[Federal Register Volume 61, Number 69 (Tuesday, April 9, 1996)]
[Notices]
[Pages 15853-15855]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-8790]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37058; File No. SR-CBOE-96-17]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Incorporated Relating to Options on the CBOE Oil Index

April 2, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on March 15, 1996, 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 self-regulatory organization. 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) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE proposes to list and trade options on the CBOE Oil Index 
(``Oil Index'' or ``Index'').

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 an 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 self-regulatory organization 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 permit the exchange 
to list and trade cash-settled, European-style stock index options on 
the CBOE Oil Index. The Index currently meets all of the generic 
criteria for listing options on narrow-based indexes as set forth in 
Exchange Rule 24.2 and the Commission's order approving that Rule (the 
``Commission Order'').\2\ In accordance with Rule 24.2, CBOE proposes 
to list and trade options on the Oil Index beginning 30 days from the 
filing date of this proposed rule change.

    \2\ Securities Exchange Act Release No. 34157 (June 3, 1994), 59 
FR 30062.
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    The Oil Index consists of 15 stocks of large and widely held 
intergrated oil companies. Options on the Index will provide investors 
with a low-cost means to participate in the performance of this sector 
or to hedge against the risk of investing in this sector.
Index Design
    All of the Oil Index stocks are U.S. securities and currently trade 
on the New York Stock Exchange (``NYSE''). Additionally, all of the 
stocks are ``reported securities'' as defined in Rule 11Aa3-1 under the 
Exchange Act.
    Each Index stock has a market capitalization in excess of $3 
billion. Specifically, the stocks comprising the Index range in 
capitalization from $3.2 billion to $101.6 billion as of February 21, 
1996. The total capitalization as of that date was $432 billion. The 
mean capitalization was $28.8 billion. The median capitalization was 
$18.3 billion.
    In addition, each of the component stocks in the Index have had 
average monthly trading volume well in excess of 1 million shares over 
the six month period through January of 1996. The average monthly 
volumes for these stocks over the six month period ranged from a low of 
3.6 million shares to a high of 27.5 million shares. As of February 21, 
1996, 100% of the weight of the Index and 100% of the number of 
components are eligible for options trading.
    The largest stock in the Index by weight comprises 13.72% of the 
Index, while the smallest represents 1.86% of the Index. The top 5 
stocks in the Index account for 54.03% of the Index. Accordingly, the 
Exchange's generic listing standards for narrow based indexes are met 
with respect to the criteria of market capitalization, weighting 
constraints, options eligibility, and trading volume.
Calculation
    The Index will be calculated on a real-time basis using last-sale 
prices by CBOE or its designee, and will be disseminated every 15 
seconds by CBOE. If a component stock is not currently being traded, 
the most recent

[[Page 15854]]
price at which the stock traded will be used in the Index calculation. 
The value of the Index at the close on February 21, 1996 was 186.35.
    The Index is price-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 150. Specifically, the Index value is 
calculated by adding the prices of the component stocks and then 
dividing this sum by the Index divisor. The Index divisor is adjusted 
to reflect non-market related changes in the prices of the component 
securities as well as changes in the composition of the Index. Changes 
which may result in divisor changes include, but are not limited to, 
stock splits and dividends, spin-offs, certain rights issuances, and 
mergers and acquisitions.
Maintenance
    The Index will be maintained by CBOE. In addition, the Index is 
reviewed on approximately a monthly basis by the CBOE staff. CBOE may 
change the composition of the Index at any time to reflect changes 
affecting the components of the Index or the oil industry generally. If 
it becomes necessary to remove a stock from the Index (for example, 
because of a takeover or merger), CBOE will only add a stock having 
characteristics that will permit the Index to remain within the 
maintenance criteria specified in CBOE's Rules and the Commission 
Order. CBOE will take into account the capitalization, liquidity, 
volatility, and name recognition of any proposed replacement stock.
    CBOE staff will review the Index on the schedule described above to 
ensure that the Index satisfies the maintenance listing standards set 
forth in CBOE Rule 24.2(c), where applicable. Absent prior Commission 
approval, CBOE will not increase to more than 20, nor decrease to fewer 
than 10, the number of stocks in the Index. In addition, the CBOE will 
monitor the composition of the Index to determine whether the 
maintenance criteria are satisfied, including whether any change has 
occurred to cause fewer than 90% of the stocks by weight, or fewer than 
80% of the total number of stocks in the index, qualifying as stocks 
eligible for equity options trading under CBOE Rule 5.3.\3\

    \3\ Telephone conversation between Timothy Thompson, Senior 
Attorney, CBOE, and Francois Mazur, Attorney, Office of Market 
Supervision, Division of Market Regulation, Commission, on April 1, 
1996.
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    If the Index fails at any time to satisfy the maintenance criteria, 
the Exchange will immediately notify the Commission of that fact and 
will not open for trading any additional series of options on the Index 
unless such failure is determined by the Exchange not to be significant 
and the Commission concurs in that determination, or unless the 
continued listing of options on the Oil Index has been approved by the 
Commission under Section 19(b)(2) of the Exchange Act.
Index Option Trading
    The Exchange proposes to base trading in options on the Oil 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
    Oil 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 Oil Index options. The proposed options will expire on 
the Saturday following the third Friday of the expiration month. Thus, 
the last day for trading in a 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 Oil Index options. Index option contracts based on the 
Oil Index will be subject to the position limit requirements of Rule 
24.4A. Currently the limit is 9,000 contracts. Ten reduced-value 
options will equal one full-value contract for such purposes.
    CBOE has the necessary systems capacity to support new series that 
would result from the introduction of Oil Index options. CBOE has also 
been informed that the Options Price Reporting Authority (``OPRA'') has 
the capacity to support such new series.\4\

    \4\ Letter from Joseph P. Corrigan, Executive Director, OPRA, to 
William Speth, CBOE, dated March 1, 1996.
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    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (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 Oil 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 to invest in 
options based on an additional index.

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

    The CBOE believes that 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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing rule change complies with the standards set 
forth in the Commission Order,\5\ it has become effective pursuant to 
Section 19(b)(3)(A) of the Exchange Act and Rule 19b-4(e) thereunder. 
Pursuant to the Commission Order, the Exchange may not list Index 
options for trading prior to 30 days after March 15, 1996, the date the 
proposed rule change was filed with the Commission. At any time within 
60 days of the filing of the rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Exchange Act.

    \5\ See supra note 2.
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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. 552, will be available for inspection and copying in the 
Commission's Public Reference

[[Page 15855]]
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 above-mentioned self-regulatory organization. All 
submissions should refer to File No. SR-CBOE-96-17 and should be 
submitted by April 30, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\

    \6\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-8790 Filed 4-8-96; 8:45 am]
BILLING CODE 8010-01-M