[Federal Register Volume 61, Number 187 (Wednesday, September 25, 1996)]
[Notices]
[Pages 50358-50361]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-24493]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37696; File No. SR-CBOE-96-44]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Inc.; Order Approving Proposed Rule Change and Notice of Filing and 
Order Granting Accelerated Approval of Amendment No. 1 Thereto Relating 
to the Listing and Trading of Options on the Goldman, Sachs Technology 
Composite Sub-Indexes

September 17, 1996.
    On July 2, 1996, the Chicago Board Options Exchange, Inc. (``CBOE'' 
or ``Exchange'') submitted to the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade options on six 
different narrow-based indexes, each of which is composed of components 
from the GSTI Composite Index (``GSTI Composite Index'').\3\ The six 
sub-indexes are: the GSTI Internet Index (``Internet Index''), the GSTI 
Software Index (``Software Index''), the GSTI Semiconductor Index 
(``Semiconductor Index''), the GSTI Hardware Index (``Hardware 
Index''), the GSTI Services Index (``Services Index''), and the GSTI 
Multimedia Networking Index (``Multimedia Index'') (collectively ``GSTI 
Sub-Indexes'' or ``Sub-Indexes''). Notice of the proposed rule change 
appeared in the Federal Register on August 8, 1996.\4\ No comments were 
received on the proposal. On September 16, 1996, CBOE filed Amendment 
No. 1 to the proposal to address issues related to index maintenance 
criteria.\5\ This order approves the proposal, as amended, and solicits 
comments on Amendment No. 1.
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    \1\ 15 U.S.C. Sec. 78s(b)(1) (1988 & Supp. V 1993).
    \2\ 17 CFR 240.19b-4 (1994).
    \3\ Concurrent with this order, the Commission is approving a 
CBOE proposal to list and trade options on the Goldman Sachs 
Technology Composite Index, a broad-based, capitalization weighted 
index composed of the universe of technology-related company stocks 
meeting certain objective criteria, as amended. See Securities 
Exchange Act Release No. 37693 (``SR-CBOE-96-43''). A list of 
components for the Composite Index or any of the Sub-Indexes is 
available at the Commission or CBOE.
    \4\ Securities Exchange Act Release No. 37509 (July 31, 1996), 
61 FR 41434.
    \5\ Letter from Eileen Smith, CBOE, to Stephen M. Youhn, SEC, 
dated September 16, 1996.
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I. Description of the Proposal

    The purpose of the proposal is to permit the Exchange to list and 
trade cash-settled, European-style index options on the GSTI Sub-
Indexes. Each GSTI Sub-Index is narrow-based, modified-capitalization 
weighted, and composed of components of the GSTI Composite Index. 
Goldman, Sachs & Co. has designated a GSTI Committee (``Committee'') to 
oversee the selection of GSTI Sub-Index components, as discussed below.
    Index Design. As discussed in greater detail in SR-CBOE-96-43, the 
GSTI Composite Index is comprised of the universe of securities that 
satisfy objective criteria (GSTI Index Rules'').\6\ Upon inclusion in 
the GSTI Composite Index, the Committee then selects and assigns stocks 
to the GSTI Sub-Indexes based upon relevant qualitative criteria. 
Furthermore, any stock in a Sub-Index must appear in the GSTI Composite 
Index. Stocks may be represented in one or more GSTI Sub-Indexes, 
however, not all GSTI Composite Index components necessarily will be 
assigned to a GSTI Sub-Index. All of the components of the GSTI 
Composite Index currently trade on the New York Stock Exchange 
(``NYSE''), the American Stock Exchange or Nasdaq.
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    \6\ All securities satisfying the following criteria are 
automatically included in the GSTI Composite Index: First, a 
company's stock must trade on the New York Stock Exchange, the 
American Stock Exchange or through the facilities of the Nasdaq, and 
be a ``reported security'' under rule 11Aa3-1. Only outstanding 
common shares are eligible for inclusion. Additionally, only foreign 
companies whose primary market is in the United States will be 
eligible for the Index; American Depositary Receipts are not 
eligible. Second, the total market capitalization of the company's 
stock must be equal to or greater than the capitalization ``cutoff'' 
value. The initial base period ``cutoff'' value will be $600 
million, but this value will be adjusted on each semiannual 
rebalancing date (as described below) to reflect the price 
performance of the Index since the base period and rounded up to the 
nearest $50 million. Index constituents with capitalization below 
50% of the ``cutoff'' value on a semiannual rebalancing date shall 
be removed after the close on the effective date of the rebalancing. 
Third, company stocks with a public float below 20% of shares issued 
and outstanding are not eligible for inclusion in the Index. Fourth, 
the company stock must have annualized share turnover of 30% or 
more, based on its average daily share volume for the six calendar 
months prior to inclusion in the Index. Fifth, the components must 
be from a group of Standard Industrial Classification codes or 
Russell Industry codes.
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    Calculation. The Sub-Index will be calculated by CBOE on a real-
time basis using last-sale prices and will be disseminated every 15 
seconds by CBOE.\7\ If a component security is not currently being 
traded on its primary market, the most recent price at which the 
security traded on such market will be used in the Index calculation.
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    \7\ Telephone conversation between Eileen Smith, CBOE and Sharon 
Lawson, SEC, on September 17, 1996. The original filing proposed 
that the Sub-Index values be calculated by CBOE or a designee of 
Goldman, Sachs.
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    The Sub-Indexes are calculated on a ``modified capitalization-
weighted'' method, which is a hybrid between equal weighting (which may 
impose liquidity concerns for smaller-cap stocks) and capitalization 
weighting (which may result in two or three stocks dominating an 
index's performance). Under the method employed for each of the sub-
indexes, the maximum weight for the largest stock in the sub-index will 
be set to no higher than 25% on the semiannual rebalancing date. The 
maximum weight for the second largest stock will be set to no higher 
than 20% of the maximum weight for the third largest stock and any 
stock thereafter will be set to no higher than 15% on the rebalancing 
date. The weight of all the remaining Sub-Index stocks shall be market 
capitalization weighted. Thus, the weights of these remaining stocks

[[Page 50359]]

are not ``capped.'' At the time of semi-annual rebalancing, stocks with 
Sub-Index weights in excess of their capped weight in that Sub-Index, 
will be restored to the appropriate capped weight.
    For stocks which are not ``capped,'' the number of index shares 
will equal the company's outstanding common shares. For stocks which 
are capped, index shares will equal its maximum weight, multiplied by 
the adjusted total market capitalization of the sub-index, divided by 
the stock's closing price on the rebalancing date. The index's adjusted 
total market capitalization is the total outstanding market 
capitalization adjusted to reflect the number of ``capped'' stocks.
    The divisor for each Sub-Index was initially calculated to yield a 
benchmark value of 100.00 at the close of trading on April 30, 1996. 
The divisor for each Sub-Index will be adjusted as needed to ensure 
continuity in each index whenever there are additions or deletions from 
an index, share changes, or adjustments to a component's price to 
reflect rights offerings, spinoffs, and special cash dividends.
    Maintenance. The Sub-Indexes will be maintained by CBOE and the 
GSTI Committee. The GSTI Composite Index will be adjusted on each semi-
annual rebalancing date by adding or deleting stocks according to the 
inclusion criteria detailed in SR-CBOE-96-43.\8\ All changes to the 
GSTI Composite Index will then be implemented after the close of 
trading on the effective date, which will be the third Friday of 
January and July. The rebalancing date will be 7 business days prior to 
the effective date.
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    \8\ See supra note 6. The GSTI Composite Index is comprised of 
the universe of technology stocks and all securities that meet the 
previously established inclusion criteria are added to the Index at 
the time of semi-annual rebalancing. CBOE maintains the GSTI 
Composite Index.
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    As soon after the close of trading on the day following the 
rebalancing date for the GSTI Composite Index, the Exchange will 
provide to the Committee a list of all constituent changes to the GSTI 
Composite Index. Upon receipt of this list from the Exchange, the 
Committee will meet to determine any changes to the GSTI Sub-Indexes.
    The Committee will notify CBOE of any change in composition for any 
of the GSTI Sub-Indexes before trading starts on the trading day after 
the Exchange has provided the Composite Index component list to the 
Committee.\9\ The Exchange, in turn, will disseminate the information 
concerning the components of the GSTI Sub-Indexes to the public at 
least five days before the effective date, wherever possible. The 
Committee retains discretion to add or delete stocks from the GSTI Sub-
Indexes at the rebalancing or to change a stock's industry 
classification. A stock must appear in the GSTI Composite Index to be 
eligible for inclusion in a Sub-Index. At the discretion of the 
Committee, a stock may also be removed from a Sub-Index due to lack of 
industry representation in the Sub-Index.
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    \9\ For example, if CBOE provides to the Committee a list of 
composition changes to the GSTI Composite Index after the close of 
trading on Friday, the Committee would in turn inform CBOE of any 
corresponding changes to the GSTI Sub-Indexes before trading 
commences on Monday. CBOE would then disseminate such changes to the 
public at least five business days prior to the effective date, 
wherever possible. Telephone Conversation between Eileen Smith, 
CBOE, and Steve Youhn, SEC, on July 24, 1996.
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    The maintenance criteria applicable to the GSTI Composite Index, as 
described in SR-CBOE-96-43, also will apply to the GSTI Sub-Indexes. 
First, at least 75% of the weight of any Sub-Index must be options 
eligible pursuant to CBOE Rule 5.3. Second, Sub-Index constituents with 
capitalization below 50% of the ``cutoff'' value on a semiannual 
rebalancing date shall be removed after the close on the effective date 
of the rebalancing. Third, if the market capitalization of any 
component drops below $75 million at the time of the semiannual 
rebalancing, it must be options eligible.\10\ Fourth, no more than 10% 
of the weight of a Sub-Index may be composed of stocks with average 
daily trading volume for the previous six-month period of less than 
20,000 shares. Finally, at no time will a Sub-Index fall to less than 6 
stocks.\11\ In the event that a Sub-Index does not comply with these 
maintenance criteria, CBOE will notify Commission staff to determine 
the appropriate regulatory response. Such responses could include, but 
are not limited to, the removal of securities from a Sub-Index, 
prohibiting opening transactions, or discontinuing the listing of new 
series in any Sub-Index.\12\
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    \10\ See Amendment No. 1.
    \11\ Currently, the Sub-Indexes range from 9 to 45 components.
    \12\ See Amendment No. 1.
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    When a stock is ``Fast Added'' to the GSTI Composite Index, as 
described in SR-CBOE-96-43, the stock may be ``Fast Added'' to one or 
more GSTI Sub-Indexes at the same time. If added to a Sub-Index, the 
stock's weight cannot exceed the appropriate cap for that Sub-Index. If 
a stock is ``Fast Deleted'' from the GSTI Composite Index, it will be 
removed from all GSTI Sub-Indexes at the same time.
    In the case of a merger, the Committee will decide the Sub-Index 
classification of the merged company. If the weight of the merged 
company would exceed the relevant cap for the Sub-Index to which it is 
assigned, the weight of the company will be capped at the time that the 
merger is completed. The index shares of all other stocks in the 
effected Sub-Index will remain unchanged.
    As discussed above, the Committee is responsible for making 
component changes to the Sub-Indexes. Accordingly, a ``chinese wall'' 
has been erected around the personnel at Goldman, Sachs who have access 
to information concerning changes and adjustments to the GSTI Composite 
Index and Sub-Indexes. Details of Goldman, Sachs ``chinese wall'' 
procedures, which are closely modeled on existing procedures for other 
Goldman, Sachs derivative products, have been submitted to the 
Commission under separate cover.
    Index Option Trading. The Exchange proposes to base trading in 
options on the GSTI Sub-Indexes on the full value of the relevant Sub-
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 
appropriate Sub-Index (all such LEAPS series are hereinafter referred 
to as ``LEAPS''). The current and closing index value of any such 
reduced-value LEAPS will, after such initial computation, be rounded to 
the nearest one-hundredth. Strike prices will be set to bracket the 
index in a minimum of 2\1/2\ point increments for strikes below 200 and 
5 point increments above 200. The minimum tick size for series trading 
below $3 will be \1/16\th and for series trading above $3 the minimum 
tick will be \1/8\th. The trading hours for options on the Index will 
be from 8:30 a.m. to 3:10 p.m. Chicago time.
    Exercise and Settlement. GSTI Sub-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 GSTI Sub-Index options. The last 
reported sale price of such a component security shall be used in any 
case where that component security does not open for trading on that 
day.\13\

[[Page 50360]]

The proposed options will expire on the Saturday following the third 
Friday of the expiration month. Thus, the last day for trading in an 
expiring series will be the second business day (ordinarily a Thursday) 
preceding the expiration date.
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    \13\ The Commission notes that pursuant to Article XVII, Section 
4 of the Options Clearing Corporation's (``OCC'') by-laws, OCC is 
empowered to fix an exercise settlement amount in the event it 
determines a current index value is unreported or otherwise 
unavailable. Further, OCC has the authority to fix an exercise 
settlement amount whenever the primary market for the securities 
representing a substantial part of the value of an underlying index 
is not open for trading at the time when the current index value 
(i.e., the value used for exercise settlement purposes) ordinarily 
would be determined. See Securities Exchange Act Release No. 37315 
(June 17, 1996), 61 FR 42671 (Aug. 16, 1996) (order approving SR-
OCC-95-19).
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    Exchange Rules Applicable. Except as modified herein, the Rules in 
Chapter XXIV will be applicable to GSTI Sub-Index options. Index option 
contracts based on the GSTI Sub-Indexes will be subject to the position 
limit requirements of Rule 24.4A.\14\ Ten reduced-value options will 
equal one full-value contract for such purposes.
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    \14\ CBOE Rule 24.4A sets position and exercise limits for 
narrow-based index options under a tiering approach based on the 
applicable concentration of the component securities. Each of the 
Sub-Indexes is subject to a position limit of 9,000 contracts on the 
same side of the market.
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    CBOE represents that it has the necessary systems capacity to 
support new series that would result from the introduction of the GSTI 
Sub-Index options. CBOE has also been informed that the Options Price 
Reporting Authority (``OPRA'') has the capacity to support such new 
series.

II. Findings and Conclusions

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and, 
particular, the requirements of Section 6(b)(5).\15\ Specifically, the 
Commission finds that the trading of options on the GSTI Sub-Indexes, 
including LEAPS, will serve to promote the public interest and help to 
remove impediments to a free and open securities market by providing 
investors with additional means to hedge exposure to market risk 
associated with stocks in the various high technology sub-sectors.\16\
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    \15\ U.S.C. Sec. 78f(b)(5) (1988).
    \16\ Pursuant to Section 6(b)(5) of the Act, the Commission must 
predicate approval of any new option proposal upon a finding that 
the introduction of such new derivative instrument is in the public 
interest. Such a finding would be difficult for a derivative 
instrument that served no hedging or other economic function, 
because any benefits that might be derived by market participants 
likely would be outweighed by the potential for manipulation, 
diminished public confidence in the integrity of the markets, and 
other valid regulatory concerns. In this regard, the trading of 
listed options on the Sub-Indexes will provide investors with a 
hedging vehicle that should reflect the overall movement of the 
stocks representing companies in the high technology sub-industries 
in the U.S. stock markets.
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    The trading of options on the GSTI Sub-Indexes and on reduced-value 
Indexes, however, raises several issues relating to index design, 
customer protection, surveillance, and market impact. The Commission 
believes, for the reasons discussed below, that CBOE adequately has 
addressed these issues.

A. Index Design and Structure

    The Commission believes it is appropriate for the Exchange to 
designate the Sub-Indexes as narrow-based for purposes of index options 
trading. The Sub-Indexes are comprised of a smaller number of stocks 
from the GSTI Composite Index and are intended to trade specific sub-
industries of the high capitalization technology sector of the equities 
market. Accordingly, the Commission believes it is appropriate for CBOE 
to apply its rules governing narrow-based index options to trading in 
the GSTI Sub-Index options.\17\
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    \17\ The Commission also believes that each of the reduced value 
Sub-Indexes are narrow-based because they are composed of the same 
component securities as the Sub-Indexes, and merely dividing a Sub-
Index value by ten will not alter its basic character.
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    The Commission believes that the large capitalizations, liquid 
markets, and relative weightings of the component stocks for each Sub-
Index significantly minimizes the potential for manipulation of the 
Sub-Index. As discussed above, each of the Sub-Indexes must be composed 
only of components of the GSTI Composite Index. Accordingly, the 
inclusion standards applicable to the GSTI Composite Index will apply 
to each of the Sub-Indexes.\18\
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    \18\ See supra note 6 for the inclusion standards. In approving 
the GSTI Composite Index (SR-CBOE-96-43), the Commission makes a 
concurrent finding that the GSTI Composite Index is broad-based 
because it represents a substantial segment of the U.S. equities 
market. In addition, the Commission finds that the general broad 
diversification, capitalization, and relatively liquid markets of 
the GSTI Composite Index's component stocks significantly minimize 
the potential for manipulation of that Index.
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    In this regard, the Commission notes that the market 
capitalizations of the stocks in the Sub-Indexes are very large, 
ranging from a high of $67 billion to a low of $636 million. Because 
the Sub-Indexes are modified capitalization-weighted, as described 
above, no one stock or group of stocks dominates a particular Sub-
Index.
    Second, the proposed maintenance criteria will serve to ensure 
that: (A) the Sub-Indexes are not dominated by one or several 
securities that do not satisfy the Exchange's options listing criteria; 
(B) the Sub-Indexes remain composed substantially of liquid highly 
capitalized securities. Specifically, all components must have a 
minimum market capitalization of $75 million and be options eligible; 
(C) the Sub-Indexes remain composed of actively traded securities. 
Specifically, the Commission notes that no more than 10% of the 
capitalization of a Sub-Index may be represented by stocks with average 
daily volume for the previous six-month period of less than 20,000 
shares; and (D) the Sub-Indexes are comprised of no less than six 
components at all times.\19\ In the event a Sub-Index fails to comply 
with these criteria, CBOE will notify Commission staff to determine the 
appropriate regulatory response. Such responses could include, but are 
not limited to, the removal of components from a Sub-Index, prohibiting 
opening transactions, or discontinuing the listing of new series in any 
Sub-Index.
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    \19\ See supra note 11.
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    Third, CBOE and the Committee will be required to ensure that each 
component of a Sub-Index is subject to last sale reporting requirements 
in the U.S. pursuant to Rule 11Aa3-1 of the Act. This will further 
reduce the potential for manipulation of the value of the Index. 
Finally, the Commission believes that the existing mechanisms to 
monitor trading activity in the component stocks of the Index, or 
options on those stocks, will help deter as well as detect any illegal 
activity.

B. Customer Protection

    The Commission believes that a regulatory system designed to 
protect public customers must be in place before the trading of 
sophisticated financial instruments, such as Sub-Index options 
(including full-value and reduced-value long-term Index options), can 
commence on a national securities exchange. The Commission notes that 
the trading of standardized exchange-traded options occurs in an 
environment that is designed to ensure, among other things, that: (1) 
The special risks of options are disclosed to public customers; (2) 
only investors capable of evaluating and bearing the risks of options 
trading are engaged in such trading; and (3) special compliance 
procedures are applicable to options accounts. Accordingly, because the 
Sub-Index options will be subject to the same regulatory regime as the 
other standardized index options currently traded on CBOE, the 
Commission believes that adequate safeguards are in place to ensure the 
protection of investors in Sub-Index options and LEAPS.

[[Page 50361]]

C. Surveillance

    The Commission believes that a surveillance sharing agreement 
between an exchange proposing to list a stock index derivative product 
and the exchange(s) trading the stocks underlying the derivative 
product is an important measure for surveillance of the derivative and 
underlying securities markets. Such agreements ensure the availability 
of information necessary to detect and deter potential manipulations 
and other trading abuses, thereby making the stock index product less 
readily susceptible to manipulation.\20\ In this regard, CBOE, Amex, 
NYSE, and the NASD, on whose markets the component securities of the 
Sub-Indexes trade, are all members of the Intermarket Surveillance 
Group (``ISG'').\21\ Options on the individual component securities 
also trade on markets which are ISG members. In addition, CBOE will 
apply the same surveillance procedures as those used for existing 
narrow-based index options trading on CBOE.
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    \20\ See Securities Exchange Act Release No. 31243 (September 
28, 1992), 57 FR 45849 (October 5, 1992).
    \21\ The ISG was formed on July 14, 1983 to, among other things, 
coordinate more effectively surveillance and investigative 
information sharing arrangements in the stock and options markets. 
See Intermarket Surveillance Group Agreement, dated July 14, 1983, 
amended January 29, 1990. The members of the ISG are the following: 
American Stock Exchange; Boston Stock Exchange, Inc.; CBOE; Chicago 
Stock Exchange, Inc.; National Association of Securities Dealers, 
Inc.; New York Stock Exchange, Inc.; Pacific Stock Exchange Inc.; 
and Philadelphia Stock Exchange, Inc. The major stock index futures 
exchanges (including the Chicago Merchantile Exchange and the 
Chicago Board of Trade) joined the ISG as affiliate members in 1990.
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    The Commission notes that certain concerns are raised when a 
broker-dealer, such as Goldman, Sachs, is involved in the development 
and maintenance of a stock index that underlies an exchange-traded 
derivative product. For several reasons, however, the Commission 
believes that CBOE has adequately addressed this concern with respect 
to options on the Sub-Indexes.
    First, the value of the Sub-Indexes, including the final settlement 
values, are to be calculated and disseminated independent of Goldman, 
Sachs by CBOE. Accordingly, neither Goldman, Sachs nor any of its 
affiliates or other persons (except CBOE) will be in receipt of the 
values prior to their public dissemination. Second, the Commission 
believes that the procedures Goldman, Sachs has established to detect 
and prevent material non-public information concerning the Sub-Indexes 
from being improperly used by members of the Committee, as well as 
other persons within Goldman, Sachs, as discussed above, adequately 
serve to minimize the susceptibility to manipulation of the Sub-Indexes 
and the securities in the Sub-Indexes. Finally, the Exchange's existing 
surveillance procedures for stock index options will apply to the 
options on the Sub-Indexes and should provide CBOE with adequate 
information to detect and deter trading abuses that may occur. In 
summary, the Commission believes that the procedures outlined above 
help to ensure that Goldman, Sachs will not have any informational 
advantages concerning modifications to the composition of the Sub-
Indexes due to its role in the maintenance of the Sub-Indexes.

D. Market Impact

    The Commission believes that the listing and trading of options on 
the Sub-Indexes, including LEAPS, on CBOE will not adversely impact the 
underlying securities markets.\22\ First, as described above, due to 
the modified capitalization weighting method, no one stock or group of 
stocks dominates a Sub-Index. Second, because at each semi-annual 
rebalancing of a Sub-Index, at least 75% of the weight of the Sub-
Indexes must be accounted for by stocks that meet CBOE's options 
listing standards, the component stocks generally will be actively-
traded, highly-capitalized stocks.\23\ Third, CBOE's existing position 
and exercise limits will serve to minimize potential manipulation and 
market impact concerns. Fourth, the risk to investors of contra-party 
non-performance will be minimized because Sub-Index options and Sub-
Index LEAPS will be issued and guaranteed by the OCC just like any 
other standardized option traded in the United States.
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    \22\ In addition, CBOE has represented that it and OPRA have the 
necessary systems capacity to support those new series of index 
options that would result from the introduction of Sub-Index options 
and LEAPS.
    \23\ See Amendment No. 1.
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    Lastly, the Commission believes that settling expiring GSTI Sub-
Index options, including LEAPS, based on the opening prices of 
component securities is reasonable and consistent with the Act. As 
noted in other contexts, valuing options for exercise settlement on 
expiration based on opening prices rather than closing prices may help 
reduce adverse effects on markets for stocks underlying options on the 
Index.\24\
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    \24\ Securities Exchange Act Release No. 30944 (July 21, 1992), 
57 FR 33376 (July 28, 1992).
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    The Commission finds good cause for approving Amendment No. 1 to 
the proposed rule change prior to the thirtieth day after the date of 
publication of notice of filing thereof in the Federal Register. 
Amendment No. 1 establishes maintenance criteria for the Sub-Indexes 
which should help to ensure that the Sub-Indexes do not become 
dominated by lowly capitalized, illiquid, and thinly traded securities. 
In addition, the Commission believes that the establishment of 
maintenance criteria should help to increase the integrity and 
stability of the Sub-Indexes. Therefore, the Commission believes it is 
consistent with Sections 6(b)(5) and 19(b)(2) of the Act to approve 
Amendment No. 1 to the proposal on an accelerated basis.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 1. 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-96-44 and should 
be submitted by October 16, 1996.
    It therefore is ordered, pursuant to Section 19(b)(2) of the 
Act,\25\ that the proposed rule change (SR-CBOE-96-44) is approved, as 
amended.

    \25\ 15 U.S.C. Sec. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-24493 Filed 9-24-96; 8:45 am]
BILLING CODE 8010-01-M