[Federal Register Volume 61, Number 200 (Tuesday, October 15, 1996)]
[Notices]
[Pages 53774-53775]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26340]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37790; File No. SR-CBOE-96-59]


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 Morgan Stanley Multinational 
Index

October 4, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 1, 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.
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    \1\ 15 U.S.C. Sec. 78s(b)(1).
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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 cash-settled, European-style 
stock index options on the Morgan Stanley Multinational Index (``Morgan 
Stanley Multinational'' or ``Index''), a broad-based, capitalization-
weighted index comprised of 50 large domestic companies.

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
    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 Morgan Stanley Multinational. The Morgan Stanley Multinational is a 
broad-based, capitalization-weighted index composed of 50 high-
capitalization domestic stocks.
    Index Design. The Morgan Stanley Multinational has been designed to 
measure the performance of certain high capitalization stocks. The 
Morgan Stanley Multinational is a capitalization-weighted index with 
each stock affecting the Index in proportion to its market 
capitalization. Each stock in the Index is eligible for options 
trading.\2\
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    \2\ A list of Index components is available at the Commission 
and at the CBOE.
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    On July 17, 1996, the to stocks ranged in capitalization from $4.7 
billion to $138.2 billion. The median capitalization of the firms in 
the Index was $29.33 billion while the average capitalization of the 
Index components was $37.1 billion. The largest stock accounted for 
7.33% of the total weighting of the Index, while the smallest accounted 
for 0.25%. The five highest weighted stocks accounted for 28.8%. The 
average daily trading volume for Index components during the six-month 
period ending July 16, 1996 was 1.93 million shares.
    Calculation. The methodology used to calculate the value of the 
Index is similar to the methodology used to calculate the value of 
other well-known broad-based indices. The level of the Index reflects 
the total market value of the component stocks relative to a particular 
base period. The Morgan Stanley Multinational Index base date is 
December 31, 1991, when the index value was set to 200. The Index had a 
closing value of 330.63 on July 17, 1996. The daily calculation of the 
Morgan Stanley Multinational Index is computed by dividing the total 
market value of the companies in the Index by the Index Divisor. The 
Divisor keeps the Index comparable over time and is adjusted 
periodically to maintain the Index. The values of the Index will be 
calculated by the CBOE and disseminated at 15-second intervals during 
regular CBOE trading hours to market information vendors via Options 
Price Reporting Authority (``OPRA'').
    Maintenance. Index maintenance includes monitoring and completing 
the adjustments for company additions and deletions, share changes, 
stock splits, stock dividends (other than an ordinary cash dividend), 
stock price adjustments due to company restructuring or spinoffs. Some 
corporate actions, such as stock splits and stock dividends, require 
simple changes in the common shares outstanding and the stock prices of 
the companies in the Index. Other corporate actions, such as share 
issuances, change the market value of the Index and require an index 
divisor adjustment as well. The CBOE will refer all such non-routine 
matters and other material changes to the Index to Morgan Stanley. Over 
time the number of component securities in the Index may change. At no 
time will the number of securities drop to less than 30. In the event 
of a stock replacement, the divisor will be adjusted as may be 
necessary to provide continuity in values of the Index.
    Index Option Trading. In addition to regular Index options, the 
Exchange may provide for the listing of long-term index option series 
(``LEAPS'') and reduced-value LEAPS on the Index. For reduced-value 
LEAPS, the underlying value would be computed at one-tenth of the Index 
level. The current and closing index value of any such reduced-value 
LEAP will, after such initial computation, be rounded to the nearest 
one-hundredth.
    Strike prices will be set to bracket the index in 2\1/2\ point 
increments for strikes below 200 and 5 point increments above 200. The 
minimum tick size for series

[[Page 53775]]

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 3:15 p.m. (Chicago time).
    Exercise and Settlement. The proposed options on the Index will 
expire on the Saturday following the third Friday of the expiration 
month. Trading in the expiring contract month will normally cease at 
3:15 p.m. (Chicago time) on the business day preceding the last day of 
trading in the component securities of the Index (ordinarily the 
Thursday before expiration Saturday, unless there is an intervening 
holiday). The exercise settlement value of the Index at option 
expiration will be calculated by the Exchange based on the opening 
prices of the component securities on the business day prior to 
expiration. If a stock fails to open for trading, the last available 
price on the stock will be used in the calculation of the index, as is 
done for currently listed indexes. When the last trading day is moved 
because of Exchange holidays (such as when the CBOE is closed on the 
Friday before expiration), the last trading day for expiring options 
will be Wednesday and the exercise settlement value of Index options at 
expiration will be determined at the opening of regular Thursday 
trading.
    Surveillance. The Exchange will use the same surveillance 
procedures currently utilized for each of the Exchange's other index 
options to monitor trading in Index options and Index LEAPS on the 
Morgan Stanley Multinational. For surveillance purposes, the Exchange 
will have complete access to information regarding trading activity in 
the underlying securities.
    Position Limits. The Exchange proposes to establish position limits 
for options on the Morgan Stanley Multinational at 50,000 contracts on 
either side of the market, and no more than 30,000 of such contracts 
may be in the series in the nearest expiration month. These limits are 
roughly equivalent, in dollar terms, to the limits applicable to 
options on other indices.
    Exchange Rules Applicable. As modified herein, the Rules in Chapter 
XXIV will be applicable to Morgan Stanley Multinational options. Broad-
based margin rules will apply to the Index.
    Disclaimer Language. The CBOE is proposing to amend Rule 24.14 in 
order to include specified reference to Morgan Stanley as entitled to 
the benefit of the disclaimer of liability in respect of the Index.
    The CBOE believes that it has the necessary systems capacity to 
support new series that would result from the introduction of Morgan 
Stanley Multinational options. The CBOE has also been informed that 
OPRA recently added an additional outgoing high speed line from the 
OPRA processor and thus also has the capacity to support the new 
series.
2. Statutory Basis
    The 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 Morgan Stanley Multinational 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 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-96-59 and should be 
submitted by November 5, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\3\
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    \3\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-26340 Filed 10-11-96; 8:45 am]
BILLING CODE 8010-01-M