[Federal Register Volume 61, Number 154 (Thursday, August 8, 1996)]
[Notices]
[Pages 41434-41436]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20183]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37509; File No. SR-CBOE-96-44]
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 Goldman Sachs Technology
Composite Sub-Indexes
July 31, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on
July 2, 1996, 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 self-regulatory
organization. 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 list and trade options on six different
narrow-based indexes, each of which is composed of components from the
GSTI Composite Index (``GSTI Composite Index'').\1\ The six sub-indexes
are: the GSTI Internet Index (``Internet Index''), the GSTI Software
Index (``Software Index''), the GSTI Semiconductor Index
(``Semiconductor Index''), the GSTI Hardware Index (``Hardware
Index''), the GSTI Services Index (``Services Index''), and the GSTI
Multimedia Networking Index (``Multimedia Index'') (collectively ``GSTI
Sub-Indexes''). Each of the GSTI Sub-Indexes are cash-settled, modified
capitalization-weighted indexes with European-style exercise.
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\1\ Concurrent with this proposal, CBOE has filed for approval
to list and trade options on the Goldman Sachs Technology Composite
Index, a broad-based, capitalization weighted index composed of the
universe of technology-related company stocks meeting certain
objective criteria. See SR-CBOE-96-43. A list of components for the
Composite Index or any of the Sub-Indexes is available at the
Commission or CBOE.
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The text of the proposed rule change in 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to permit the Exchange
to list and trade cash-settled, European-style index options on six
sub-indexes of the GSTI Composite Index. Each of the GSTI Sub-Indexes
is modified-capitalization weighted and is composed of components of
the GSTI Composite Index. Goldman, Sachs & Co. has designated a GSTI
Committee (``Committee'') to oversee the selection of components for
the GSTI Sub-Indexes, as discussed below.
Index Design. The Committee selects and assigns stocks to a sub-
index based upon relevant qualitative criteria. Any stock in a sub-
index must appear in the Composite Index. Stocks may be represented in
one or more GSTI Sub-Indexes, however, not all GSTI Composite Index
components necessarily will be assigned to a GSTI Sub-Index. All of the
components of the index currently trade on the New York Stock Exchange
(``NYSE''), the American Stock Exchange (``NYSE''), the American Stock
Exchange or are National Market System securities traded on Nasdaq.
Calculation. The Index will be calculated by CBOE or a designee of
Goldman Sachs on a real-time basis using last-sale prices and will be
disseminated every 15 seconds by CBOE. If a component security is not
currently being traded on its primary market, the most recent price at
which the security traded on such market will be used in the Index
calculation.
The Index is calculated on a ``modified capitalization-weighted''
method. This method is a hybrid between equal weighting (which may
[[Page 41435]]
pose liquidity concerns for smaller-cap stocks) and normal
capitalization weighting (which may result in two or three stocks
dominating the index's performance). Under the method employed for each
of the sub-indexes, the maximum weight for the largest stock in the
sub-index will be set to 25% on the semiannual rebalancing date. The
maximum weight for the second largest stock will be set to 20% and the
maximum weight for the third largest stock and any stock thereafter
will be set to 15% on the rebalancing date. The weight of all the
remaining sub-index stocks shall be market capitalization weighted.
Thus, the weights of these remaining stocks are not ``capped''.
For stocks which are not ``capped,'' index shares will equal the
company's outstanding common shares. For stocks which are capped, index
shares will equal its maximum weight, multiplied by the adjusted total
market capitalization of the sub-index, divided by the stock's closing
price on the rebalancing date. THe index's adjusted total market
capitalization is the total outstanding market capitalization adjusted
to reflect the number of ``capped'' stocks.
The divisor for each Sub-Index was initially calculated to yield a
benchmark value of 100.00 at the close of trading on April 30, 1996.
The divisor for each Sub-Index will be adjusted as needed to ensure
continuity in each index whenever there are additions or deletions from
an index, share changes, or adjustments to a component's price to
reflect rights offerings, spinoffs, and special cash dividends.
Maintenance. The Indexes will be maintained by CBOE and the GSTI
Committee. On each semi-annual rebalancing date, the GSTI Composite
Index will be adjusted by adding or deleting stocks according to the
inclusion criteria detailed in SR-CBOE-96-43. All changes to the GSTI
Composite Index will be implemented after the close of trading on the
effective date. The effective dates will be the third Friday of January
and July. The rebalancing date will be 7 business days inclusive prior
to the effective date.
As soon after the close of trading on the day following the
rebalancing date for the GSTI Composite Index, the Exchange will
provide to the Committee a list of all constituent changes to the GSTI
Composite Index. Upon receipt of this list from the Exchange, the
Committee will meet to determine any changes to the GSTI Sub-Indexes.
The Committee will notify CBOE of any change in composition for any
of GSTI Sub-Indexes before trading starts on the trading day after the
Exchange has provided the Composite Index component list to the
Committee.\2\ The Exchange, in turn, will disseminate the information
concerning the components of the GSTI Sub-Indexes to the public. The
Committee retains discretion to add or delete stocks from the GSTI Sub-
Indexes at the rebalancing or to change a stock's industry
classification. At the discretion of the Committee, a stock may also be
removed from a Sub-Index due to lack of industry representation in the
Sub-Index. At no time will a Sub-Index fall to less than 6 stocks.
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\2\ For example, if CBOE provides to the Committee a list of
composition changes to the GSTI Composite Index after the close of
trading on Friday, the Committee would in turn inform CBOE of any
corresponding changes to the GSTI Sub-Indexes before trading
commences on Monday. CBOE would then disseminate such changes to the
public prior to the commencement of trading. Telephone Conversation
between Eileen Smith, CBOE, and Steve Youhn, SEC, on July 24, 1996.
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Additionally, at the semi-annual rebalancing, stocks with Sub-Index
weights which exceed their cap in that SUb-Index, will be restored to
the appropriate capped weight.
When a stock is ``Fast Added'' to the GSTI Composite Index, as
described in SR-CBOE-96-43, the stock may be ``Fast Added'' to one or
more GSTI Sub-Indexes at the same time. If added to a sub-index, the
stock's weight cannot exceed the appropriate cap for that sub-index. If
a stock is ``Fast Deleted'' from the GSTI Composite Index, it will be
removed from all GSTI Sub-Indexes at the same time.
In the case of a merger, the Committee will decide the Sub-Index
classification of the merged company. If the weight of the merged
company would exceed the relevant cap for the Sub-Index to which it is
assigned, the weight of the company will be capped at the time that the
merger is completed. The index shares of all other stocks in the
effected Sub-Index will remain unchanged.
Index Option Trading. The Exchange proposes to base trading in
options on the GSTI Sub-Indexes on the full value of the relevant Sub-
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
appropriate Sub-Index. The current and closing index value of any such
reduced-value LEAPS will, after such initial computation, be rounded to
the nearest one-hundredth.
Strike prices will be set to bracket the index in a minimum of 2\1/
2\ point increments for strikes below 200 and 5 point increments above
200. The minimum tick size for series trading below $3 will be 1/16th
and for series trading above $3 the minimum tick will be 1/8th. The
trading hours for options on the Index will be from 8:30 a.m. to 3:10
p.m. Chicago time.
Exercise and Settlement. GSTI Sub-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 GSTI Sub-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 the second business day (ordinarily a Thursday)
preceding the expiration date.
Exchange Rules Applicable. Except as modified herein, the Rules in
Chapter XXIV will be applicable to GSTI Sub-Index options. Index option
contracts based on the GSTI Sub-Indexes will be subject to the position
limit requirements of Rule 24.4A. Ten reduced-value options will equal
one full-value contract for such purposes.
CBOE represents that it has the necessary systems capacity to
support new series that would result from the introduction of the GSTI
Sub-Index options. CBOE has also been informed that the Options Price
Reporting Authority (``OPRA'') has the capacity to support such new
series.
The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Act in general and furthers the objectives of
Section 6(b)(5) in particular in that it will permit trading in options
based on the GSTI Sub-Indexes pursuant to rules designed to prevent
fraudulent and manipulative acts and practices and to promote just and
equitable principles of trade. The rule proposal will also serve to
further these objectives by providing investors with the ability to
invest in options based on additional indexes.
2. Statutory Basis
CBOE believes the proposed rule change is consistent with Section
6(b) of the Act in general and furthers the objectives of Section
6(b)(5) in particular in that it will permit trading in options based
on the IPC 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.
[[Page 41436]]
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes the proposed rule change will impose no
burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the 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 the 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. Sec. 552, will be available for inspection and copying at
the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. 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-96-44 and should be
submitted by August 29, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\3\
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\3\ 17 CFR 200.30-3(a)(12) (1994
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Jonathan G. Katz,
Secretary.
[FR Doc. 96-20183 Filed 8-7-96; 8:45 am]
BILLING CODE 8010-01-M