[Federal Register Volume 61, Number 110 (Thursday, June 6, 1996)]
[Notices]
[Pages 28916-28917]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14180]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37251; International Series Release No. 987; File No. 
SR-CBOE-96-32]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Chicago 
Board Options Exchange, Inc., To Change the Method for Determining the 
Exercise Settlement Value of Options on the Mexican Indice de Precios y 
Cotizaciones

May 29, 1996.
    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 May 16, 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 and 
II below, which Items have been prepared by the self-regulatory 
organization. The CBOE has requested accelerated approval for the 
proposal. This order approves the CBOE's proposal on an accelerated 
basis and solicits comments from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1) (1988).
    \2\ 17 CFR 240.19b-4
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I. Self-Regulatory Organizations's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE is proposing to allow for an alternative method of 
determining the settlement value of options on the Mexican Indice de 
Precios y Cotizaciones (``IPC'' or ``Index'').\3\
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    \3\ The IPC is a broad-based, capitalization-weighted index 
comprised of 35 of the largest and most liquid stocks (issued by 28 
issuers) on the Mexican Stock Exchange (``Bolsa'').
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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 III 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
    The purpose of the proposed rule change is to amend Exchange Rule 
24.9 to provide the Mexican Stock Exchange (``Bolsa'') with the 
discretion to utilize either the closing prices of the component 
securities or a weighted average of the prices for each of the 
component securities in determining the exercise settlement value of 
IPC options. Currently, the settlement value of the IPC is determined 
based upon the closing prices of the component stocks on the regular 
Friday trading sessions in Mexico.\4\
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    \4\ See Securities Exchange Act Release No. 37189 (May 9, 1996). 
61 FR 24982 (May 17, 1996) (order approving the listing and trading 
of options on the IPC).
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    If the Bolsa elects to use the weighted average methodology, the 
IPC's settlement value will be determined by reference to transactions 
in the component securities during a period of time at the end of the 
trading day immediately preceding expiration, or in the cases described 
below on the Thursday before expiration. The Exchange notes, however, 
that if a stock fails to open for trading or if a stock fails to trade 
during the time period when its value is determined, the stock's last 
available price will be used in the calculation of the IPC. In 
addition, when expirations are moved in accordance with Exchange 
holidays, such as when the CBOE is closed on the Friday before 
expiration, the last trading day for expiring IPC Index options will be 
the regular Thursday trading session in Mexico even if the Mexican 
markets are open on Friday. Similarly, if the

[[Page 28917]]

Mexican markets are closed on the Friday before expiration and the CBOE 
is open for trading, the last trading day for expiring IPC Index 
options on the CBOE will be Thursday.
    The Exchange notes that if the Bolsa decides to use a weighted 
average method to determine the settlement value of IPC options, the 
CBOE will issue a press release stating that such a determination has 
been made and listing which series will be affected by the new 
settlement methodology. The Exchange will also issue a regulatory 
circular to its members and member firms informing them of the 
specifics of the settlement methodology, as well as which series will 
be affected by the new settlement methodology.\5\ In addition to 
distributing the regulatory bulletin on the floor of the Exchange, the 
Exchange will publish the regulatory circular in its regulatory 
bulletin.
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    \5\ The Commission notes that such regulatory circular should, 
at a minimum, specify the exact time period during which the 
weighted average settlement value for expiring IPC options will be 
calculated.
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    According to the Exchange, the weighted average methodology is less 
likely to be manipulated because the settlement value is not determined 
by reference to only one transaction in each of the component 
securities, but rather is determined by the weighted average of a 
series of transactions in each of the component stocks over a period of 
time at the end of the trading day. Presently, the Bolsa has not made a 
final determination regarding which settlement methodology it will 
employ.
2. Statutory Basis
    The CBOE believes that the proposal 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 allow the Exchange to trade IPC options 
without interruption if the Bolsa changes its settlement methodology. 
In this regard,the CBOE believes that the rule change furthers the 
objectives of Section 6(b)(5) of the Act in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and to protect investors and the public interest.

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

    The CBOE does not believe that the proposed rule change will impose 
any inappropriate burden on competition.

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

    Comments were nether solicited nor received with respect to the 
proposed rule change.

III. 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 changes that are filed 
with the Commission, and all written communications relating to the 
proposed rule changes 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, 
NW., Washington, DC 20549. Copies of such filings also will be 
available for inspection and copying at the principal office of the 
CBOE. All submissions should refer to File No. SR-CBOE-96-32 and should 
be submitted by [insert date 21 days from date of publication].

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the Act and the rules and regulations thereunder applicable to a 
national securities exchange, and, in particular, the requirement of 
Section 6(b)(5) thereunder. Specifically, the Commission finds that the 
CBOE's proposal to change the method for determining the settlement 
value of IPC options does not present any new or novel regulatory 
issues as the Commission has previously approved settlement 
methodologies utilizing average weighted prices.\6\ In addition, by 
issuing both a press release and a regulatory circular concerning the 
change in settlement methodology for IPC options, which will include 
information pertaining to which series will be affected by the new 
settlement methodology, investor confusion should be avoided. Lastly, 
the Commission believes that the weighted average settlement 
methodology may reduce the susceptibility of the Index to manipulation 
by diminishing the impact of a single trade on the settlement price.\7\
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    \6\ See Securities Exchange Act Release Nos. 32120 (April 9, 
1993), 58 FR 19864 (April 16, 1993) (approval order for the 
Financial Times-Stock Exchange 100 Index); 37089 (April 9, 1996), 61 
FR 16660 (April 16, 1996) (approval order for the Nasdaq-100 Index).
    \7\ The Commission notes that if the Bolsa determines to sue a 
weighted average settlement methodology, the weighted average will 
be commuted from transaction prices over a period of time at the end 
of the trading day. The Commission expects, however, that once the 
exact time period for calculating the settlement value for IPC 
options is established, the CBOE will make conforming changes to its 
rules in accordance with Section 19(b) of the Act.
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    The Commission finds good cause to approve the proposal prior to 
the thirtieth day after the date of publication of notice of filing 
thereof in the Federal Register. By accelerating the effectiveness of 
the CBOE's rule proposal, the Commission is ensuring that the Exchange 
will be able to list index options on the IPC without any interruption 
if the Bolsa decides to change the settlement methodology while 
continuing to ensure that investors are adequately informed of the 
changes in settlement methodology. Accordingly, the Commission believes 
that it is consistent with Sections 6(b)(5) and 19(b)(2) of the Act to 
approve the proposed rule change on an accelerated basis.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) \8\ of the 
Act, that the proposed rule change (File No. SR-CBOE-96-32) is hereby 
approved on an accelerated basis.

    \8\ 15 U.S.C. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc 96-14180 Filed 6-5-96; 8:45 am]
BILLING CODE 8010-01-M