[Federal Register Volume 63, Number 248 (Monday, December 28, 1998)]
[Notices]
[Pages 71530-71531]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-34259]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40808; File No. SR-CBOE-98-52]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 by the 
Chicago Board Options Exchange, Inc. Relating to a Change in the 
Frequency of the Rebalancing of the Dow Jones High Yield Select 10 
Index

December 18, 1998.
    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 December 18, 1998 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 CBOE.\3\ 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.
    \3\ The CBOE originally submitted the proposal on November 19, 
1998. On December 18, 1998, the CBOE submitted a letter from 
Stephanie C. Mullins, Attorney, CBOE, to Katherine England, 
Assistant Director, Division of Market Regulation, Commission 
(December 18, 1998) (``Amendment No. 1''). In Amendment No. 1, the 
CBOE proposes to amend Rule 24.9(c) to provide for additional 
quarterly index expiration dates for the options. Because this 
filing was filed pursuant to Section 19(b)(3)(A) of the Act, it must 
be complete at the time it is filed. Therefore, the date of the 
amendment is deemed the date of the filing of the proposal.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The CBOE proposes to change the frequency of its rebalancing of the 
Dow Jones High Yield Select 10 Index (``Index''), a narrow-based index 
on which the Exchange has received approval to trade options.\4\ In 
addition, the CBOE proposes to amend Rule 24.9(c) to provide for 
additional quarterly index expiration dates for the options 
(``QIX'').\5\
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    \4\ See Securities Exchange Act Release No. 39453 (December 16, 
1997) 62 FR 67101 (December 23, 1997) (notice of filing and 
immediate effectiveness of SR-CBOE-97-63).
    \5\ See note 3, supra.
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    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 Exchange 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 Exchange 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

I. Purpose
    The CBOE proposes to change the frequency of its rebalancing of the 
Dow Jones High Yield Select 10 Index, a narrow-based index on which the 
Exchange received approval to trade

[[Page 71531]]

options last year.\6\ In the filing seeking initial approval of the 
Index, the Exchange represented that it would rebalance the Index 
quarterly on expiration Fridays in March, June, September, and on the 
last business day in December. Although the Exchange has not yet begun 
to trade options on the Index, it intends to do so in the near future. 
In preparing to trade options on the Index, the Exchange has determined 
to rebalance the Index only on the last business day in December. 
According to the CBOE, this change in the frequency of rebalancing 
would make the Index correspond more closely with the methodology used 
by firms that currently employ similar strategies with respect to the 
Dow Jones Industrial Average. The Exchange believes that this change 
might help to attract order flow in the options.
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    \6\ The Commission notes that the listing and trading of options 
on the Index was immediately effective upon filing under Rule 19b-4 
and was submitted pursuant to the CBOE's generic narrow-based index 
option listing standards. See CBOE Rule 24.2. Under these listing 
standards, the CBOE can list and trade narrow-based index options 
provided that the index complies with certain requirements. If the 
index is capitalization-weighted, the standards require that the 
index be rebalanced quarterly. The CBOE represented that the 
proposed Index would comply with this requirement when it initially 
sought approval of the listing and trading of the options. The CBOE 
now proposes to rebalance the Index annually, rather than quarterly. 
The Commission notes that before modifying the frequency of 
rebalancing of the Index, the Exchange sought the Commission's 
approval pursuant to Rule 19(b). Telephone conversation between 
Eileen Smith, Director, Research Department, CBOE, and Michael 
Walinskas, Deputy Associate Director, Division of Market Regulation, 
Commission, on November 6, 1998.
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    In addition, the CBOE proposes to establish quarterly expiration 
dates for the Index on the last business day of each quarter. These 
expiration dates would be in addition to the monthly expiration dates 
that the CBOE established in the original filing. The reason for this 
amendment is due to firm and customer demand. The CBOE represents that 
customers have requested the additional quarterly expiration days 
because the portfolio underlying the Index is reconstituted on the last 
business day each year. By allowing quarterly expiration, the CBOE 
believes that option holders would be able to better track the 
performance of the Index because the waiting period between standard 
expiration and rebalancing of the Index portfolio would be eliminated.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act\7\ in general and furthers the objectives 
of Section 6(b)(5)\8\ in particular in that it will permit trading in 
options based on the Index pursuant to rules designed to prevent 
fraudulent and manipulative acts and practices and to promote just and 
equitable principles of trade.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days from November 19, 1998, 
the date on which it was filed, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \9\ and 
subparagraph (e)(6) of Rule 19b-4 thereunder.\10\ Although Rule 19b-
4(e)(6) requires that an Exchange submit a notice of its intent to file 
at least five days prior to the filing date, the Commission notes that 
in this case, this requirement was waived at the CBOE's request for the 
proposed rule change and Amendment No. 1 thereto.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\17 CFR 240.19b-4(e)(6).
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    The Commission notes that under Rule 19b-4(e)(6)(iii), Amendment 
No. 1 does not become operative for 30 days after date of its filing, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest. The CBOE requests 
a waiver of this 30 day period. In Amendment No. 1, the CBOE states 
that it seeks to have the entire product launched together, with the 
QIXs available on the Index at the same time the rest of the product is 
launched on January 4, 1999. The CBOE also represents in Amendment No. 
1 that it has an exclusive license to trade options on the Index, and 
is proposing to permit four additional opportunities for expiration. 
The Exchange believes the additional expiration dates would give 
investors a more widely traded strategy. For the reasons discussed 
above, the Commission finds the waiver of the 30 day period for 
Amendment No. 1 is consistent with the protection of investors and the 
public interest.
    At any time within 60 days of the filing of the proposed rule 
change, as amended, 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, including whether the proposed 
rule, as amended, is consistent with the Act. 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. 552, will be available for inspection and 
copying in the Commission's Public Reference Room. 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-98-52 and should be submitted by January 20, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12)
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-34259 Filed 12-24-98; 8:45 am]
BILLING CODE 8010-01-M