[Federal Register Volume 66, Number 51 (Thursday, March 15, 2001)]
[Notices]
[Pages 15152-15156]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-6390]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44046; File No. SR-CBOE-00-51]


Self Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendment 
Nos. 1 and 2 Thereto by the Chicago Board Options Exchange, Inc. 
Relating To Adoption of Generic Listing Standards Applicable to Index 
Portfolio Receipts and Index Portfolio Shares Pursuant to Rule 19b-4(e) 
Under the Securities Exchange Act of 1934

March 7, 2001.
    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 October 26, 2000, the Chicago Board Options Exchange, Inc. (``CBOE'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The CBOE filed Amendment Nos. 1 \3\ and 2 \4\ to the proposed rule 
change on November 29, 2000, and February 28, 2001, respectively. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons and to approve the 
proposal, as amended, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from Angelo Evangelou, Attorney, CBOE, to 
Florence Harmon, Senior Special Counsel, Division of Market 
Regulation (``Division''), SEC, dated November 28, 2000 (``Amendment 
No. 1''). Amendment No. 1 provides, among other things, amendments 
to CBOE's minimum increment rule (Rule 30.33) and hours of trading 
for non-option securities rule (Rule 30.4), as well as a technical 
correction and other minor changes to proposed CBOE Rules 31.5M and 
31.5L.
    \4\ See Letter from Angelo Evangelou, Attorney, CBOE, to 
Florence Harmon, Senior Special Counsel, Division, SEC, dated 
February 26, 2001 (``Amendment No. 2''). Amendment No. 2 revises the 
proposal to: (1) Move certain disclosure-related language concerning 
IPSs from proposed CBOE Rule 31.5M.02 to a new proposed subparagraph 
(b) of CBOE Rule 30.56 clarifying that the disclosure provisions of 
that subparagraph are only applicable to a series of IPSs if, among 
other things, that series is not subject to prospectus delivery 
requirements under the Securities Act of 1933; (2) modify the rule 
text of CBOE's special provisions for IPRs rule (Rule 30.54) to 
clarify that the disclosure provisions of CBOE Rule 30.54 are only 
applicable to series of IPRs that are the subject of an SEC order 
exempting certain prospectus delivery requirements under section 
24(d) of the Investment Company Act of 1940 and are not otherwise 
subject to prospectus delivery requirements under the Securities Act 
of 1933; (3) add clarifying language to CBOE Rule 30.54(a) to make 
clear throughout that rule that IPRs may be based on an index or a 
portfolio; and (4) to amend CBOE Rule 30.54(b) to provide that the 
written descriptive disclosure document required by this rule must 
be in a form approved by the CBOE or prepared by the unit investment 
trust issuing the subject IPRs.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend its listing standards for Index 
Portfolio Receipts (``IPRs'' (CBOE Rule 31.5L) and Index Portfolio 
Shares (``IPSs'') (CBOE Rule 31.5M) to provide standards that permit 
listing and trading, or trading pursuant to unlisted trading privileges 
(``UTP''), of certain products pursuant to Rule 19b-4(e) under the 
Act.\5\ The Exchange also proposes related amendments to CBOE's minimum 
increment rule (CBOE Rule 30.33) and hours of trading for non-option 
securities rule (CBOE Rule 30.4).\6\ The text of the proposed rule 
change is available upon request from the Office of the Secretary, CBOE 
or the Commission.
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    \5\ 17 CFR 240.19b-4(e). Rule 19b-4(e) permits self-regulatory 
organizations (``SROs'') to list and trade new derivatives products 
that comply with existing SRO trading rules, procedures, 
surveillance programs and listing standards, without submitting a 
proposed rule change under section 19(b). See Securities Exchange 
Act Release No. 40761 (December 8, 1998), 63 FR 70952 (December 22, 
1998).
    \6\ See Amendment No. 1, supra note 3.
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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 III 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

1. Purpose
    The Exchange's listing standards for IPRs and IPSs are currently 
found in CBOE Rule 31.5.\7\ These standards are similar to those 
maintained by other exchanges.\8\ The Exchange proposed to amend its 
current listing standards for IPRs and IPSs, contained in CBOE Rule 
31.5, to provide standards that permit listing and trading, or trading 
pursuant to UTP, of various IPRs and IPSs products pursuant to Rule 
19b-4(e) under the Act.\9\ The Exchange believes that application of 
Rule 19b-4(e) to these securities will further the intent of that rule 
by allowing trading to begin in these securities, subject to the 
proposed generic standards, without the need for notice and comment and 
Commission approval. The Exchange believes that this new procedure has 
the potential to reduce the time frame for bringing these securities to 
market or for trading them pursuant to UTP.
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    \7\ See Securities Exchange Act Release Nos. 39581 (January 26, 
1998), 63 FR 5579 (February 3, 1998) (approving SR-CBOE-97-38 
relating to listing and trading of IPRs); and 42833 (May 26, 2000), 
65 FR 35679 (June 5, 2000) (approving SR-CBOE-00-11 relating to 
listing and trading of IPSs).
    \8\ See American Stock Exchange (``Amex'') Rules 1000 (Portfolio 
Depository Receipts) and 1000A (Index Fund Shares).
    \9\ See supra note 5.
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2. Generic Listing Criteria
    The Exchange is proposing to implement generic listing criteria 
that are intended to ensure that a substantial portion of the weight of 
an index or portfolio underlying IPSs or IPRs is composed of securities 
with substantial market capitalization and trading volume. The proposed 
amendments to CBOE Rule 31.5 provide that the Exchange may approve for 
trading pursuant to Rule 19b-4(e) a series of IPRs or IPSs if the 
components that, in the aggregate, account for at least 90 percent of 
the weight of the underlying index or portfolio have a minimum market 
value of at lest $75 million. In addition,the component stocks 
representing at least 90 percent of the weight of the index or 
portfolio must have a minimum monthly trading volume during each of the 
last six months of at least 250,000 shares. Moreover, the most heavily 
weighted component stocks in an underlying index or portfolio cannot 
together exceed 25% of the weight of the index or portfolio, and the 
five most heavily weighted component stocks cannot together exceed 65% 
of the weight of the index or portfolio. The index or portfolio must 
include a minimum of 13 stocks,\10\ and all securities in an

[[Page 15153]]

underlying index or portfolio must be listed on a national securities 
exchange or The Nasdaq Stock Market (including The Nasdaq SmallCap 
Market). Finally, any series of IPSs or IPRs traded pursuant to generic 
listing standards must meet these eligibility criteria as of the date 
of the initial deposit of securities and cash into the trust or fund.
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    \10\ Thirteen stocks is the minimum number to permit 
qualification as a regulated investment company under Subchapter M 
of the Internal Revenue Code. Under Subchapter M of the Internal 
Revenue Code, for a fund to qualify as a regulated investment 
company the securities of a single issuer can account for no more 
than 25% of a fund's total assets, and at least 50% of a fund's 
total assets must be comprised of cash (including government 
securities) and securities of single issuers whose securities 
account for less than 5% of the fund's total assets.
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    Under the proposed amendments to CBOE Rule 31.5, the index 
underlying a series of IPRs or IPSs will be calculated based on either 
the market capitalization, modified market capitalization, price, 
equal-dollar or modified equal-dollar weighting methodology. In 
addition, if the underlying index is maintained by a broker-dealer, the 
broker-dealer must erect a ``fire wall'' around the personnel who have 
access to information concerning changes and adjustments to the index 
or portfolio, and the index must be calculated by a third party who is 
not a broker-dealer.
    The hours during which IPR transactions may be made on the Exchange 
are 8:30 a.m. (Central Time (``CT'') until 3:15 p.m. (CT). The hours 
during which IPS transactions may be made on the Exchange are 8:30 a.m. 
(CT) until 3 p.m. or 3:15 p.m. (CT) for each series of IPSs, as 
specified by the Exchange.
    The current index value must be disseminated every 15 seconds over 
the Consolidated Tape Association's Network B.\11\ Additionally, the 
Reporting Authority must disseminate for each series of IPSs or IPRs an 
estimate, updated every 15 seconds, of the value of a share of each 
series. This estimate may be based, for example, upon current 
information regarding the required deposit of securities and cash 
amount to permit creation of new shares of the series or upon the index 
value.
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    \11\ The CBOE represents that it understands that the 
information described in this section will be disseminated by or 
through the primary exchange or another entity working with that 
exchange.
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    A minimum of 100,000 shares of a series of IPSs or IPRs must be 
outstanding at the time trading begins. The Exchange represents that it 
believes that this minimum number is sufficient to establish a liquid 
Exchange market at the start of trading. The minimum trading variation 
for IPRs is currently \1/64\ of $1.00 is such securities are trading in 
fractions. The minimum trading variation for IPSs is proposed to be \1/
16\, \1/32\, or \1/64\ of $1.00, as designated by the Exchange, for 
IPSs trading in fractions.\12\
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    \12\ See Amendment No. 1, supra note 3. The Commission also 
notes that the minimum trading increments for IPRs and IPSs are 
currently $0.01 is such securities are trading in decimals.
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    The Exchange will implement written surveillance procedures for the 
IPRs and the IPSs that it trades pursuant to Rule 19b-4(e). In 
addition, the Exchange will comply with the recordkeeping requirements 
of Rule 19b-4(e), and will file Form 19b-4(e) for each series of IPSs 
or IPRs within five business days of commencement of trading.\13\
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    \13\ See supra note 5.
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    In addition to the requirements of proposed CBOE Rules 31.5L (for 
IPRs) and 31.5M (for IPSs), all series of IPRs and IPSs listed under 
Rule 19b-4(e) will be subject to Exchange procedures and rules 
comparable to those applied to existing IPRs and IPSs.\14\
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    \14\ See CBOE Rules 1.102 (``Definitions''), 30.10 (``Units of 
Trading''), 30.33.01 (relating to minimum trading increment), 30.36 
(``Trading Halts or Suspensions''), 30.54 (``Special Provisions for 
IPRs''), 30.55 (``Limitation on Reporting Authorities' Liability''), 
31.5 (``Criteria for Original Listing''), and 31.94 (``Suspension 
and Delisting'') for existing procedures and rules relating to IPRs; 
and see CBOE Rules 1.1.03 (``Definitions''), 30.10 (``Units of 
Trading''), 30.33.01 (relating to minimum trading increment), 30.36 
(``Trading Halts or Suspensions''), 30.55 (``Limitation on Reporting 
Authorities' Liability''), 30.56 (``Special Provisions for IPSs''), 
31.5 (``Criteria for Original Listing''), and 31.94 (``Suspension 
and Delisting'') for existing procedures and rules relating to IPSs.
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    Further, the Exchange will issue an informational circular to its 
members and members organizations for each series to be listed pursuant 
to Rule 19b-4(e). The circular will describe the characteristics of the 
securities and will inform members or members organizations of any 
obligation to deliver a written product description prospectus, as 
applicable, to purchasers of IPSs or IPRs. In addition, the circular 
will inform members or members organizations that all series of IPRs 
and IPSs listed under Rule 19b-4(e) will be subject to Exchange 
procedures and rules comparable to those applied to existing IPRs and 
IPSs.
    The proposal also requires members and member organizations to 
provide purchasers of a series of IPSs with a product description of 
the terms and characteristics of such securities in a form prepared by 
the open-end management investment company issuing such securities, not 
later than the time a confirmation of the first transaction in such 
series is delivered to the purchaser. This requirement applies only if 
the particular series has been granted relief from the prospectus 
delivery requirements of section 24(d) of the Investment Company Act of 
1940,\15\ and are not otherwise subject to prospectus delivery 
requirements under the Securities Act of 1933.\16\ Additionally, 
members and member organizations are required to include the product 
description with any sales materials relating to a series of IPSs that 
are provided to the public. Any other written materials provided to 
customers by a member or member organization referring to a series of 
IPSs must include a statement relating to the product description, in 
substantially the form set forth in the proposed amendment to CBOE Rule 
31.5M.
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    \15\ 15 U.S.C. 80a-24(d).
    \16\ See Amendment No. 2, supra note 4.
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    The proposal also provides that a member or member organization 
carrying an omnibus account for a non-member broker-dealer is required 
to inform such non-member that execution of an order to purchase a 
series of IPSs for such account will be deemed to constitute agreement 
by the non-member to make such product description available to its 
customers on the same terms as are directly applicable to members and 
member organizations under the proposed amendment to CBOE Rule 31.5M. 
Finally, the proposal provides that a member or member organization 
must provide a prospectus for a particular series of IPSs upon the 
customer's request.\17\
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    \17\ The Commission notes that current CBOE Rule 30.54(b) 
requires its members and member organizations to provide to all 
purchasers of a series of IPRs a written description of the terms 
and characteristics of such securities, in a form approved by the 
Exchange.
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    Futher, the proposal also clarifies that members and member 
organizations must provide to all purchasers of a series of IPRs a 
written description of the terms and characteristics of such 
securities, in a form approved by the Exchange or prepared by the unit 
investment trust issuing such securities.\18\ This requirement applies 
only if the particular IPR series has been granted relief from the 
prospectus delivery requirements of section 24(d) of the Investment 
Company Act of 1940,\19\ and are not otherwise subject to prospectus 
delivery requirements under the Securities Act of 1933.\20\
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    \18\ See Amendment No. 2, supra note 4.
    \19\ 15 U.S.C. 80a-24(d).
    \20\ See Amendment No. 2, supra note 4.
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3. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6 of the Act \21\ in general, and in particular, with 
section 6(b)(5),\22\ in that it is designed to promote just and 
equitable principles of trade, to remove

[[Page 15154]]

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.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition. The CBOE believes that the proposed 
rule change will encourage competition among markets by allowing more 
than one exchange to list and trade the products described in the 
proposed rule change pursuant to Rule 19b-4(e).

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange did not receive any written comments on the proposed 
rule change.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, 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, NW., Washington, 
DC 20549-0609. 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 at the Commission's Public Reference Room. Copies of such 
filing will also be available for inspection and copying at the 
principal office of the Exchange. All submissions should refer to File 
No. SR-CBOE-00-51 and should be submitted by April 5, 2001.

IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange, and, in particular, with the requirements of section 6(b)(5) 
of the Act.\23\ Specifically, the Commission finds that the CBOE 
proposal to establish generic listing standards to permit the listing 
and trading of IPRs and IPSs pursuant to Rule 19b-4(e) furthers the 
intent of that rule by facilitating commencement of trading in these 
securities without the need for notice and comment and Commission 
approval under section 19(b) of the Act. Thus, by establishing generic 
listing standards, the proposal should reduce the Exchange's regulatory 
burden, as well as benefit the public interest, by enabling the 
Exchange to bring qualifying products to the market more quickly. 
Accordingly, the Commission finds that the Exchange's proposal will 
promote just and equitable principles of trade, foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, and, in general, protest investors and the public 
interest consistent with section 6(b)(5) of the Act.\24\
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    \23\ 15 U.S.C. 78f(b)(5).
    \24\ Id. In approving this rule, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
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    In general, IPRs represent interests in a unit investment trust 
that holds securities which comprise an index or portfolio. Each trust 
is intended to provide investors with an instrument that closely tracks 
the underlying securities index or portfolio, that trades like a share 
of common stock, and that pays holders a periodic cash payment 
proportionate to the dividends paid, on the underlying portfolio of 
securities, less certain expenses, as described in the applicable trust 
prospectus.
    IPSs represent an interest in a registered investment company that 
holds securities based on, or representing an interest in, an index or 
portfolio of securities.
    Rule 19b-4(e) provides that the listing and trading of a new 
derivative securities product by an SRO shall not be deemed a proposed 
rule change, pursuant to paragraph (c)(1) of Rule 19b-4, if the 
Commission has approved, pursuant to section 19(b) of the Act, the 
SRO's trading rules, procedures and listing standards for the product 
class that include the new derivative securities product and the SRO 
has a surveillance program for the product class.\25\
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    \25\ See supra note 5.
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    As noted above, the Commission has previously approved CBOE Rule 
31.5 that permit the listing and trading of IPRs (see Rule 31.5L) and 
IPSs (See Rule 31.5M). In approving these securities for trading, the 
Commission considered the structure of these securities, their 
usefulness to investors and to the markets, and the CBOE rules that 
govern their trading. Moreover, the Exchange has separately filed 
proposed rule changes pursuant to Rule 19b-4 for each of the series of 
IPSs or IPRs currently trading on the Exchange.
    The Commission's approval of the proposed generic listing standards 
for these securities will allow those series of IPRs and IPSs that 
satisfy those standards to start trading under Rule 19b-4(e), without 
the need for notice and comment and Commission approval. The Exchange's 
ability to rely on Rule 19b-4(e) for these products potentially reduces 
the time frame for bringing these securities to the market or for 
permitting the trading of these securities pursuant to UTP, and thus 
enhances investors' opportunities. The Commission notes that while the 
proposal reduces the Exchange's regulatory burden, the Commission 
maintains regulatory oversight over any products listed under the 
generic listing standards through regular inspection oversight.
    The Commission previously concluded that IPRs and IPSs trading 
under the existing Exchange rules would allow investors to: (1) Respond 
quickly to market changes through intra-day trading opportunities; (2) 
engage in hedging strategies similar to those used by institutional 
investors; and (3) reduce transactions costs for trading a portfolio of 
securities.\26\ The Commission believes, for the reasons set forth 
below, that the product classes that satisfy the proposed generic 
listing standards for IPRs and IPSs should produce the same benefits to 
investors.
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    \26\ See Securities Exchange Act Release Nos. 42787 (May 15, 
2000), 65 FR 33598 (May 24, 2000) (approving SR-Amex-00-14); and 
42975 (June 22, 2000), 65 FR 40712 (June 30, 2000) (approving SR-
CHX-00-14).
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    The Commission also finds that the proposal contains adequate rules 
and procedures to govern the trading of IPRs and IPSs under Rule 19b-
4(e). All series of IPRs and IPSs listed under the generic standards 
will be subject to the full panoply of CBOE rules and procedures that 
now govern the trading of existing IPRs and IPSs on the Exchange or 
pursuant to UTP. Accordingly, any new series of IPRs and IPSs listed 
and traded under Rule 19b-4(e) will be subject to CBOE rules governing 
the trading of equity securities, including, among others, rules and 
procedures governing trading halts, disclosures to members, 
responsibilities of the specialist, account opening and customer

[[Page 15155]]

suitability requirements, the election of a stop or limit order, and 
margin.
    In addition, the CBOE has developed specific listing criteria for 
series of IPRs or IPSs qualifying for Rule 19b-4(e) treatment that will 
help to ensure that a minimum level of liquidity will exist to allow 
for the maintenance of fair and orderly markets. Specifically, the 
proposed generic listing standards require that a minimum of 100,000 
shares of a series of IPRs or IPSs is outstanding as of the start of 
trading. The Commission believes that this minimum number of securities 
is sufficient to establish a liquid Exchange market at the commencement 
of trading.
    The Commission believes that the proposed generic listing standards 
ensure that the securities composing the indexes and portfolios 
underlying the IPSs and IPRs are well capitalized and actively traded. 
These capitalization and liquidity criteria serve to prevent fraudulent 
or manipulative acts and are therefore consistent with section 6(b)(5) 
of the Act.\27\
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    \27\ 15 U.S.C. 78f(b)(5).
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    In addition, as previously noted, all series of IPRs and IPSs 
listed or traded under the generic standards will be subject to the 
Exchange's existing continuing listing criteria. This requirement 
allows the CBOE to consider the suspension of trading and the delisting 
of a series if an event occurs that makes further dealings in such 
securities inadvisable. The Commission believes that this will give the 
CBOE flexibility to delist IPRs or IPSs if circumstances warrant such 
action.
    Furthermore, the Commission notes that the Exchange currently 
trades IPRs in minimum trading increments of \1/64\ of $1.00 if such 
securities are trading in fractions. The Commission finds that the 
Exchange's proposal to trade IPSs in increments of \1/16\, \1/32\, or 
\1/64\ of $1.00, as designated by the Exchange, for IPSs trading in 
fractions, is also consistent with the Act.\28\ The Commission believes 
that such trading should enhance market liquidity, and should promote 
more accurate pricing, tighter quotations, and reduced price 
fluctuations, all of which benefit the investor. The Commission also 
believes that such trading should allow customers to receive the best 
possible execution of their transactions in the IPRs or IPSs, thereby 
protecting customers and the public interest consistent with section 
6(b)(5) of the Act.\29\
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    \28\ The Commission notes that the minimum trading increments 
for IPRs and IPSs are $0.01, if such securities are trading in 
decimals pursuant to CBOE Rule 30.33.01.
    \29\ 15 U.S.C. 78f(b)(5).
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    Further, the Commission believes that the hours of trading proposed 
for both IPRs and IPSs transactions are reasonable, as they are 
identical to existing rules recently adopted by the Ames.\30\
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    \30\ See supra note 26.
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    The Exchange represents that the Reporting Authority will 
disseminate for each series of IPRs or IPSs an estimate, updated every 
15 seconds, of the value of a share of each series. The Exchange 
further represents that the information that is reported will be 
disseminated by or through the primary exchange or another entity 
working with that exchange, when the CBOE trades one of these products 
pursuant to UTP. The Commission believes that the information the 
Exchange proposes to have disseminated will provide investors with 
timely and useful information concerning the value of each series.
    The CBOE has developed surveillance procedures for IPRs and IPSs 
listed under the generic standards that incorporate and rely upon 
existing CBOE surveillance procedures governing IPRs, IPSs, and 
equities (that are non-options). The Commission believes that these 
surveillance procedures are adequate to address concerns associated 
with listing and trading IPRs and IPSs under the generic standards. 
Accordingly, the Commission believes that the rules governing the 
trading of such securities provide adequate safeguards to prevent 
manipulative acts and practices and to protect investors and the public 
interest, consistent with section 6(b)(5) of the Act.\31\ The Exchange 
further represents that it will file Form 19b-4(e) with the Commission 
within five business days of commencement of trading a series under the 
generic standards, and will comply with all Rule 19b-4(e) recordkeeping 
requirements.
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    \31\ 15 U.S.C. 78f(b)(5).
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    The Commission also notes that certain concerns are raised when a 
broker-dealer is involved in both the development and maintenance of a 
stock index upon which a product such as IPRs or IPSs is based. The 
proposal requires that, in such circumstances, the broker-dealer must 
have procedures in place to prevent the misuse of material, non-public 
information regarding changes and adjustments to the index and that the 
index value be calculated by a third party who is not a broker-dealer. 
The Commission believes that these requirements should help address 
concerns raised by a broker-dealer's involvement in the management of 
such an index.
    Finally, the Commission believes that the Exchange's proposal will 
ensure that investors have information that will allow them to be 
adequately apprised of the terms, characteristics, and risks of trading 
IPSs. Members and member organizations will be required to provide to 
all purchasers of IPSs a written description of the terms and 
characteristics of these securities, to include their product 
description in sales materials provided to customers or the public, to 
include a specific statement relating to the availability of the 
description in other types of materials distributed to customers or the 
public, and to provide a copy of the prospectus, when requested by a 
customer. The proposal also requires a member or member organization 
carrying an omnibus account for a non-member broker-dealer, to notify 
the non-member that execution of an order to purchase an IPR or IPS 
constitutes an agreement by the non-member to provide the product 
description to its customers.
    The Commission notes that investors may acquire similar information 
for IPRs under existing CBOE Rule 30.54. The Commission believes that 
it is reasonable for the proposal to clarify that a written description 
of the terms and characteristics of an IPR series may either be 
prepared by an SRO or a unit investment trust that issues such 
securities. The Commission believes that the clarification is 
reasonable and necessary since an entity, other than an SRO, may be an 
issuer of an IPR series. The Commission further believes that it is 
reasonable to clarify that members and member organizations may provide 
purchasers of a series of IPRs with a product description, describing 
the terms and characteristics of such securities, instead of a 
prospectus, only if the particular series has been granted relief from 
the prospectus delivery requirements of section 24(d) of the Investment 
Company Act of 1940, and when the Securities Act of 1933 does not 
require prospectus delivery. The Commission believes that this 
clarification is necessary to emphasize that an exemption from a 
prospectus delivery requirements under section 24(d) of the Investment 
Company Act of 1940 does not provide any relief from prospectus 
delivery requirements under the Securities Act of 1933.
    The Commission also notes that upon the initial listing, or trading 
pursuant to UTP, of any IPRs or IPSs under the generic standards, the 
Exchange will issue an information circular to its

[[Page 15156]]

members and members organizations explaining the unique characteristics 
and risks of this particular type of security. The circular also will 
note the Exchange members' prospectus or product description delivery 
requirements, and highlight the characteristics of purchases in a 
particular series of IPRs or IPSs. The circular also will inform CBOE 
members and members organizations that in addition to the requirements 
of amended CBOE Rules 31.5L (for IPRs) and 31.5M (for IPSs), IPR and 
IPSs will be subject to Exchange procedures and rules comparable to 
those applied to existing IPRs and IPSs. The Commission believes that 
these requirements ensure adequate disclosure to investors about the 
terms and characteristics of a particular series of IPR or IPS and is 
consistent with section 6(b)(5) of the Act.\32\
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    \32\ Id.
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    The Commission finds good cause for approving the proposed rule 
change, as amended, prior to the thirtieth day after the date of 
publication of notice thereof in the Federal Register pursuant to 
section 19(b)(2) of the Act.\33\ Because the proposed rule change, as 
amended, conform the CBOE's rules to existing rules recently adopted by 
the Amex and the Chicago Stock Exchange,\34\ the proposed rule change 
raises no new material regulatory issues. Accordingly, the Commission 
believes it is appropriate to permit investors to benefit from the 
flexibility afforded by these new instruments by trading them as soon 
as possible. Accordingly, the Commission finds that there is good 
cause, consistent with section 6(b)(5) of the Act,\35\ to approve the 
proposal on an accelerated basis.
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    \33\ 15 U.S.C. 78s(b)(1).
    \34\ See supra note 26.
    \35\ 15 U.S.C. 78s(b)(5).
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V. Conclusion

    It is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\36\ that the proposed rule change (SR-CBOE-00-51) and Amendment 
Nos. 1 and 2 thereto, are hereby approved on an accelerated basis.
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    \36\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\37\
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    \37\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary
[FR Doc. 01-6390 Filed 3-14-01; 8:45 am]
BILLING CODE 8010-01-M