[Federal Register Volume 66, Number 66 (Thursday, April 5, 2001)]
[Notices]
[Pages 18133-18134]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-8353]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44134; File No. SR-CBOE-01-06]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Incorporated Regarding the Duration of Equity Linked Term 
Notes

March 29, 2001.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on March 1, 2001, the Chicago Board Options Exchange, Incorporated 
(``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 Exchange has designated the proposed rule change as 
constituting a ``non-controversial'' rule change under paragraph (f)(6) 
of Rule 19b-4 under the Act.\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\ 17 CFR 240.19b(f)(6).
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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 relating to 
the durational requirements of Equity Linked Term Notes (``ELNs''). 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 CBOE has prepared summaries, set forth in sections 
A, B, and C below, of the most significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On September 30, 1994, the Commission approved listing criteria for 
Equity Linked Term Notes trading on the Exchange.\4\ ELNs are 
intermediate-term, hybrid instruments whose value is linked to the 
performance of a highly-capitalized, actively traded common stock, not-
convertible preferred stock, or sponsored American Depositary Receipt 
(``ADR''). CBOE Rule 31.5(I) establishes the listing criteria for ELNs. 
Among these criteria, 31.5(I)(a) requires that ELNs have a term of two 
to seven years, but no more than three years, if the issuer is a non-
U.S. company. The Exchange initially adopted this term minimum to help 
ensure that the trading of ELNs did not have an adverse effect on the 
liquidity of the underlying stock and were not used in a manipulative 
manner.
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    \4\ Securities Exchange Act Release No. 34759 (September 30, 
1994), 59 FR 50939 (October 6, 1994) (approving SR-CBOE-94-04).
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    Since the Exchange began listing ELNs for trading, the possible 
adverse effects set forth above have not manifested themselves. In 
fact, the Exchange believes that ELNs may complement the trading of the 
underlying stocks and the continued popularity of ELNs amply 
demonstrates their appeal in the market. Accordingly, the Exchange 
proposes to amend Rule 31.5(I)(a) to reduce the minimum term 
requirement of ELNs from two years to one year and to eliminate the 
maximum term requirement of three years for when the issuer is a non-
U.S. company.\5\
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    \5\ The Exchange notes that it will provide the Commission with 
advance notice if it intends to list ELNs linked to a non-U.S. 
security and the issue has a duration of more than three years.
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    The Exchange believes that the proposed changes to the term 
requirements will provide issuers with more flexibility in developing 
ELNs and thus provide greater investment choices in the market. In this 
respect, the Exchange notes that many corporate debt instruments have 
terms in excess of seven years, and that this rule change will allow 
the structuring of ELNs with terms to maturity comparable to such debt 
instruments. Furthermore, extending the term of ELNs will provide 
issuers with the ability to offer variations on ELNs, such as principal 
protection and call features that may not be as desirable on debt 
instruments with a shorter term. The Exchange believes that this added 
flexibility will encourage innovation without having an

[[Page 18134]]

adverse effect on investor protection. The Exchange also notes that it 
has in place surveillance procedures with respect to ELNs and the 
securities linked to ELNs for the purposes of identifying and deterring 
manipulative trading activity.
    The proposed amendment will allow CBOE to conform its listing 
requirements applicable to ELNs to the criteria established by the 
rules of the other exchanges. In this respect, CBOE notes that the 
Commission has approved identical rule changes of the New York, 
American, and Chicago Stock Exchanges.\6\
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    \6\ See Securities Exchange Act Release No. 41992 (October 7, 
1999), 64 FR 56007 (October 15, 1999) (order approving SR-NYSE 99-
22); Securities Exchange Act Release No. 42110 (November 5, 1999), 
64 FR 61677 (November 12, 1999) (order approving SR-Amex 99-33); and 
Securities Exchange Act Release No. 42313 (January 4, 2000), 65 FR 
2205 (January 13, 2000) (order approving SR-CHX-99-19).
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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 is designed 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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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

    CBOE does not believe that the proposed rule change will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.

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

    The proposed rule change has been filed by the Exchange as a ``non-
controversial'' rule change pursuant to Section 19(b)(3)(A) of the Act 
\9\ and subparagraph (f)(6) or Rule 19b-4 thereunder.\10\ Because the 
foregoing proposed rule change: (i) Does not significantly affect the 
protection of investors or the public interest; (ii) does not impose 
any significant burden on competition; and (iii) by its terms, does not 
become operative for 30 days after the date of the filing, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \11\ and 
Rule 19b-4(f)(6).\12\ The Exchange also provided the Commission with 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at least 
five business days prior to the date of the filing of the proposed rule 
change. At any time within 60 days of the filing of such 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.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change 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 in the 
Commission's Public Reference Section. Copies of such filing will also 
be available for inspection and copying at the principal office of 
CBOE. All submissions should refer to File No. SR-CBOE-01-06 and should 
be submitted by April 26, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-8353 Filed 4-4-01; 8:45 am]
BILLING CODE 8010-01-M