Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Chicago Board Options Exchange, Inc., Relating to Options on the Nikkei Stock Index 300

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34077; International Series Release No. 668; File No.

SR-CBOE-94-14]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the Chicago Board Options Exchange, Inc., Relating to Options

on the Nikkei Stock Index 300

May 18, 1994.

Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''),\1\ notice is hereby given that on April 19, 1994, 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.

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\1\15 U.S.C. 78s(b)(1).

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I. Self-Regulatory Organization's Statement of the Terms of Substance

of the Proposed Rule Change

The CBOE proposes to amend certain of its rules to provide for the

listing and trading on the Exchange of options on the Nikkei Stock

Index 300 (``Nikkei 300'' or ``Index''),\2\ a cash-settled broad-based

index with European-style exercise.

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\2\The CBOE has represented that the designations ``Nikkei Stock

Index 300'' and ``Nikkei 300'' are property of Nihon Keizai Shimbun,

Inc.

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The text of the proposal 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 self-regulatory organization

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 self-regulatory organization

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 amend its rules to provide for the listing and trading of options on

the Nikkei Stock Index 300. The Index is comprised of 300

representative stocks of the first section of the Tokyo Stock Exchange

(``TSE'').\3\ The Exchange believes that options on the Index will

provide investors with a low-cost means of participating in the

performance of the Japanese economy and hedging against the risk of

investing in that economy.

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\3\First section stocks are distinguished from second section

stocks by more stringent listing standards. Telephone conversation

between Eileen Smith, Director, Product Development, Research

Department, CBOE, and Francois Mazur, Attorney, Office of

Derivatives and Equity Regulation, Division of Market Regulation,

Commission (May 16, 1994).

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Index Design: The Index was designed by and is maintained by Nihon

Keizai Shimbun, Inc. The CBOE represents that Index component stocks

were selected by Nihon Keizai Shimbun, Inc. for their high market

capitalization and their high degree of liquidity, and are

representative of the industrial composition of the broader Japanese

equity market. The Index is weighted by the market capitalization of

the component stocks.

The median capitalization of the firms in the Index on March 31,

1994, was 340.1 billion.\4\ The average market capitalization of

these firms was US$7.5 billion on the same date using the same rate of

exchange. The individual market capitalization of these firms ranged

from US$875 million to US$76.5 billion on March 31, 1994. The largest

stock accounted for 3.41% of the total weighting of the Index, while

the smallest accounted for 0.04%.

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\4\US$3.3 billion at the exchange rate of 102.75 per dollar

prevailing on March 31, 1994.

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Calculation: The value of the Index is determined by adding the

price of each stock times the number of shares outstanding. This sum is

then divided by a divisor which gives the Index a value of 100 on its

base date of October 1, 1982. This divisor is adjusted for pertinent

changes as described below in the section titled ``Maintenance.'' The

Index had a closing value of 296.35 on April 13, 1994.

Maintenance: The Index will be maintained by Nihon Keizai Shimbun,

Inc. To maintain continuity of the Index, the divisor of the Index will

be adjusted to reflect certain events relating to the component stocks.

These events include, but are not limited to, changes in the number of

shares outstanding, spinoffs, certain rights issuances, and mergers and

acquisitions. The composition of the Index will be reviewed

periodically by Nihon Keizai Shimbun, Inc.

Index Option Trading: The Exchange proposes to base trading in

options on the Index on the full value of the Index as expressed in

U.S. dollars. The Exchange also may provide for the listing of full-

value, long-term options series (``LEAPS'') and reduced-value LEAPS on

the Index. For reduced-value LEAPS, 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. The

trading hours for options on the Index will be from 8 a.m. to 3:15

p.m., Chicago time. Because the TSE does not operate during the

Exchange's trading hours, the Exchange will disseminate the value of

the Index based on the most recent closing value of the Index.

Exercise and Settlement: The proposed options on the Index will

expire on the Saturday following the third Friday of the expiration

month. Thus, trading in the expiring contract month will normally cease

on a Thursday at 3:15 p.m., Chicago time, unless a holiday occurs. The

exercise settlement value of Index options at expiration will be

determined at the close of the regular Friday trading sessions in

Japan, ordinarily at 3 p.m., Tokyo time. If a stock does not trade

during this interval or if it fails to open for trading, the last

available price of the stock will be used in the calculation of the

Index. When option expiration dates are changed 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 the Index will be determined at

the close of the regular Thursday trading sessions in Japan even if the

Japanese markets are open on Friday. If the Japanese markets will be

closed on the Friday before expiration but the CBOE will not, the last

trading day for expiring options will be Wednesday.

Surveillance Agreements: The Exchange expects to apply its existing

index options surveillance procedures to Index options. The Exchange is

pursuing market surveillance agreements with the Japanese Ministry of

Finance and the TSE. These agreements will enable the Exchange to carry

out its regulatory responsibilities with respect to the surveillance of

trading in the stocks comprising the Index.

Position Limits: The Exchange is proposing to establish position

limits for Nikkei 300 Index options equal to 50,000 contracts on the

same side of the market, with no more than 30,000 contracts in the

series with the nearest expiration date. Ten reduced-value options will

equal one full-value contract for such purposes.

Exchange Rules Applicable: Except as modified herein, the Rules in

Chapter XXIV will be applicable to Nikkei 300 Index options.

CBOE has represented that it has the necessary systems capacity to

support new series that would result from the introduction of Nikkei

300 Index options.

The Exchange 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) in particular in that it will permit trading in options

based on the Nikkei Stock Index 300 pursuant to rules designed to

prevent fraudulent and manipulative acts and practices and to promote

just and equitable principals of trade, and thereby will provide

investors with the ability to invest in options based on an additional

index.

(B) Self-Regulatory Organization's Statement on Burden on Competition

CBOE 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

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 above-mentioned

self-regulatory organization. All submissions should refer to File No.

SR-CBOE-94-14 and should be submitted by June 14, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\5\

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\5\17 CFR 200.30-3(a)(12) (1993).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-12634 Filed 5-23-94; 8:45 am]

BILLING CODE 8010-01-M