[Federal Register Volume 67, Number 173 (Friday, September 6, 2002)]
[Notices]
[Pages 57046-57048]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-22655]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46435; File No. SR-CBOE-2002-47]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Inc. to Facilitate Trading of Fixed-Income Index Portfolio 
Shares and Options Overlying Those Shares

August 29, 2002.
    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 August 23, 2002, 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. The Exchange 
filed the proposed rule change pursuant to section 19(b)(3)(A) of the 
Act \3\ and rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission. 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\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE proposes to amend its rules to facilitate trading of 
fixed-income Index Portfolio Shares and options overlying those shares. 
The text of the proposed rule change is below. New language is in 
italics; deleted language is in brackets.
* * * * *
Rule 1.1 Definitions
    (a)-(yy) No change.
    . . . Interpretations and Policies:
    .01-.02 No change.
    .03 The term ``Index Portfolio Shares'' or IPSs means securities 
that (a) are issued by an open-end management investment company based 
on a portfolio of stocks or fixed income securities designed to provide 
investment results that correspond generally to the price and yield 
performance of a specified foreign or domestic stock index or fixed 
income securities index; (b) are issued by such an open-end management 
investment company in a specified aggregate minimum number in return 
for a

[[Page 57047]]

deposit of specified number of shares of stock and/or a cash amount, or 
a specified portfolio of fixed income securities and/or a cash amount, 
with a value equal to the next determined net asset value; and (c) when 
aggregated in the same specified minimum number, may be redeemed at a 
holder's request by such open-end management investment company which 
will pay to the redeeming holder stock and/or cash, or a specified 
portfolio of fixed income securities and/or cash with a value equal to 
the next determined net asset value.
    .04 No change.
* * * * *
Rule 5.3 Criteria for Underlying Securities
    (a)-(b) No change.
    . . . Interpretations and Policies:
    .01-.05 No change.
    .06 Securities deemed appropriate for options trading shall include 
shares or other securities (``Units'') that represent interests in 
registered investment companies (or series thereof) organized as open-
end management investment companies, unit investment trusts or similar 
entities that are principally traded on a national securities exchange 
or through the facilities of a national securities association and 
reported as ``national market'' securities, and that hold portfolios of 
securities comprising or otherwise based on or representing investments 
in indexes or portfolios of securities (or that hold securities in one 
or more other registered investment companies that themselves hold such 
portfolios of securities); provided that all of the following 
conditions are met:
    (A) any non-U.S. component [stocks] securities of the index or 
portfolio on which the Units are based that are not subject to 
comprehensive surveillance agreements do not in the aggregate represent 
more than 50% of the weight of the index or portfolio;
    (B) [stocks] securities for which the primary market is in any one 
country that is not subject to a comprehensive surveillance agreement 
do not represent 20% or more of the weight of the index;
    (C) [stocks] securities for which the primary market is in any two 
countries that are not subject to comprehensive surveillance agreements 
do not represent 33% or more of the weight of the index; and
    (D) either (x) the Units meet the criteria and guidelines set forth 
in Rule 5.3 and Interpretation and Policy .01 thereunder, or (y) the 
Units are available for creation or redemption each business day from 
or through the investment company in cash or in kind at a price related 
to net asset value, and the investment company is obligated to issue 
Units in a specified aggregate number even if some or all of the 
securities required to be deposited have not been received by the 
investment company, subject to the condition that the person obligated 
to deposit the securities has undertaken to deliver the securities as 
soon as possible and such undertaking is secured by the delivery and 
maintenance of collateral consisting of case or cash equivalents 
satisfactory to the investment company, all as described in the 
investment company prospectus.
    .07-.09 No change.

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 parts of such statements.

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

1. Purpose
    The purpose of the proposed rule change is to amend the definition 
of Index Portfolio Shares (``IPSs'') in CBOE's rules to reflect that 
IPSs may be based on fixed-income securities indexes. This proposed 
rule change corresponds to an American Stock Exchange (``Amex'') rule 
change filing recently approved by the Commission.\5\ Thus, CBOE is 
proposing to modify Rule 1.1, Interpretation and Policy .03 to mirror 
the Amex changes to Amex Rule 1000A.
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    \5\ See Securities Exchange Act Release No. 46252 (July 24, 
2002), 67 FR 49715 (July 31, 2002) (File No. SR-Amex-2001-35).
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    CBOE also seeks to clarify that certain listing requirements for 
options overlying IPSs, or exchange-traded funds (``ETFs'') generally, 
should apply to options overlying ETFs that are based on fixed income 
securities indexes. Currently, CBOE Rule 5.3, Interpretation and Policy 
.06, governing the listing of ETF options, provides that, among other 
things, the following conditions must be met to list options on an ETF:
    (A) any non-U.S. component stocks of the index or portfolio on 
which the Units are based that are not subject to comprehensive 
surveillance agreements do not in the aggregate represent more than 50% 
of the weight of the index or portfolio;
    (B) stocks for which the primary market is in any one country that 
is not subject to a comprehensive surveillance agreement do not 
represent 20% or more of the weight of the index; and
    (C) stocks for which the primary market is in any two countries 
that are not subject to comprehensive surveillance agreements do not 
represent 33% or more of the weight of the index.
    While a fixed-income ETF technically meets (A)-(C) above, CBOE 
believes those provisions were meant to apply to any foreign 
securities, not just foreign stocks. Thus, CBOE proposes to make those 
criteria applicable to ETFs based on any securities--which would 
include fixed income ETFs.
2. Statutory Basis
    The Exchange believes that clarifying its rules governing IPSs and 
options on IPS and ETFs will benefit investors. Accordingly, the 
proposed rule change is consistent with section 6(b) of the Act,\6\ in 
general, and furthers the objectives of section 6(b)(5) of the Act,\7\ 
in particular, in that it would remove impediments to and perfect the 
mechanism of a free and open market in a manner consistent with the 
protection of investors and the public interest.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 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 CBOE has designated that the foregoing proposed rule change 
does not: (i) Significantly affect the protection of investors or the 
public interest; (ii) impose any significant burden on competition; and 
(iii) become operative for 30 days from the date on which it was filed, 
or such shorter time

[[Page 57048]]

as the Commission may designate if consistent with the protection of 
investors and the public interest. The Exchange has provided the 
Commission with written notice of its intent to file the proposed rule 
change, at least five business days prior to the filing date. 
Therefore, the proposed rule change has become effective pursuant to 
section 19(b)(3)(A) of the Act \8\ and rule 19b-4(f)(6) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under rule 19b-4(f)(6)\10\ does not 
become operative prior to 30 days after the date of filing or such 
shorter time as the Commission may designate if such action is 
consistent with the protection of investors and the public interest. 
The CBOE has requested that the Commission accelerate the 
implementation of the proposed rule change so that it may take effect 
prior to the 30 days specified in rule 10b-4(f)(6)(iii).\11\ The 
Commission believes that waiving the 30 day operative delay is 
consistent with the protection of investors and the public interest 
and, therefore, has determined to allow the proposed rule change to 
become effective and operative as of the date of filing with the 
Commission.\12\
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    \10\ Id.
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ For purposes of accelerating the implementation of the 
proposed rule change only, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the 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.

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 Room. 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-2002-47 and should be 
submitted by September 27, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-22655 Filed 9-5-02; 8:45 am]
BILLING CODE 8010-01-P