[Federal Register Volume 60, Number 71 (Thursday, April 13, 1995)] [Notices] [Pages 18862-18864] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 95-9077] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-35573; International Series Release No. 800 File No. SR-CBOE-95-20] Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Chicago Board Options Exchange, Inc. Relating to the Listing and Trading of Options on the CBOE Latin 15 Index April 6, 1995. 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 March 20, 1995, 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 CBOE. 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 (1994). --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The CBOE proposes to list for trading options on the CBOE Latin 15 Index (``Latin 15 Index'' or ``Index''). 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 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\3\ stock index options on the Latin 15 Index, a narrow-based index created by the Exchange. \3\European-style options can only be exercised during a specified period before the options expire. --------------------------------------------------------------------------- The Latin 15 Index consists of fifteen components, including American Depositary Receipts (``ADRs''), American Depositary Shares (``ADSs''), and closed-end country funds from four Latin American countries: Argentina, Brazil, Chile, and Mexico.\4\ The exchange represents that no proxy for the performance of these emerging economies is currently available in the U.S. derivative markets, and options on the Index will provide investors with a low-cost means to participate in the performance of these markets or to hedge the risk of emerging markets investments. \4\The components of the Index are: Argentina Fund Inc.; Telefonica de Argentina S.A.; YPF Sociedad Anonima S.A.; Aracruz Celulose S.A.; Brazil Fund, Inc.; Brazilian Equity Fund, Inc.; Banco Osorno Y La Union; Compania de Telefonos de Chile; Empresa Nacional Electricidad S.A.; Empresas La Moderna S.A. de C.V.; Grupo Tribasa S.A. de C.V.; Coca Cola Femsa S.A.; Telofonos de Mexico S.A.; Grupo Televisa S.A.; and Vitro Sociedad Anonima. --------------------------------------------------------------------------- Index Design As noted above, the Latin 15 Index consists of fifteen components, consisting of ADRs, ADSs, and closed-end country funds. All of the components of the Index currently trade on the New York Stock Exchange (``NYSE''). The components comprising the Index ranged in capitalization from $77.2 million to $10.6 billion as of March 14, 1995. The total capitalization as of that date was $38.8 billion; the mean capitalization was $2.6 billion; [[Page 18863]] and the median capitalization was $812.5 million. The largest component accounted for 11.67% of the total weight of the Index, and the five largest components accounted for 46.67% of the total weight of the Index. On that same date, the smallest component accounted for 5.00% of the total weight of the Index. The components of the Index were initially balanced to have a combined weight for each country as follows: Argentina--17.5%, Brazil--35%, Chile--17.5%, and Mexico--30%. Calculation 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 CBOE. If a component share is not currently being traded on its primary market, the most recent price at which the share traded on such market will be used in the Index calculation. The Index is calculated on a ``modified equal-dollar-weighted'' basis, meaning that each of the components (fund shares or individual stocks) from each of the four countries is represented in approximately equal dollar amounts in relation to the other shares from that country. The countries in the index are then weighted, at the beginning of each quarter, as follows: Argentina--17.5%, Brazil--35%, Chile--17.5%, and Mexico--30%. The Exchange believes this methodology will present a fairer representation of the respective economies. The ``modified'' description refers to the fact that the dollar-weighting is done on a country by country basis and not between shares of different countries. The value of the Index equals the current market value (based on U.S. primary market prices) of the assigned number of shares of each of the components in the Index divided by the current Index divisor. The Index divisor was initially calculated to yield a bench-mark value of 150.00 at the close of trading on January 3, 1994. The value of the Index at the close on March 14, 1995, was 111.68. Maintenance The Index will be maintained by CBOE. 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, certain rights issuances, quarterly re-balancing, and component security changes. The Index is re-balanced after the close of business on Expiration Fridays on the March quarterly cycle. In addition, the Index will be reviewed on approximately a monthly basis by the CBOE staff. The CBOE may change the composition of the Index at any time or from time to time to reflect changes affecting the components of the Index or the Latin American markets generally. If it becomes necessary to remove a component from the Index, every effort will be made to add a component that preserves the character of the Index. In such circumstances, CBOE will take into account the capitalization, liquidity, volatility, and name recognition of the proposed replacement component. CBOE will not decrease the number of components to less than 10. Additionally, the Exchange will not make any composition change to the Index that would result in less than 80% of the number of components or 85% of the weight of the Index satisfying the initial equity option listing criteria set forth in CBOE Rule 5.3, Interpretation and Policy .01 (for components which are not the subject of standardized options trading) or the maintenance criteria in CBOE Rule 5.4, Interpretation and Policy .01 (for components which are currently the subject of standardized options trading).\5\ \5\Telephone conversation between Eileen Smith, Director, Product Development, Research, CBOE, and Brad Ritter, Senior Counsel, Office of Market Supervision, Division, Commission, on April 5, 1995. --------------------------------------------------------------------------- Index Option Trading The Exchange proposes to base trading in options on the Latin 15 Index on the full value of that Index. The Exchange may list full-value long-term index option series (``LEAPS''), as provided in Rule 24.9. The Exchange also may provide for the listing of reduced-value LEAPS, for which the underlying value would be computed at one-tenth of the value of the Index. The current and closing index value of any such reduced-value LEAP will, after such initial computation, be rounded to the nearest one-hundredth. Exercise and Settlement Latin 15 Index options will have European-style exercise and will be ``A.M.-settled index options'' within the meaning of the Rules in Chapter XXIV, including Rule 24.9, which is being amended to refer specifically to Latin 15 Index options. The proposed options will expire on the Saturday following the third Friday of the expiration month. Thus, the last day for trading in an expiring series will be second business day (ordinarily a Thursday) preceding the expiration date. Exchange Rules Applicable Except as modified herein, the rules in Chapter XXIV of the CBOE Rules will be applicable to Latin 15 Index options. In accordance with Chapter XXIV of CBOE's Rules, the Index will be treated as a narrow- based index for purposes of policies regarding trading halts and suspensions,\6\ and margin treatment.\7\ \6\See CBOE Rule 24.7. \7\See CBOE Rule 24.11. --------------------------------------------------------------------------- Index option contracts based on the Latin 15 Index will be subject to the position limit requirements of Rule 24.4, pursuant to which position and exercise limits for options on the Index would currently be set at 10,500 contracts. Positions in Index LEAPS will be aggregated with positions in Index options on a one-for-one basis. Ten reduced- value options will equal one full-value Index option or Index LEAP for purposes of aggregating position. CBOE has the necessary systems capacity to support new series that would result from the introduction of the Latin 15 Index options. 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,\8\ in particular, in that it will provide investors with an opportunity to invest in options based upon the Latin 15 Index pursuant to rules designed to prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade, foster cooperation and coordination with persons facilitating transactions in securities, remove impediments to and perfect the mechanism of a free and open market, and protect investors and the public interest. \8\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) [[Page 18864]] 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, N.W., Washington, D.C. 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, N.W., Washington, D.C. 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-95-20 and should be submitted by May 4, 1995. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\9\ \9\17 CFR 200.30-3(a)(12) (1994). --------------------------------------------------------------------------- Jonathan G. Katz, Secretary. [FR Doc. 95-9077 Filed 4-12-95; 8:45 am] BILLING CODE 8010-01-M