Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Chicago Board Options Exchange, Inc. Relating to Options on the CBOE Mexico Index

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34241; International Series Release No. 676; File No.

SR-CBOE-94-18]

Self-Regulatory Organizations; Notice of Filing and Immediate

Effectiveness of Proposed Rule Change by the Chicago Board Options

Exchange, Inc. Relating to Options on the CBOE Mexico Index

June 22, 1994.

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

(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on June 16,

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 Exchange. 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 the CBOE Mexico

Index (``Mexico Index'' or ``Index''). The text of the proposed rule

change is available at the Office of the Secretary, the 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. The

text of these statements may be examined at the places specified in

Item IV below. The Exchange has prepared summaries, set forth in

Section (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\1\ stock index options

on the Mexico Index. The Exchange represents that the Mexico Index

meets the generic criteria for listing options on narrow-based indexes

as set forth in Exchange Rule 24.2 and the Commission's order approving

that Rule.\2\ Accordingly, the CBOE is submitting this proposed rule

change pursuant to, and in accordance with, the procedures set forth in

the Generic Index Approval Order. In accordance with the Generic Index

Approval Order, the CBOE proposes to list and trade options on the

Mexico Index at a time no sooner than 30 days after June 16, 1994, the

filing date of this proposed rule change.

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\1\European-style options may only be exercised during a

specified period prior to expiration of the options.

\2\See Securities Exchange Act Release NO. 34157 (June 3, 1994),

59 FR 30062 (June 10, 1994) (``Generic Index Approval Order'').

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The Mexico Index consists of the stocks of ten Mexican

companies.\3\ The Exchange represents that no proxy for the performance

of the Mexican economy is currently available in the U.S. derivative

markets. The Exchange believes, therefore, that options on the Index

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

performance of the Mexican economy or hedging against the risk of

investing in that economy.

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\3\The components of the Index are: Consorcio G Grupo Dina SA de

CV; Empresas La Moderna SA de CV; Grupo Mexicano de Desarro; Grupo

Tribasa SA de CV; Empresas ICA Sociedad Con; Coca Cola Femsa SA de

CV; Grupo Financiero Serfin SA de CV; Transportacion Maritima Mexi;

Telefonos de Mexico SA de CV; and Grupo Televisa SA Global.

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Stocks Comprising the Index

All of the stocks in the Index currently trade in the U.S. on the

New York Stock Exchange either as American Depositary Receipts or

American Depositary Shares (collectively ``ADRs''). Moreover, the CBOE

represents that the U.S. is the primary market for nine of the stocks,

representing 90% of the stocks in the Index and 90% of the weight of

the Index. According to the CBOE, the primary market for the tenth

security (Grupo Financiero Serfin SA de CV) is the Bolsa Mexicana de

Valores or Mexican Stock Exchange.

The Generic Index Approval Order specifies that no more than 20% of

the stocks in the index, by weight, may be comprised of foreign

securities or ADRs overlying foreign securities that are not subject to

comprehensive surveillance sharing agreements.\4\ The Commission,

however, further specified that an ADR would not be subject to this

limitation if at least 50% of the worldwide trading volume in the

foreign security occurs in the U.S. market.\5\ Because nine of the ten

stocks in the Mexico Index meet that standard, the CBOE believes that

the Mexico Index satisfies this criteria for options trading under the

Generic Index Approval Order.

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\4\See Generic Index Approval Order, supra note 2.

\5\Id. at note 18.

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The Exchange also represents that nine of the ten stocks in the

Mexico Index presently meet the Exchange's listing criteria for equity

options.\6\ According to the Exchange, therefore, 90% of the stocks in

the index, both by number and by weight, are eligible to be underlying

securities pursuant to the CBOE's rules. The Exchange further

represents that all nine of such stocks are currently the subject of

listed options trading in the U.S.\7\

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\6\The CBOE's options listing standards, which are uniform among

the options exchanges, provide that a security underlying an option

must, among other things, meet the following requirements: (1) the

public float must be at least 7,000,000; (2) there must be a minimum

of 2,000 stockholders; (3) trading volume must have been at least

2.4 million over the preceding twelve months; and (4) the market

price must have been at least $7.50 for a majority of the business

days during the preceding three calendar months. See CBOE Rule 5.3.

With respect to ADRs, in addition to the above standards: (1) the

Exchange must have in place a comprehensive surveillance agreement

with the primary exchange in the home country where the security

underlying the ADR is traded: or (2) the trading volume in the U.S.

markets where the ADR is traded represents (on a share-equivalent

basis) at least 50% of the worldwide trading volume in the security

underlying the ADR over the three month period preceding the date of

selection of the ADR for options trading; or (3) the SEC must

otherwise authorize the listing. See Securities Exchange Act Release

No. 33554 (January 31, 1994), 59 FR 5622 (February 7, 1994).

\7\Grupo Financiero Serfin SA de CV is the only component of the

Index on which standardized options currently are not traded in the

U.S.

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As of June 7, 1994, the stocks comprising the Index ranged in

capitalization from $477.17 million to $26.01 billion. The mean and

median capitalizations of the components as of that date were $7.882

billion and $2.781 billion, respectively. The Exchange represents that

each of the stocks in the index has a market capitalization well in

excess of $75 million. The Exchange further represents that each of the

component stocks in the index has had average monthly trading volume

well in excess of one million shares over the six month period from

December 1, 1993 through May 31, 1994. Accordingly, the Exchange

represents that its generic listing standards set forth in CBOE Rule

24.2 are satisfied with respect to the criteria for market

capitalization and trading volume.

Calculation

The Index will be calculated on a real-time basis by the CBOE or

its designee using last-sale prices, and will be disseminated every 15

seconds by the CBOE. If a component stock is not currently being

traded, the most recent price at which the stock trade will be used in

the Index calculation. The value of the Index at the close on June 7,

1994 was 161.87, which reflects the changes in the prices of the

component stocks relative to the base date established by the CBOE of

January 3, 1994.

The Index is calculated using an ``equal dollar-weighting'' method,

meaning that each of the component stocks is represented in

approximately equal dollar amounts. To determine the initial dollar

weighting of the stocks, the exchange calculated the number of shares

(to the nearest whole share) that would represent an investment of

$10,000 in each of the stocks continued in the Index using closing

prices of the component stocks on December 17, 1993. 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 stocks in the

Index divided by the current Index divisor. The Index divisor was

initially calculated to yield a benchmark value of 200.00 at the close

of trading on January 3, 1994.

Maintenance

The Index will be maintained by the CBOE. The Index composition

will be rebalanced quarterly, following the close of trading on the

third Friday of each March, June, September, and December, by changing

the number of shares of each component stock so that each company is

again represented in $10,000 ``equal'' dollar amounts. If necessary, a

divisor adjustment will be made to ensure continuity of the value of

the Index. The newly adjusted portfolio becomes the basis for the

Index's values on the first trading day following the quarterly

adjustment.

In addition, 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 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 Mexican economy generally. If it becomes necessary

to remove a stock from the Index (for example, because of a takeover or

merger), the CBOE will either add a Mexican stock having

characteristics that will permit the Index to remain within the

maintenance criteria specified in the CBOE's Rules and the Generic

Index Approval Order or make no change to the composition of the Index

provided the Index is still comprised of at least nine components. The

CBOE will take into account the capitalization, liquidity, volatility,

and name recognition of any proposed replacement stock.

If the Index fails at any time to satisfy the maintenance criteria

set forth in the Generic Index Approval Order, the Exchange will

immediately notify the Commission of that fact and will not open for

trading any additional series of options on the Index unless such

failure is determined by the Exchange not to be significant and the

Commission concurs in that determination, or unless the continued

listing of options on the Mexico Index has been approved by the

Commission under Section 19(b)(2) of the Exchange Act.

Absent prior Commission approval, the Exchange will not increase to

more than 13, or decrease to fewer than 9, the number of stocks in the

Index, nor will the CBOE make any change in the composition of the

Index that would cause fewer than 90% of the stocks, by weight, or

fewer than 80% of the total number of stocks in the index, to quality

as stocks eligible for equity options trading under CBOE Rule 5.3.\8\

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\8\See supra note 6.

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Index Option Trading

The Exchange proposes to base trading in options on the Mexico

Index on the full value of that Index. The Exchange may also list full-

value long-term index option series (``Index LEAPS'') on the Mexico

Index, as provided in Rule 24.9. The Exchange also may provide for the

listing of reduced-value Index 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 Index LEAPS will,

after such initial computation, be rounded to the nearest one-

hundredth.

Exercise and Settlement

Mexico 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 Mexico Index options. The Index options will expire on

the Saturday following the third Friday of the expiration month. Thus,

the last day for trading in a 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 Mexico Index options. Index option contracts based on the

Mexico Index will be subject to the position limit requirements of Rule

24.4A, which presently would result in position limits for Mexico Index

options of 10,500 contracts. Ten reduced-value options will equal one

full-value contract for such purposes.

The CBOE represents that it has the necessary systems capacity to

support new series that would result from the introduction of Mexico

Index options. The CBOE also represents that the Options Price

Reporting Authority (``OPRA'') has the capacity to support such new

series.9

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\9\See Letter from Joe Corrigan, Executive Director, OPRA, to

Eileen Smith, Director, Product Development, Research Department,

CBOE, dated June 9, 1994.

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The CBOE represents 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)10 in particular in that it will permit trading in

options based on the Mexico Index pursuant to rules designed to prevent

fraudulent and manipulative acts and practices and to promote just and

equitable principles of trade.

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\1\015 U.S.C. section 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 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

Because the foregoing proposed rule change complies with the

standards set forth in the Generic Index Approval Order, it has become

effective pursuant to Section 19(b)(3)(A) of the Act. Pursuant to the

Generic Index Approval Order, the Exchange may not list Mexico Index

options for trading prior to 30 days after June 16, 1994, the date the

proposed rule change was filed with the Commission. At any time within

60 days of the filing of the proposed rule change, the Commission may

summarily abrogate such rule change if it appears to the Commission

that such action is necessary or appropriate in the public interest,

for the protection of investors, or otherwise in furtherance of the

purposes of the Act.

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. section 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-94-18 and should be

submitted by July 20, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.11

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\1\117 CFR 200.30-3(a)(12) (1993).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-15712 Filed 6-28-94; 8:45 am]

BILLING CODE 8010-01-M