[Federal Register Volume 61, Number 214 (Monday, November 4, 1996)]
[Notices]
[Pages 56726-56728]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-28182]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37878; File No. SR-CBOE-96-64]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the Chicago Board Options Exchange, Inc., Relating to Listing and 
Delisting Standards for Debt Securities

October 28, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on 
October 22, 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. CBOE submitted Amendment No. 1 to the filing on October 
25, 1996 to clarify rule language.\1\ The Commission is publishing this 
notice to solicit comments on the proposed rule change, as amended, 
from interested persons.
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    \1\ See Letter from Janet Angstadt, Schiff Hardin & Waite, to 
Michael Walinskas, SEC, dated October 25, 1996.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE proposes to revise its standards for the listing and 
delisting of debt securities to conform to those of other securities 
exchanges. 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 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 conform the Exchange's listing and delisting standards for debt 
securities to those of the American Stock Exchange (``AMEX'') and New 
York Stock Exchange (``NYSE''). The Exchange proposes to revise the 
listing and delisting standards set forth in Rule 31.5 so that the 
listing and delisting standards are substantially similar to those that 
now exist for the NYSE and AMEX. The Commission approved substantially 
similar standards for listing bonds and debentures for the AMEX and 
NYSE in Securities Exchange Act Release No. 36594 (December 14, 1995) 
(``Release No. 36594'') (approval of AMEX proposal to revise debt 
listing standards) and Securities Exchange Act Release No. 34019 (May 
5, 1994) (approval of NYSE proposal to revise debt listing standards). 
The NYSE and the AMEX stated that the purpose of the revisions to their 
debt listing standards was to facilitate the exchange listing of debt 
securities and to provide debtholders with a transparent auction market 
for secondary trading.
Original Listing Standards
    CBOE Rule 31.5 provides that the Exchange will consider listing 
bonds and debentures if: (1) the issuer meets the net worth and 
earnings criteria for equity issues (Rule 31.5A) and appears to be able 
to satisfy interest and principal when due; (2) the issuer meets the 
size and earnings criteria applicable to issuers listing common stock; 
and (3) the issue has an aggregate market value and principal amount of 
at least $5 million for issuers that have common stock listed on the 
Exchange, AMEX or NYSE, or at least $20 million and 100 holders for 
issuers that do not have securities listed on the Exchange, AMEX or 
NYSE.\1\
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    \1\ CBOE's listing and delisting standards for common stock are 
substantially identical to those of AMEX.
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    The Exchange proposes to replace its listing criteria for debt 
securities with standards similar to those of AMEX and the NYSE. Under 
the proposed standards, if an issuer has equity securities listed on 
the Exchange, AMEX or NYSE, and is in ``good standing,'' \2\ the 
Exchange will ordinarily list that issuer's debt securities as long as 
the debt issue has an aggregate market value or principal amount of at 
least $5 million. If the issuer does not have equity securities listed 
on the Exchange, AMEX or NYSE, the Exchange will rely on the analyses 
of nationally recognized securities rating organizations (``NRSROs''), 
such as Standard & Poor's or Moody's.\3\
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    \2\ An issuer is in ``good standing'' if the issuer is in 
compliance with the relevant Exchange, AMEX or NYSE standards for 
continued listing.
    \3\ As noted by the AMEX in its proposed rule filing, the 
Exchange will not conduct a review to determine whether the issuer 
satisfies its original equity listing guidelines or, as the case may 
be, those of the AMEX or NYSE.
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    Specifically, the Exchange proposes to make the following changes 
to Rule 31.5 of the Exchange's rules:
    A. Eliminate the requirement that an issuer of debt satisfy net 
worth and earnings standards applicable to issuers listing common 
stock. [Proposed Rule 31.5.C.(1)].
    B. Eliminate the requirement that an issuer demonstrate that it is 
able to satisfy interest and principal when due. [Proposed Rule 
31.5.C.(1)].
    C. Permit the Exchange to list a debt issue if it has an aggregate 
market value or principal amount of at least $5 million. [Proposed Rule 
31.5.C.(1)].
    D. Permit the Exchange to list debt securities that are issued or 
guaranteed by an issuer which has equity securities listed on the 
Exchange, AMEX or NYSE. [Proposed Rule 31.5.C.(2)(a)]. Alternatively, 
the issuer of debt securities may list on the Exchange if a majority 
interest of the issuer of debt is directly or indirectly owned, or 
under common control with the issuer of equity securities listed on the 
Exchange, AMEX or NYSE. [Proposed Rule 31.5.C.(2)(b)].
    E. Eliminate the public distribution requirement that listed and 
non-listed issuers have at least 100 holders. [Proposed Rule 
31.5.C.(2)].
    F. In lieu of the criteria specified in D above, permit the 
Exchange to list the debt securities of an issuer if an NRSRO has 
assigned a current rating to the debt security that is no lower than an 
S&P Corporation ``B'' rating (i.e., B- or better) or the equivalent 
rating of another NRSRO. A ``B'' rating indicates that the debt issuer 
currently has the capacity to meet interest payments and principal 
repayments, and that such capacity is not dependent upon favorable 
business, financial or economic conditions. If no NRSRO has assigned a 
rating to the issue, an NRSRO must have currently

[[Page 56727]]

assigned either an investment grade rating (i.e., an S&P or equivalent 
rating no lower than ``BBB-'') to a senior issue or a rating that is no 
lower than an S&P) ``B'' rating (or equivalent) to a pari passu or 
junior issue. [Proposed Rule 31.5.C.(21)(d)].
Suspension and Delisting Policies
    Exchange Rule 31.94 sets forth the minimum criteria which a 
security must meet to continue to be listed on the Exchange. Under 
Exchange Rule 31.94 as proposed, the Exchange will consider delisting a 
debt issue if (1) its aggregate market value or principal amount is 
less than $400,000 or (2) if the debt issuer is unable to meet its 
obligations on the listed debt securities. The standards in Rule 
31.94(b)(iii) will permit, but not require, the delisting of the bond 
or debenture if the debt issuer fails to meet the criteria set forth in 
the rule. Consistent with policy statements adopted by the Amex, in 
applying these standards, the Exchange will normally not delist the 
debt if there is value in the security and continued Exchange trading 
is in the best interests of investors. However, if an issuer is unable 
to meet its financial obligations and there is minimal or no value in 
the security, the Exchange will give serious consideration to delisting 
the bond issue.
    As stated in Rule 31.94.C, the criteria set forth in the rule in no 
way restricts the Exchange's right to delist a security, and the 
Exchange may at any time delist a security from listing when in its 
opinion such security is unsuitable for continued trading on the 
Exchange. The determination of whether a debt security is suitable for 
exchange trading would include whether or not there were sufficient 
holders of the debt security.
    In the case of debt securities which are convertible into equity 
securities, the Exchange proposes to review the continued listing of 
the debt security when the underlying equity security is delisted. The 
Exchange will delist the convertible bond when the underlying equity 
security is no longer subject to real-time trade reporting or if the 
Exchange delists the underlying equity security for violation of 
certain specified Exchange rules related to corporate governance 
(Exchange Rules 31.9--31.14).
Listing Procedures
    The Exchange also proposes to reduce the number of supporting 
documents that an applicant must file in support of its debt listing 
application. In proposing similar changes, the AMEX stated that its 
review of the listing process revealed that ``several documents were 
either unnecessary, duplicative or unduly burdensome to issuers.''\4\ 
The Exchange proposes the following changes to conform Exchange 
procedures to those of the AMEX:
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    \4\ See Release No. 36594.
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    A. Form 5--Distribution of Bonds. Since the Exchange is proposing 
to eliminate the requirement that debt securities have 100 holders, 
Form 5 will no longer be necessary.
    B. Trustee's Certificate. The Exchange currently requires a 
certificate from the trustee which shows (i) acceptance of the trust; 
(ii) that the securities have been issued in accordance with the terms 
of the indenture; (iii) what disposition has been made of securities 
redeemed or refunded; (iv) that pledged collateral has been deposited; 
and (v) what disposition has been made of prior obligations. In its 
filing proposing revisions to the Trustee's Certificate, the AMEX 
stated that ``[i]ssuers often complain that it is unduly burdensome for 
them to obtain the trustee's certificate because many trustees are 
reluctant to certify the issuer-specific information'' required by 
Items (ii)-(v).\5\ Therefore, the AMEX proposed to require that the 
certificate show only the trustee's acceptance of the trust. The 
Exchange proposes to conform its practice to that of the AMEX and 
therefore require that the certificate show only the trustee's 
acceptance of the trust.
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    \5\ Id.
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    C. Listing Resolution. The Exchange currently requires bond issuers 
to obtain a resolution of the board of directors authorizing the filing 
of the listing application. In its filing proposing revisions to the 
listing resolution, the AMEX stated that ``[t]his requirement is often 
burdensome to comply with, and can delay a listing if the company's 
board is not scheduled to meet for a month or more.'' The AMEX further 
stated that ``[t]he requirement to obtain a listing resolution is 
essentially ceremonial in nature and does not serve any significant 
purpose.''\6\ The Exchange proposes to conform its practice to that of 
the AMEX.
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    \6\ Id.
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    The Exchange 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 is designed to prevent 
fraudulent and manipulative acts and practices, promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest.

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

    The Exchange does not believe 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

    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

    Because the foregoing proposed rule change, as amended: (1) does 
not significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) was provided to the Commission for its review prior to the 
filing date,\7\ the rule change proposal, as amended, has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(e)(6) thereunder.
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    \7\ Although there is usually a five day pre-filing requirement 
for rule changes submitted pursuant to Rule 19b-4(e)(6), subsection 
(iii) authorizes the Commission to shorten this pre-filing 
requirement.
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    A proposed rule change filed under Rule 19b-4(e) does not become 
operative prior to thirty days after the date of filing or such shorter 
time as the Commission may designate if such action is consistent with 
the protection of investors and the public interest. CBOE has requested 
that the Commission accelerate the implementation of the proposed rule 
change so that it may take effect prior to the thirty days specified 
under Rule 19b-4(e)(6)(iii). In particular, the Commission believes the 
proposal qualifies as a ``noncontroversial filing'' in that the 
proposed amendments do not significantly affect the protection of 
investors or the public interest and do not impose any significant 
burden on competition. In making this determination, the Commission 
notes that the rule change makes CBOE's debt listing standards almost 
identical to those of other exchanges, which were approved and found by 
the Commission to be consistent with Section 6(b)(5) of the Act.\8\ 
Accordingly, the Commission finds that the proposed rule change, as 
amended, is consistent with the protection of investors and the public 
interest and therefore has determined to

[[Page 56728]]

make the proposed rule change operative as of the date of this order.
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    \8\ See, e.g., Release No. 36594.
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    At any time within 60 days of the filing of the proposed 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 Act.

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 provsisions 
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-96-64 and should be 
submitted by November 25, 1996.

    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) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-28182 Filed 11-1-96; 8:45 am]
BILLING CODE 8010-01-M