[Federal Register Volume 59, Number 107 (Monday, June 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13604]
[[Page Unknown]]
[Federal Register: June 6, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34132; File No. SR-CBOE-93-55]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment Nos. 1 and 2 to the Proposed Rule Change by the
Chicago Board Options Exchange, Inc. Relating to the Listing and
Trading Options on the Israeli Index
May 31, 1994.
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 December 8, 1993, the Chicago Board Options Exchange (``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 self-regulatory
organization. The Exchange filed Amendment No. 1 to the proposed rule
change on April 29, 1994, and Amendment No. 2 on May 12, 1994.\3\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1991).
\3\Amendment No. 2, which supersedes Amendment No. 1, proposes
to: (1) reduce the number of components of the proposed Israeli
Index (``Index'') from 20 to 15; (2) require that the Index be
maintained such that at least 85% of the Index, by weight, and at
least 80% of the number of components of the Index be eligible for
standardized options trading pursuant to CBOE Rule 5.3; (3) classify
the Index as a narrow-based index for purposes of CBOE's rules; (4)
provide position and exercise limits of 7,500 contracts on the same
side of the market for Index options pursuant to CBOE Rule 24.4A;
and (5) provide that the Exchange shall submit a proposed rule
change pursuant to Section 19 of the Act and Rule 19b-4 thereunder
prior to increasing the number of components of the Index to greater
than 20 or fewer than 10. See Letter from Eileen Smith, Director,
Product Development, Research Department, CBOE, to Brad Ritter,
Attorney, Office of Derivatives and Exchange Oversight, Division of
Market Regulation, Commission, dated May 12, 1994 (``Amendment No.
2'').
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
As provided in Exchange Rule 24.2, ``Designation of the Index,''\4\
the CBOE proposes to list for trading options on the Israeli Index
(``Index''). The text of the proposed rule change is available at the
Office of the Secretary, CBOE, and at the Commission.
---------------------------------------------------------------------------
\4\Exchange Rule 24.2 provides, in part, that the Commission
must approve a particular index upon which options are traded.
---------------------------------------------------------------------------
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 aspects of such
statements.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The purpose of the proposed rule change is to permit the Exchange
to list and trade cash-settled, European-style\5\ index options on the
Israeli Index (``Index''). The Index will initially consist of fourteen
stocks issued by Israeli companies, and one American Depositary Receipt
(``ADR'')\6\ overlying an Israeli company.\7\ According to the
Exchange, no proxy for the performance of the Israeli economy is
currently available in the U.S. derivative markets. Therefore, the
Exchange believes, options on the Index will provide investors with a
low-cost means of participating in the performance of the Israeli
economy or to hedge against the risk of investing in that economy.
---------------------------------------------------------------------------
\5\European-style options can only be exercised during a
specified period before the options expire.
\6\An American Depositary Receipt is a negotiable receipt which
is issued by a depositary, generally a bank, representing shares of
a foreign issuer that have been deposited and are held, on behalf of
holders of the ADRs, at a custodian bank in the foreign issuer's
home country.
\7\The component securities of the Index are: Biotechnology
General Corp.; Comverse Technology Inc.; Fourth Dimension Software
Ltd.; ECI Telecom Ltd.; Elbit Ltd.; Elron Electronic Industries
Ltd.; Geotek Industries Inc.; IIS Intelligent Information Systems
Ltd.; Lannet Data Communications Ltd.; Orbotech Ltd.; Scitex Corp.
Ltd.; Sapiens International Corp.; Tadiran Ltd.; Teva Pharmaceutical
Industries Ltd. (ADR); and Teledata Communication Ltd.
---------------------------------------------------------------------------
Index Design
One of the components of the Index currently trades on the New York
Stock Exchange and fourteen (including one ADR representing 11.37% of
the weight of the Index as of March 31, 1994) currently are National
Market securities traded through the facilities of the National
Association of Securities Dealers, Inc. Automated Quotation System
(``NASDAQ''). The 14 non-ADR components of the Index are listed for
trading only in the United States, and for the ADR component, more than
50% of the combined world-wide trading volume for the ADR and the
underlying security occurs in the U.S. through NASDAQ.\8\ Accordingly,
the Exchange believes that options on the Index should not raise the
types of surveillance concerns that may be raised by options on an
index of non-U.S. traded stocks.
---------------------------------------------------------------------------
\8\See Amendment No. 2, supra note 3.
---------------------------------------------------------------------------
As of March 31, 1994, the securities comprising the Index ranged in
market capitalization from a low of $124.11 million to a high of $2.08
billion. The average capitalization as of that date was $566.83
million. The component accounting for the largest percentage of the
total weighting of the Index on that date was Elbit Ltd. (13.12%),
while the smallest was Biotechnology General Corp. (1.92%).
Calculation
The Index is price-weighted and reflects changes in the prices of
the component stocks relative to the base date of January 2, 1992. The
Index value is calculated by summing the prices of the component
securities and then dividing by a divisor that yielded an index value
of 100.00 as of that date.
The Index will be calculated by CBOE or its designee on a real-time
basis using last-sale prices and will be disseminated every 15 seconds
by the Exchange. If a component stock of the Index is not currently
being traded, the most recent price at which the stock traded will be
used in the Index calculation.
Maintenance
The Index will be maintained by the Exchange. To maintain
continuity in the Index following an adjustment to a component
security, the divisor will be adjusted. Changes which may result in
divisor changes include, but are not limited to, spin-offs, certain
rights issuances, and mergers and acquisitions.
The Exchange states that the Index will be reviewed on
approximately a monthly basis by the CBOE staff. The Exchange may
change the composition of the Index at any time or from time to time to
reflect the changes affecting the components of the Index or the
Israeli economy generally. If it becomes necessary to remove a stock
from the Index (generally due to a takeover or merger), every effort
will be made to add to the Index an Israeli stock that is traded in the
U.S. and not in Israel. (According to the Exchange, there are currently
46 Israeli stocks trading in the United States, of which five are also
traded in Israel.) In such circumstances, CBOE will take into account
the capitalization, liquidity, volatility, and name recognition of the
proposed replacement stock. The Exchange will most likely maintain
fifteen stocks in the Index at all times.\9\
---------------------------------------------------------------------------
\9\The Exchange will notify the Commission of changes in the
number of components in the Index. Prior to increasing the number of
components of the Index to more than 20 or decreasing the number of
components to less than 10, the Exchange will be required to submit
a rule filing pursuant to Section 19 of the Act and Rule 19b-4
thereunder. Id.
---------------------------------------------------------------------------
Long-Term Index Options
In addition to Index options on the full-value of the Index, the
Exchange also proposes to list long-term Index option series
(``LEAPS'') as provided in CBOE Rule 24.9, and reduced-value Index
LEAPS for which the underlying value would be computed at one-tenth
(\1/10\th) of the value of the Index. The current and closing index
value of any such reduced-value Index LEAPS will, after such initial
computation, be rounded to the nearest one-hundredth. Other than the
reduced value, all other specifications and calculations for the
reduced-value Index LEAPS will remain the same.
Exercise and Settlement
Index options will have European-style exercise and will be ``A.M.-
settled index options'' within the meaning of the rules in Chapter XXIV
of the Exchange's rules.\10\ The CBOE proposes to amend Rule 24.9 to
refer specifically to Israeli Index options. The Exchange states that
the proposed Index options would expire on the Saturday following the
third Friday of the expiration month. Thus, the last day for trading in
an expiring series will be the second business day (ordinarily a
Thursday) preceding the expiration date.
---------------------------------------------------------------------------
\10\Under CBOE Rule 24.9, A.M.-settled index options are settled
based on an index value derived from opening prices on the last day
of trading prior to expiration.
---------------------------------------------------------------------------
Exchange Rules Applicable
Except as modified in the proposal, the Rules in Chapter XXIV of
the Exchange's rules regarding narrow-based or industry indexes will be
applicable to Index options. Index option contracts based on the
Israeli Index will be subject to position limits on 7,500 contracts on
the same side of the market pursuant to CBOE Rule 24.4A. For purposes
of position and exercise limits Index LEAPS will be aggregated with
Index options on a one for one basis. Under the proposal, ten reduced-
value Index LEAPS contracts will equal one full-value Index option or
Index LEAPS for purposes of aggregating positions. The Exchange
represents that it has the necessary systems capacity to support new
options series that would result from the introduction of Israeli Index
options and Index LEAPS.
The Exchange believes that the proposed rule change is consistent
with section 6 of the Act, in general, and furthers the objectives of
section 6(b)(5) of the Act,\11\in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices and to promote
just and equitable principles of trade, and thereby will provide
investors with the ability to invest in options based on an additional
index.
---------------------------------------------------------------------------
\11\15 U.S.C. 78f(b)(5) (1988).
---------------------------------------------------------------------------
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any inappropriate burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
Written comments on the proposed rule change were neither solicited
nor received.
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 Exchange 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-93-55 and should
be submitted by June 27, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
---------------------------------------------------------------------------
\12\17 CFR 200.30-3(a)(12) (1993).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-13604 Filed 6-3-94; 8:45 am]
BILLING CODE 8010-01-M