[Federal Register Volume 60, Number 234 (Wednesday, December 6, 1995)]
[Notices]
[Pages 62511-62513]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29690]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36525; File No. SR-CBOE-95-67]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 to Proposed Rule Change by the Chicago Board 
Options Exchange, Inc. Relating to the Establishment of Uniform Listing 
and Trading Guidelines for Narrow-based Stock Index Warrants

November 29, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on 
November 9, 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. On November 20, 1995, the CBOE submitted Amendment No. 1 
(``Amendment No. 1'') to the filing to clarify issues relating to 
settlement values for both narrow-based and broad-based index warrants 
and also the reporting of hedge unwinding transactions.\1\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.

    \1\See Letter from Timothy Thompson, CBOE, to Steve Youhn, SEC, 
dated November 15, 1995. Specifically, as discussed below, Amendment 
No. 1 clarifies that narrow-based index warrants will be governed by 
the same settlement procedures applicable to broad-based index 
warrants. Furthermore, it clarifies that certain hedge unwinding 
transactions in narrow-based index warrants which are undertaken as 
a result of early exercises will be reported to the Exchange in the 
same manner as with broad-based index warrants.
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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 Exchange rules 30.35, 30.53, and 31.5 to 
establish uniform listing and trading guidelines applicable to narrow-
based stock index warrants.
    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 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

1. Purpose
    On August 29, 1995, the Commission approved SR-CBOE-94-34 which 
established uniform listing and trading guidelines for broad-based 
stock index, currency, and currency index warrants.\2\ this filing 
proposes rules governing the listing and trading of narrow-based 
indexes, i.e., indexes that do not meet the Commission's criteria for 
broad-based treatment. This filing would modify the recently approved 
regulatory framework for the trading of broad-based stock index 
warrants, by adopting certain rules for the trading of warrants on 
narrow-based indexes that are now applicable to the trading of narrow-
based index options.

    \2\See Securities Exchange Act Release No. 36169.
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    The Exchange first traded narrow-based index options in September 
1983. Exchange rules governing the trading of warrants, including stock 
index warrants, were approved in October 1990\3\ and similar rules were 
approved for another exchange as early as 1988.\4\ Because of the years 
of experience the Exchange has with trading index options and the 
Commission has with regulating index option and warrant trading, the 
Exchange believes that the trading of warrants based on narrow-based 
indexes presents no new or novel regulatory issues and should be 
permitted subject to the same restrictions that apply to the trading of 
narrow-based stock index options.

    \3\See Securities Exchange Act Release No. 28556 (Oct. 26, 
1990).
    \4\See Securities Exchange Act Release No. 26152 (Oct. 3, 1988).
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    Specifically, the Exchange proposes that the margin requirements 
applicable to the short sales of narrow-based index options would apply 
to the short sale of narrow-based index warrants, and the reduced 
position limits applicable to narrow-based index options would apply to 
narrow-based index warrants. The Exchange proposes that the narrow-
based index warrant position limit be set at 75% of the levels recently 
approved by the Commission for narrow-based index options.\5\ In all 
other respects, the rules applicable to broad-based and narrow-based 
options are the same. Consequently, all other rules applicable to 
broad-based index warrants would apply to warrants on narrow-based 
indexes. In addition, the Exchange would conduct the surveillance of 
trading in narrow-based index warrants in a similar manner to its 
surveillance of trading in broad-based index warrants.

    \5\See Securities Exchange Act Release No. 36439 (Oct. 31, 
1995). Accordingly, the Exchange proposes that position limits for 
narrow-based index warrants be set at 4,500,000, 6,750,000, and 
9,000,000, which are equivalent to 75% of the 6,000, 9,000, and 
12,000 position limit levels currently applicable to narrow-based 
index option trading.
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    The Exchange proposes that, upon Commission approval of this 
filing, the Exchange be permitted, without further Commission review, 
to list a warrant on any narrow-based index that the Commission has 
previously approved for options or warrant trading. In order to 
expedite the review of a particular warrant issue, the Exchange 
proposes employing procedures similar to those set forth in Rule 
24.2(b) to file for approval of the index underlying a proposed 
issuance of warrants.\6\ However, the Exchange will not list a warrant 
on an index consisting of fewer than nine stocks, nor will it allow any 
of the indexes upon which warrants are traded to consist of fewer than 
nine stocks, unless the Commission separately approves such index for 
warrant trading.

    \6\These criteria establish streamlined procedures for listing 
options on stock industry groups (i.e., narrow-based). Accordingly, 
the Exchange proposes that the same criteria apply to subsequent 
proposals to establish narrow-based indexes which underlie proposed 
warrant issuances.
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    The Exchange also proposes to amend Rule 31.5(E)(5) in order to 
clarify that the settlement mechanism for narrow-based index warrants 
will be the same as that for broad-based index warrants.\7\ 
Accordingly, an issuer may elect to use closing prices for the 
securities underlying a stock index to determine settlement values at 
all times other than the day on which the final settlement value is to 
be determined (``valuation date''), as well as during the two business 
days preceding valuation date.\8\

    \7\See Amendment No. 1.
    \8\See Amendment No. 1. The Commission notes that although the 
recently approved regulatory framework for broad-based index 
warrants establishes uniform settlement valuation provisions adopted 
by several exchanges, including CBOE, the CBOE in this filing 
proposes to amend Rule 31.5(E)(5) to clarify such provisions.
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2. Statutory Basis
    CBOE believes 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 warrants based 
on the Mexico 30 Index pursuant to rules designed to 

[[Page 62513]]
prevent fraudulent and manipulative acts and practices and to promote 
just and equitable principles of trade, and thereby will provide 
investors with the ability to invest in warrants based on additional 
indexes.

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

    The Exchange believes the proposed rule change will impose no 
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, 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. Sec. 552, will be available for inspection and copying at 
the Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. 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-95-67 and should be 
submitted by December 27, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\

    \9\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-29690 Filed 12-5-95; 8:45 am]
BILLING CODE 8010-01-M