawson, Assistant Director, Office of Market 
Supervision (``OMS''), Division of Market Regulation (``Market 
Regulation''), Commission, dated June 13, 1995 (``File SR-CBOE-95-11 
Letter'').
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    The question raised by the proposed extension of Interpretation and 
Policy 5.3.05 to reorganization transactions involving public offerings 
or rights distributions reflect that when a Restructure Security is 
issued in a public offering or pursuant to a rights distribution, it 
cannot automatically be assumed that the shareholder population of the 
Restructure Security and the Original Security will be the same. 
Instead, the holders of a Restructure Security issued in a public 
offering will be those persons who subscribed for and purchased the 
security in the offering, and the holders of a Restructure Security 
issued in a rights distribution will be those persons who elected to 
exercise their rights. Even in the case of a distribution of 
nontransferable rights to shareholders of the Original Security, not 
all such shareholders may choose to exercise their rights. As a result, 
it cannot be assumed that the Restructure Security will necessarily 
satisfy listing criteria pertaining to minimum number of holders, 
minimum public float and trading volume simply because the Original 
Security satisfied these criteria.
    On the other hand, the Exchange believes that the same reasons for 
wanting to make an options market available without delay to holders of 
securities issued in reorganizations that do not involve public 
offerings or rights distributions apply with equal force to securities 
issued in reorganizations that do involve public offerings or rights 
distributions, so long as there can be reasonable assurance that the 
securities satisfy applicable options listing standards. That is, 
holders of an Original Security who utilize options to manage the risks 
of their stock positions may well find themselves to be holders of both 
the Original Security and the Restructure Security following a 
reorganization because they chose to purchase the Restructure Security 
in a public offering or to exercise rights in order to maintain the 
same investment position they had prior to the reorganization. Such 
holders may want to continue to use options to manage the risks of 
their combined stock position after the reorganization, but they can do 
so only if options on the Restructure Security are available. The 
Exchange 

[[Page 62524]]
believes that it is important to avoid any undue delay in the 
introduction of options trading in such a Restructure Security in 
circumstances where there is sound reason to believe that the 
Restructure Security does in fact satisfy options listing standards.
    Accordingly, CBOE proposes to add new paragraph (d) to 
Interpretation and Policy .05 under Exchange Rule 5.3, to address 
situations where a Restructure Security is issued pursuant to a public 
offering or rights distribution. Pursuant to the proposed rule change, 
the Exchange may certify the Restructure Security as satisfying minimum 
shareholder and minimum public float requirements on the basis provided 
for in approved Interpretation and Policy .05(c), only after at least 
five days of ``regular way'' trading. Moreover, after due diligence, 
the Exchange must have no reason to believe that the Restructure 
Security does not satisfy these requirements. Additionally, in order to 
base certification on Interpretation and Policy 5.3.05, the closing 
prices of the Restructure Security on each of the five or more trading 
days prior to the selection date must be at least $7.50. Finally, as is 
required for all underlying securities selected for options trading, 
trading volume in the Restructure Security must be at least 2,400,000 
shares during a period of twelve months or less up to the time the 
security is so selected.
    The effect of the proposed rule change is that a Restructure 
Security issued pursuant to a public offering or a rights distribution 
that is part of a reorganization will be eligible for options trading 
only if it satisfies all of the existing standards applicable to the 
selection of underlying securities generally, except that (A) the 
Exchange may assume the satisfaction of the minimum public ownership 
requirement of 7,000,000 shares and the minimum 2,000 shareholders 
requirement if (i) either the percentage of value tests of subparagraph 
(a)(1) of Interpretation and Policy 5.3.05 are met or the aggregate 
market value represented by the Restructure Security is at least 
$500,000,000, and if (ii) the Restructure Security is listed on an 
exchange or an automatic quotation system having equivalent listing 
requirements or at least 40,000,000 shares of the Restructure Security 
are issued and outstanding, and if (iii) after the Restructure Security 
has traded ``regular way'' for at least five trading days and after 
having conducted due diligence in the matter, the Exchange has no 
reason to believe that these requirements are not met, and (B) subject 
to the same percentage of value or aggregate market value requirements, 
the Restructure Security may be deemed to satisfy the minimum market 
price per share requirement if it has a closing market price per share 
of at least $7.50 during each of the five or more trading days 
preceding the date of selection, instead of having to satisfy this 
requirement over a majority of days over a period of three months. (In 
the event the Restructure Security has a closing price that is less 
than $7.50 on any of the trading days preceding its selection, it will 
have to satisfy this requirement on a majority of trading days over a 
period of three months before it can be certified as eligible for 
options trading.) For any Restructure Security issued in a public 
offering or a rights distribution that does satisfy these requirements, 
the effect of the proposed rule change will be to permit its 
certification for options trading to take place as early as on the 
sixth day after trading in the stock commences, instead of having to 
wait for three months of trading.
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 in general, 
and furthers the objectives of Section 6(b)(5) in particular, by 
removing impediments to a free and open market in options covering 
securities issued in public offerings or pursuant to rights 
distributions as part of restructuring transactions and other similar 
corporate reorganizations.

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

    CBOE does not believe that the proposed rule change will impose on 
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 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 submission 
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 20549. Copies of such filing with also be available for 
inspection and copying at the principal office of CBOE. All submissions 
should refer to the File No. SR-CBOE-95-58 and should be submitted by 
December 27, 1995.

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

    \5\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-29688 Filed 12-6-95; 8:45 am]
BILLING CODE 8010-01-M