[Federal Register Volume 60, Number 166 (Monday, August 28, 1995)]
[Notices]
[Pages 44526-44529]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21273]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36125; International Series Release No. 841 File No.
SR-CBOE-95-39]
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 and Long-Term Options on the CBOE
Germany 25 Index and Long-Term Options on a Reduced-Value CBOE Germany
25 Index
August 18, 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 August 4, 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange hereby proposes to amend certain of its rules to
provide for the listing and trading on the Exchange of options on the
CBOE Germany 25 Index (``Germany 25 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
[[Page 44527]]
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 Germany 25 Index. The Index is a capitalization-weighted index
of 25 German blue-chip equities listed on the Frankfurt Stock Exchange
(``FSE''). The Exchange represents that options on the Index will
provide investors with a low-cost means of participating in the German
economy and hedging against the risk of investing in that economy.
\3\ Europen-style options may only be exercised during a
specified period before the options expire.
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Index Design
The 25 stocks comprising the Germany 25 Index were selected by the
CBOE for their high market capitalization and high degree of liquidity.
According to the Exchange, the Index stocks are drawn from a broad base
of industries and are representative of the industrial composition of
the broader German equity market. Specifically, the Index components
are the top 25 German stocks by market capitalization excluding: (1)
Stocks with average daily volume less than 50,000 shares per day over
the past six months; and (2) preferred stock of an issuer if that
issuer also has publicly-traded common stock. The Index will be
reviewed annually by the CBOE at the end of May in each year and any
composition changes resulting from that review will be implemented
after the June expiration in that year.
The Germany 25 Index is weighted by the capitalization (market
vlaue) of the component stocks. The capitalization of a particular
stock in the Index is calculated by multiplying the listed shares
(including common, preferred, and treasury shares) by the price of the
stock.\4\
\4\ The Commission notes that this varies from the method used
to calculate the values of domestic capitalization-weighted indexes,
such as the S&P 100 Index. For such domestic indexes, values are
determined based solely on the outstanding shares of common stock of
each component in the indexes.
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On June 30, 1995, the 25 stocks in the Index ranged in
capitalization from DM 3.656 billion ($2.648 billion) \5\ to DM 51.642
billion ($37.408 billion). The total capitalization of the stocks in
the index on that date was DM 399.1 billion ($289.1 billion); the mean
capitalization was DM 15.96 billion ($11.564 billion) and the median
capitalization was DM 11.144 billion ($8.072) billion). The largest
stock by capitalization (Allianz AG Holdings) accounted for 12.94% of
the total weighting of the Index, while the smallest (Kaufhof)
accounted for 0.92%. The top 5 stocks accounted for 44.56% of the total
weighting on that date.
\5\ The CBO represents that dollar values used herein are based
on a German mark/U.S. dollar exchange rate of 1.3805 marks per U.S.
dollar prevailing on June 30, 1995.
For the period from January 1, 1995 through June 30, 1995, average
daily volume in Germany 25 Index stocks ranged from a low of
approximately 87,629 shares to a high of 2.53 million shares traded per
day, with a mean daily trading volume for all the stocks in the Index
during that period of 523,501 shares traded per day.
The Exchange represents that the Index is composed of ten (10)
broad industry groupings, such as chemicals, automobile and insurance
companies, among others, which reflect the industry composition of the
German equity market.
Calculation
The CBOE states that the Germany 25 Index will reflect changes in
the capitalization of the component stocks relative to the
capitalization on a base date. The base date for the Index is June 30,
1995, at which time the Index was given a value of 200 by the CBOE. The
Index value of 200 was reached by multiplying the price of each stock
by the number of listed shares,\6\ obtaining the sum of these values
for all component stocks, and then dividing by a divisor determined to
give the Index a value of 200. The CBOE states that the German 25 Index
will be calculated by CBOE or its designee based on the most recent
closing prices of the component stocks as reported by the FSE.
\6\ See supra note 4 and accompanying text.
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Maintenance
The Index will be maintained and calculated by the Exchange. To
maintain continuity of the Index, the Exchange will adjust the Index to
reflect certain events relating to the component stocks. For example,
the Exchange will adjust the Index divisor to reflect cash dividends
paid on the component securities. The Exchange will make this
adjustment because German companies usually pay their dividends only
once per year (generally in May or June). If not adjusted, the annual
dividend payment would result in a significant drop in the Index value
at the time when the dividends are paid. The divisor will be adjusted
immediately prior to each ex-dividend date so that the Index level will
not be affected by the dividend payment. A similar adjustment will be
applied when a company issues new shares for which the shareholders
have preemptive rights, or when other intra-year events, such as
mergers and spinoffs, occur.
Index replacements, other than those described above, will only be
made if a component must be removed from the Index because of a merger
or takeover. In that case, the next eligible component will be added,
i.e,, the German security with the highest market capitalization not
then included in the Index that satisfies the criteria set forth above.
Index Option Trading
In addition to regular Index options, the Exchange may provide for
the listing of long-term index option series (``LEAPS'') and reduced-
value LEAPS on the Index (``Index LEAPS'').
For reduced-value Index LEAPS, the underlying value will be
computed at one-tenth of the Index level. 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.
The trading hours for options on the Index will be from 8 a.m. to
3:15 p.m., Chicago time. Currently, the trading hours of the Exchange
and the FSE do not overlap.\7\ The Exchange, therefore, will
disseminate the value of the Index based on the most recent closing
prices of the component stocks as reported by the FSE. After the close
of the FSE, however, trading continues in the 25 stocks comprising the
Index on the FSE's Integrated Stock Exchange Trading and Information
System (``IBIS'').\8\ The trading hours of IBIS and the Exchange
currently overlap for the two hours period between 8:00 a.m. and 10:00
a.m., Chicago time. During this two hour period, the Exchange will
calculate and disseminate an ``indicative'' Germany 25 Index level
based on the most recent prices of the component stocks as reported by
IBIS.\9\
[[Page 44528]]
When trading on IBIS has concluded (10:00 a.m. Chicago time), the
Exchange will disseminate the last ``indicative'' Index level. To avoid
any confusion, the ``indicative'' Index level will have a different
ticker symbol from the actual Index level.
\7\ The FSE's trading hours are from 10:30 a.m. to 1:30 p.m.,
Frankfurt time (3:30 a.m. to 6:30 a.m., Chicago time).
\8\ According to the Exchange, the Deutsche Borse AG, the
holding company for the FSE, states that IBIS is a screenbased
trading and information system that is available for trading from
8:30 a.m. to 5:00 p.m., Frankfurt time (1:30 a.m. to 10:00 a.m.,
Chicago time). The CBOE represents that IBIS, as part of the FSE, is
subject to the same rules and regulations as floor trading on the
FSE. According to the Exchange, IBIS began operating in April, 1991.
\9\ The Exchange intends to calculate the ``indicative'' Index
with the same method of calculation as described above for the
actual Index.
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The option premium values will be quoted in U.S. dollars and,
therefore, trading accounts will be denominated in U.S. dollars. For
strike prices under $200, the Exchange reserves the right to list
series in 2\1/2\ point intervals.
Surveillance
The Exchange expects to apply its existing index options
surveillance procedures to Index options. In addition, the CBOE states
that the German legislature recently adopted new laws regarding insider
trading that also provide for the creation of an independent regulatory
authority.\10\ The Exchange understands that these developments will
facilitate the effective coordination between the Commission and the
appropriate German regulatory authority of option trading on the
Germany 25 Index because they will enhance the surveillance of trading
in the stocks comprising the Index. In addition, the Exchange will
continue to pursue its own independent agreement with the Deutsche
Borse AG (the holding company that owns the FSE) and/or the FSE.\11\
\10\ The Commission notes that this new regulatory body, the
Bundesaufsichtsamt fur den Wertpapierhandel, was established in
January 1995.
\11\ Telephone conversation between Eileen Smith, Director,
Product Development, Research Department, CBOE, and Brad Ritter,
Senior Counsel, OMS, Division, Commission, on August 8, 1995.
Exercise and Settlement
The proposed options on the Index will expire on the Saturday
following the third Friday of the expiration month. Trading in the
expiring contract month will normally cease at 3:15 p.m. (Chicago time)
on the immediately preceding Thursday, unless a holiday occurs. The
exercise settlement value of the Index at option expiration will be
calculated by the Exchange on the day following the last day of trading
in the expiring contracts. The exercise settlement value of Index
options at expiration will be determined at the close of the regular
Friday trading sessions at the FSE in Germany, ordinarily at 1:30 p.m.,
Frankfurt time (6:30 a.m., Chicago time), i.e., values of component
stocks disseminated through IBIS will not be used in calculating the
settlement values for Index options or Index LEAPS.\12\ If an Index
stock does not open for trading at the FSE, the last available price on
the FSE of the stock will be used in the calculation of the value of
the Index. When expirations are moved in accordance with Exchange
holidays, such as when the CBOE is closed on the Friday before
expiration, the last trading day for expiring options will be Wednesday
and the exercise settlement value of Index options at expiration will
be determined at the close of the regular Thursday trading sessions at
the FSE in Germany even if the FSE is open on Friday. If the FSE will
be closed on the Friday before expiration but the CBOE will not, the
last trading day for expiring Index options and Index LEAPS will be
Wednesday.\13\
\12\ Id.
\13\ In this circumstance, the CBOE will issue a notice to
members informing them that the last trading day for Index options
and Index LEAPS will be on Wednesday even though the CBOE will be
open on expiration Friday. Id.
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Position Limits
The Exchange proposes to establish position limits for options on
the Index of 50,000 contracts on either side of the market, with no
more than 30,000 contracts in the series with the nearest expiration
month. The Exchange represents that these limits are roughly
equivalent, in dollar terms, to the limits applicable to options on
other approved broad-based indexes.
Exchange Rules Applicable
Except as modified herein, the rules in Chapter XXIV of the CBOE's
rules will be applicable to Germany 25 Index options, including Index
LEAPS.
The Exchange states that it has the necessary systems capacity to
support new series that would result from the introduction of Germany
25 Index options. The CBOE also states that it has been informed that
the Options Price Reporting Authority (``OPRA'') has the capacity to
support such new series.\14\
\14\ See Letter from Joe Corrigan, Executive Director, OPRA, to
Eileen Smith, Director, Product Development, Research Department,
CBOE, dated November 21, 1994.
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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,\15\ in particular, in that it is designed
to permit trading in options based on the Germany 25 Index pursuant to
rules 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.
\15\ 15 U.S.C. 78f(b)(5) (1988).
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(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-95-39 and should be
submitted by September 18, 1995.
[[Page 44529]]
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
\16\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-21273 Filed 8-25-95; 8:45 am]
BILLING CODE 8010-01-M