[Federal Register Volume 62, Number 197 (Friday, October 10, 1997)]
[Notices]
[Pages 53040-53041]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26901]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39192; File No. SR-CBOE-97-48]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Incorporated Relating to
a Reduction in the Value of the Standard & Poor's 100 Stock Index
October 3, 1997.
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 September 19, 1997, the Chicago Board Options Exchange, Incorporated
(``CBOE'' or the ``Exchange'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in Items I, II and III below, which Items have been prepared
by the CBOE. 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. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CBOE is filing this rule change to inform the Commission that
Standard & Poor's (``S&P'') intends to reduce the value of its S&P 100
Stock Index (``Index'') option (``OEX'') to one-half of its present
value by doubling the divisor used in calculating the Index. In
connection with this change, the Exchange proposes doubling the current
OEX position and exercise limits. The text of the proposed rule change
is available at the Office of the Secretary, the 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, Proposed Rule Change
1. Purpose
The CBOE began trading OEX options in March 1983.\3\ OEX options
are American-style, cash-settled options on the S&P 100 Stock Index.
The Exchange notes that, on the strength of a sustained bull market,
the value of the OEX has doubled in value since mid-1995, such that the
value of the index stood at 928.20 as of August 7, 1997. As a result of
the significant increase in the value of the underlying index, the
premium for OEX options has also increased. This has caused OEX options
to trade at a level that may be uncomfortably high for retail
investors, a large and important part of the market for OEX.
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\3\ See Securities Exchange Act Release No. 19264 (November 22,
1982), 47 FR 53981 (November 30, 1982).
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As a result, at the request of the CBOE, S&P, the reporting
authority for the Index, has agreed to a ``two-for-one
[[Page 53041]]
split'' of the Index. The change will be instituted after Commission
approval of this proposed rule change. This change will result in a
doubling of the OEX contracts outstanding, such that for each OEX
contract held, the holder will receive two contracts at the reduced
value, with a strike price of one-half of the original strike price.
For instance, the holder of an OEX 930 call will receive two OEX 465
calls. The trading symbol will remain as OEX (plus any necessary wrap
symbols).
In addition to the strike price being reduced by one-half, the CBOE
proposes to double the position and exercise limits applicable to the
OEX from 25,000 to 50,000.\4\ The Exchange believes this increase in
the position and exercise limits is justified because the reduction in
the divisor would result in each contract overlying only one-half of
the value of a current OEX contract. Consequently, the revised position
and exercise limits would be equivalent to the current levels in terms
of the value of the Index.
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\4\ The Exchange has separately filed for an increase in the
position and exercise limits for OEX in SR-CBOE-97-11 (noticed in
Securities Exchange Act Release No. 38525 (April 18, 1997), 62 FR
20046 (April 24, 1997). In the event that SR-CBOE-97-11 is approved
by the Commission prior to this filing, the Exchange would seek a
doubling of those higher limits.
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The CBOE will announce the effective date of the change by way of
an Exchange circular to the membership, which will also describe the
change to the strike prices and the position and exercise limits.
The Exchange expects the proposed changes to attract additional
customer business in OEX in those series in which retail customers are
most interested in trading. For example, a September 930 (at the money)
call option series currently trades at approximately $2600 per
contract. With the Index split, the same option series (once adjusted),
with all else remaining equal, would trade at approximately $1300 per
contract. The Exchange believes the proposed change will permit some
investors to trade these options who have otherwise been priced out of
the market due to the recent market surge. The Exchange believes that
OEX options provide an important opportunity for investors to hedge and
speculate upon the market risk associated with the stocks comprising
this broad-based widely followed Index. By reducing the value of the
Index, investors will be able to utilize this trading vehicle, while
extending a smaller outlay of capital. The Exchange believes this
should attract additional investors, and, in turn, create a more active
and liquid trading environment.
The Exchange believes that reducing the value of the Index does not
raise manipulation concerns and will not cause adverse market impact
because the Exchange will continue to employ the same surveillance
procedures and has proposed an orderly procedure to achieve the Index
split, including adequate prior notice to market participants.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with and furthers the objectives of Section 6(b)(5) of the Act,\5\ in
that it is designed to perfect the mechanisms of a free and open market
and to protect investors and the public interest.
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\5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The CBOE does not believe that the proposed rule change will impose
any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of 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 such 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. 25049.
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 Section, 450 Fifth Street, N.W.,
Washington, D.C. 25049. 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-97-48 and should be
submitted by October 31, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12)
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-26901 Filed 10-9-97; 8:45 am]
BILLING CODE 8010-01-M