[Federal Register Volume 61, Number 60 (Wednesday, March 27, 1996)]
[Notices]
[Pages 13548-13550]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-7342]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36992; File No. SR-CBOE-96-11]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc. Relating to the 
Listing and Trading of Options on the CBOE PC Index

March 20, 1996.
    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 March 7, 
1996, 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 CBOE proposes to provide for the listing and trading on the 
Exchange of options on the CBOE PC Index (``CBOE PC Index'' or 
``Index''), a narrow-based, equal weighted index comprised of eight of 
the largest personal computer manufacturing companies.
    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

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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
    The purpose of the proposed rule change is to permit the Exchange 
to list and trade cash-settled, European-style stock index options on 
the CBOE PC Index, an equal-weighted index consisting of stocks of 
eight of the largest personal computer manufacturing companies. CBOE 
represents that each of these stocks are actively traded and believes 
that options on the Index will provide investors with a low-cost means 
to participate in the performance of the domestic PC industry or a 
means to hedge the risk of investments in that industry. The Exchange 
believes that the small number of Index components should facilitate 
replication of the Index for hedging purposes.
Index Design
    As noted above, the CBOE PC Index consists of eight components, all 
of which trade on the New York Stock Exchange (``NYSE'') or Nasdaq.\1\ 
In addition, the Exchange represents that all eight underlying 
component securities currently meet the Exchange's listing criteria for 
equity options contained in Exchange Rule 5.3 and are the subject of 
options trading on U.S. options exchanges.

    \1\ The components of the Index are: Apple Computer, AST 
Research, Compaq Computer, Dell Computer, Gateway 2000, Hewlett 
Packard, International Business Machines, and Micron Electronics.
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    As of February 6, 1996, the capitalization of the components ranged 
from a low of $363 million (AST Research) to a high of $65.26 billion 
(IBM). The total capitalization as of that date was $135.5 billion; the 
mean capitalization was $16.9 billion; and the median capitalization 
was $3.34 billion. Because the Index is equal-weighted, each component 
accounts for 12.5% of the weight of the 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. 
The updated Index values will be displayed by the Consolidated Tap 
Association and over the facilities of the Options Price Reporting 
Authority (``OPRA''). If a component is not currently being traded on 
its primary market, the most recent price at which the share traded on 
such market will be used in the Index calculation. The value of the 
Index at the close on February 1, 1996 was 127.65.
    The Index is equal-weighted and reflects changes in the prices of 
the component stocks relative to the Index base date, January 3, 1995 
when the Index was set to 100.000. Specifically, each of the component 
securities is initially represented in equal-dollar amounts, with the 
level of the Index equal to the combined market value of the assigned 
number of shares for each of the Index components divided by the 
current Index divisor. The Index divisor is adjusted to maintain 
continuity in the Index at the time of certain types of changes. 
Changes which may result in divisor changes include, but are not 
limited to, quarterly re-balancing, special dividends, spin-offs, 
certain rights issuances, and mergers and acquisitions.
Maintenance
    The Index will be maintained by CBOE and will be re-balanced after 
the close of business on Expiration Fridays on the March Quarterly 
Cycle. The Index will be reviewed regularly and CBOE may change the 
composition of the Index at any time to reflect changes affecting the 
components of the Index or the PC markets generally. If it becomes 
necessary to replace a component, every effort will be made to add a 
component that preserves the character of the Index. If no replacement 
is available, or if CBOE determines to decrease the number of component 
stocks, it will submit a proposed rule change pursuant to Section 19(b) 
of the Act prior to opening any new series of Index options for 
trading. Absent prior Commission approval, CBOE will not increase to 
more than ten the number of component stocks in the Index. Finally, if 
at any time any of the components are not options eligible, the 
Exchange will submit a rule change pursuant to Section 19(b) of the Act 
prior to opening any new series of Index options for trading.
Index Option Trading
    The Exchange proposes to base trading in options on the CBOE PC 
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 LEAP will, after such initial computation, be 
rounded to the nearest one-hundredth.
Exercise and Settlement
    CBOE PC 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 CBOE PC Index options. The proposed options will expire 
on the Saturday following the third Friday of the expiration month and 
the last day for trading in an expiring series will be the second 
business day (ordinarily a Thursday) preceding the expiration date.

Exchange Rules Applicable

    Except as modified herein, the Rules in Chapter XXIV will be 
applicable to CBOE PC Index options. Index option contracts based on 
the CBOE PC Index will be subject to a position limit of 9,000 
contracts on the same side of the market.\2\ Ten reduced-value options 
will equal one full-value contract for such purposes.

    \2\ CBOE recently increased its position limit tiers applicable 
to narrow-based index options from 5,000, 7,500, and 10,500 
contracts on the same side of the market to 6,000, 9,000, and 12,000 
contracts, respectively.
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    CBOE represents that it has the necessary systems capacity to 
support new series that would result from the introduction of options 
on the Index and has also been informed that OPRA has the capacity to 
support such new series.\3\

    \3\ See Letter from Joe Corrigan, OPRA, to Eileen Smith, CBOE, 
dated February 21, 1996.
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Surveillance
    The surveillance procedures currently used to monitor the trading 
of options on other Exchange-listed indexes will be used to monitor the 
trading of options on the CBOE PC Index. The Exchange has access to 
trading activity in the underlying securities, all of which trade on 
either the NYSE or Nasdaq, via the Intermarket Surveillance Group 
Agreement.
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 options based 
on the CBOE PC Index pursuant to rules designed to prevent fraudulent 
and manipulative acts and practices and to promote just and equitable 
principles of trade, and thereby will provide investors with the 
ability invest in options based on an additional index.

[[Page 13550]]


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 make written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., 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, N.W., 
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-96-11 and should be 
submitted by April 17, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\

    \4\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-7342 Filed 3-26-96; 8:45 am]
BILLING CODE 8010-01-M