[Federal Register Volume 59, Number 67 (Thursday, April 7, 1994)] [Unknown Section] [Page 0] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 94-8281] [[Page Unknown]] [Federal Register: April 7, 1994] ======================================================================= ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-33843; File No. SR-CBOE-94-04] Self-Regulatory Organizations; Filing of Proposed Rule Change by the Chicago Board Options Exchange, Inc., Relating to Listing Criteria for Certain Hybrid Securities Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on February 25, 1994, 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, II and III below, which Items have been prepared by the CBOE. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The CBOE proposes to amend its rules to establish specific listing criteria for certain hybrid securities. 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 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 of, and the Statutory Basis for, the Proposed Rule Change The purpose of the proposed rule change is to revise certain of the Exchange's rules to permit the Exchange to list and trade the following securities: 1. Contingent Value Rights The Exchange is proposing to add rule 31.5.H. to its rules to establish specific listing criteria for contingent value rights (``CVRs''). CVRs are unsecured obligations providing for a possible cash payment at maturity based on the value of an equity security issued by an affiliate of the issuer of the CVRs (``related security''). At maturity, the holder of a CVR would be entitled to a cash payment at maturity if the market price of the related security is lower than a predetermined target price. If the market price of the related security equals or exceeds the target price, the holder of the CVR would not be entitled to receive such a cash payment. Under proposed rule 31.5.H., a CVR would be eligible for listing if: (1) The issuer satisfies the net worth and earnings requirements set forth in Exchange Rule 31.5.A.; (2) The issuer has assets in excess of $100 million; (3) There is a minimum public distribution of 600,000 CVRs; (4) There is a minimum of 1,200 public holders of the CVRs; (5) The aggregate market value of the CVRs equals or exceeds $18 million; and (6) The CVRs have an original term to maturity of at least one year. In the alternative, a CVR would be eligible for listing if it meets the minimum standards as established by another national securities exchange. 2. Equity-Linked Notes The Exchange is proposing to add rule 31.5.I. to its rules to establish specific listing criteria for equity-linked notes (``ELNs''). ELNs are intermediate-term, non-convertible hybrid instruments whose value is based, in part, on the performance of a highly capitalized, actively traded U.S. common stock or foreign security that is traded in the U.S. in the form of American Depositary Receipts (``ADRs''), ordinary shares or otherwise. Under proposed rule 31.5.I., the issuer of ELNs must satisfy the earnings requirements set forth in Exchange Rule 31.5.A. and must have a minimum tangible net worth of $150 million. In addition, although the Exchange does not believe that ELNs will have any impact on the market for the underlying linked stock, ELNs listed for trading on the Exchange also must satisfy the following criteria: (1) An ELN must have an original term to maturity of not less than two and not more than seven years; (2) The total original issue price of an ELN (when combined with all of the ELNs issued by the issuer which are listed on a national securities exchange or traded through the facilities of the National Association of Securities Dealers Automated Quotation system (``NASDAQ'')) cannot exceed 25 percent of the issuer's tangible net worth at the time of issuance; (3) The underlying stock must be listed for trading on a national securities exchange or traded through the facilities of NASDAQ; (4) The issuer of the underlying stock either must be subject to the reporting requirements set forth in section 13 of the Act or exempt from such requirements pursuant to SEC rule 12g3-2(b); (5) The issuer of the underlying stock must have either (x) a minimum market capitalization of $3 billion and trading volume in the underlying stock during the 12-month period preceding the listing of the ELNs must have been at least 2.5 million shares, or (y) a minimum market capitalization of $1.5 billion and trading volume in the underlying stock during the 12-month period preceding the listing of the ELNs has been at least 20 million shares; (6) The amount of stock underlying an ELN cannot exceed five percent of the total amount of outstanding common shares of such stock; and (7) If the stock underlying an ELN is a foreign stock that is traded in the U.S. market, then either (x) the Exchange must have in place a market information sharing agreement with the primary exchange on which the foreign stock is traded, or (y) the combined U.S. trading volume of the foreign stock and other related securities\1\ must represent (on a share equivalent basis with respect to ADRs) at least 50% of the combined worldwide trading volume in the foreign stock and other related securities over the three month period preceding the date of selection of the ELNs for listing. Prior to listing ELNs for trading, the Exchange will distribute a circular providing guidance regarding member firm compliance responsibilities when handling transactions in ELNs. --------------------------------------------------------------------------- \1\Related securities include any ADRs overlying the foreign stock, other classes of common stock related to the foreign stock, and any ADRs overlying such other stock. --------------------------------------------------------------------------- 3. Paired Securities The Exchange is also proposing to add rule 31.5.J. to its rules to set forth specific listing criteria for ``paired securities.'' Under proposed rule 31.5.J., the term ``paired securities'' would be defined as securities which may be transferred and traded only in combination with one another as a single economic unit. Under the proposed rule, the issuers of the paired securities would be required to satisfy the size and earnings criteria set forth in Exchange Rule 31.5.A. on an aggregate basis. In the event the pairing agreement between the issuers of the paired securities is terminated, each issuer and each security would be required to satisfy the Exchange's continuing listing guidelines on an individual basis in order for the security to remain listed for trading on the Exchange. The CBOE believes that the proposed rule change is consistent with section 6(b) of the Act in general and furthers the objectives of section 6(b)(5) of the Act in particular in that it perfects the mechanism of a free and open market by expanding the types of securities that may be listed for trading on the Exchange. (B) Self-Regulatory Organization's Statement on Burden on Competition The CBOE does not believe that the proposed rule change will impose a 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 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 persons are invited to submit written data, views and arguments concerning the foregoing. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street NW., Washington, DC 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 Section, 450 Fifth Street NW., Washington, DC. 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-94-04 and should be submitted by April 28, 1994. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\2\ --------------------------------------------------------------------------- \2\17 CFR 200.30-3(a)(12) (1993). --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 94-8281 Filed 4-6-94; 8:45 am] BILLING CODE 8010-01-M