Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment No. 1 to the Proposed Rule Change by the Chicago Board Options Exchange, Inc. Relating to the Listing and Trading Options on the CBOE Emerging Asian Markets Index

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34553; International Series Release No. 701; File No.

SR-CBOE-94-20]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change and Amendment No. 1 to the Proposed Rule Change by the Chicago

Board Options Exchange, Inc. Relating to the Listing and Trading

Options on the CBOE Emerging Asian Markets Index

August 19, 1994

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 June 30, 1994, 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. On August

18, 1994, the Exchange filed Amendment No. 1 to the proposed rule

change.\3\ 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 (1991).

\3\In Amendment No. 1, the Exchange proposes to treat the CBOE

Emerging Asian Markets Index as a narrow-based index for purposes of

margin and position limit treatment. Pursuant to CBOE Rule 24.4A,

the position limits for the CBOE Emerging Asian Markets Index would

initially be set at 10,500 contracts. See Letter from Eileen Smith,

Director, Product Development, Research Department CBOE, to Brad

Ritter, Attorney, Office of Market Supervision, Division of Market

Regulation, Commission, dated August 18, 1994 (``Amendment No. 1'').

---------------------------------------------------------------------------

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

of the Proposed Rule Change

As provided in Exchange Rule 24.2, ``Designation of the index,''\4\

the CBOE proposes to list for trading options on the CBOE Emerging

Asian Markets Index (``Emerging Asian Markets Index'' of ``Index'').

The text of the proposed rule change is available at the Office of the

Secretary, CBOE, and at the Commission.

---------------------------------------------------------------------------

\4\Exchange Rule 24.2 provides, in part, that the Commission

must approve a particular index upon which options are traded.

---------------------------------------------------------------------------

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\5\ index options on the

Emerging Asian Markets Index. The Index will initially consist of 16

closed-end funds which invest in the stocks of firms in the emerging

Asian economies. According to the Exchange, no proxy for the

performance of these emerging economies is currently available in the

U.S. derivatives markets. The Exchange believes, therefore, that

options on the Index will provide investors with a low-cost means of

participating in the performance of these markets and/or hedging

against the risk of investing in the Asian emerging markets.

---------------------------------------------------------------------------

\5\European-style options can only be exercised during a

specified period before the options expire.

---------------------------------------------------------------------------

Index Design

The Emerging Asian Markets Index will initially consist of 16

closed-end funds.\6\ All of the closed-end fund components of the Index

currently trade on the New York Stock Exchange.

---------------------------------------------------------------------------

\6\The components of the Index are the: Asia Pacific Fund; Asia

Tigers Fund Inc.; China Fund Inc.; Greater China Fund Inc.; Jardine

Fleming China Region Fund Inc.; Morgan Stanley India Fund; Indonesia

Fund Inc.; Jarkarta Growth Fund Inc.; Korea Fund Inc.; Korea Equity

Fund Inc.; Malaysia Fund Inc.; First Philippine Fund Inc.; Singapore

Fund Inc.; ROC Taiwan Fund; Taiwan Fund Inc.; and Thai Fund Inc.

---------------------------------------------------------------------------

As of June 15, 1994, the closed-end funds comprising the Index

ranged in market capitalization from a low of $49.4 million to a high

of $589.4 million. The average capitalization as of that date was

$214.5 million. The closed-end fund accounting for the largest

percentage of the total weighting of the Index on that date was the

Thai Fund Inc. (10.60%), while the smallest was the Jakarta Growth Fund

Inc. (3.52%).

Calculation

The Index is price-weighted and reflects changes in the prices of

the components relative to the base date of December 31, 1991. The

Index value is calculated by summing the prices of the component

securities and then dividing by a divisor that yielded an index value

of 100.00 as of that date. The value of the Index at the close on June

15, 1994, was 155.07.

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 the Exchange. If a component closed-end fund is not currently being

traded, the most recent price at which the closed-end fund traded will

be used in the Index calculation.

Maintenance

The Index will be maintained by the Exchange. 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.

The Exchange states that the index will be reviewed on

approximately a monthly basis by the CBOE staff. The Exchange may

change the composition of the Index at any time or from time to time to

reflect the changes affecting the components of the Index or the

emerging Asian markets generally. If it becomes necessary to remove a

component from the Index, every effort will be made to add a closed-end

fund that preserves the character of the Index. In such circumstances,

the CBOE will take into account the capitalization, liquidity,

volatility, and name recognition of the proposed replacement closed-end

fund. The Exchange will most likely maintain 16 closed-end funds in the

Index at all times.

Long-Term Index Options

In addition to Index options on the full-value of the Index, the

Exchange also proposes to list long-term Index option series

(``LEAPS'') as provided in CBOE Rule 24.9, and reduced-value Index

LEAPS of which the underlying value would be computed at one-tenth (\1/

10\th) 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. Other than the

reduced value, all other specifications and calculations for the

reduced-value Index LEAPS will remain the same.

Exercise and Settlement

Index options will have European-style exercise and will be ``A.M.-

settled index options'' within the meaning of the rules in Chapter XXIV

of the Exchange's rules.\7\ The CBOE proposes to amend Rule 24.9 to

refer specifically to Emerging Asian Markets Index options. The

Exchange states that the proposed Index options would 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.

---------------------------------------------------------------------------

\7\Under CBOE Rule 24.9, A.M.-settled index options are settled

based on an index value derived from opening prices on the last day

of trading prior to expiration.

---------------------------------------------------------------------------

Exchange Rules Applicable

Except as modified in the proposal, the Rules in Chapter XXIV of

the Exchange's Rules regarding narrow-based index will be applicable to

Index options.\8\ Pursuant to Exchange rule 24.4A, Index option

contracts based on the Emerging Asian Markets Index will be subject to

position limits of 10,500 contracts.\9\ For purposes of position and

exercise limits, Index LEAPS will be aggregated with Index options on a

one for one basis. Under the proposal, ten reduced-value Index LEAP

contracts will equal one full-value Index option or Index LEAP for

purposes of aggregating positions. The Exchange represents that it has

the necessary systems capacity to support new options series that would

result from the introduction of Index options and Index LEAPS.

---------------------------------------------------------------------------

\8\See Amendment No. 1, Supra note 3.

\9\Id.

---------------------------------------------------------------------------

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,\10\ in particular, in that it will provide

investors with an opportunity to invest in options based upon the

Emerging Asian Markets 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.

---------------------------------------------------------------------------

\10\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) 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-94-20 and should be

submitted by September 16, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\11\

---------------------------------------------------------------------------

\11\17 CFR 200.30-3(a)(12) (1993).

---------------------------------------------------------------------------

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-21006 Filed 8-25-94; 8:45 am]

BILLING CODE 8010-01-M