[Federal Register Volume 65, Number 39 (Monday, February 28, 2000)]
[Notices]
[Pages 10573-10574]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-4555]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42439; File No. SR-CBOE-99-60]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc. Relating to the 
Maintenance Standards for the Dow Jones High Yield Select Ten Index

February 18, 2000.
    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 November 9, 1999, 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 Exchange. 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.

February 18, 2000. I. Self-Regulatory Organization's Statement of the 
Terms of Substance of the Proposed Rule Change
    The CBOE proposes to clarify certain procedures regarding the 
maintenance of the Dow Jones High Yield Select 10 Index, a narrow-based 
index previously approved by the Commission \3\ as the underlying index 
for options contracts that are currently listed and trading on the 
Exchange.
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    \3\ See Release No. 34-39453 (December 16, 1997), 62 FR 67101 
(December 23, 1997) (order approving SR-CBOE-97-63).
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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, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The CBOE currently lists and trades European-style, cash-settled 
options on the Dow Jones High Yield Select 10 Index (``Index''), and 
equal weighted index composed of the ten highest yielding stocks from 
the 30 stocks in the Dow Jones Industrial Average. The Index was 
designed to replicate a popular contrarian strategy that assumes that 
the ten highest yielding stocks in the DJIA are oversold and therefore, 
undervalued relative to the other stocks in the average. The Index is 
reconstituted annually and the stocks comprising the index are retained 
for a full year.
    Normally, the Index represents a subset of the DJIA. However, Dow 
Jones can, at its discretion, change the components of the DJIA at any 
time, and in some cases remove stocks that also happen to be components 
of the Index. The strategy upon which the Index is based, and the 
convention followed by investors and money managers, calls for the 
portfolio to be held for a full year even if certain components are no 
longer part of the DJIA.
    The maintenance procedures set forth in SR-CBOE-97-63 state that if 
it becomes necessary to remove a stock from the Index, it will be 
replaced by the stock in the DJIA which has the highest yield of the 
stocks not already in the Index. This passage was intended to describe 
the actions that CBOE would

[[Page 10574]]

take if the shares of an Index component became unavailable for 
trading, either due to a corporate action such as a takeover or merger, 
or due to bankruptcy. However, no distinction was made between this 
type of component change and a discretionary component change in the 
Dow Jones Industrial Average, in which the shares of a company removed 
from the DJIA continue to trade.
    CBOE, therefore, proposes to clarify its maintenance procedures 
under which component changes can be made to the Index. Specifically, 
if it becomes necessary to remove a stock from the Index in the event 
that its shares cease to trade and a proxy for those shares is not 
available, it will be replaced by the stock in the DJIA that has the 
highest yield of the stocks not already in the Index. If a stock is 
removed from the DJIA at the discretion of Dow Jones, but its shares 
continue to trade, that stock will remain in the Index until the time 
of the annual re-balancing.
2. Statutory Basis
    The CBOE believes the proposed rule change is consistent with and 
furthers the objectives of Section 6(b)(5) \4\ of the Act in that it is 
designed to remove impediments to a free and open market and to protect 
investors and the public interest.
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    \4\ 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 Effective of the Proposed Rule Change and Timing for 
Commission Act

    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 person are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
is consistent with the Act. Persons making written submission should 
file six copies thereof with the Secretary, Securities and Exchange 
Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. Copies of 
the submission, all subsequent amendments, all written statements with 
respect to the proposed rule change between 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 provision 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-99-60 and should be 
submitted by March 20, 2000.
    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority. \5\
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    \5\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-4555 Filed 2-25-00; 8:45 am]
BILLING CODE 8010-01-M