Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Chicago Board Options Exchange, Inc. Relating to Narrow- Based Index Options Listing Standards

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-33636; File No. SR-CBOE-93-59]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

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

Based Index Options Listing Standards

February 17, 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 December

22, 1993, 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 CBOE.\1\ The

Commission is publishing this notice to solicit comments on the

proposed rule change from interested persons.

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\1\The CBOE originally submitted a filing (SR-CBOE-92-39)

covering the same subject matter of the present filing on December

14, 1992. The CBOE has advised the Commission staff that it intends

to withdraw SR-CBOE-92-39 upon Commission approval of the present

filing. See letter from Michael L. Meyer, Schiff Hardin & Waite, to

Michael A. Walinskas, Options Branch, Division of Market Regulation,

SEC, dated February 11, 1994.

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

of the Proposed Rule Change

The CBOE proposes to establish generic listing standards for

options on narrow-based (sector) indexes and to adopt a streamlined

procedure for introducing trading in options that satisfy these listing

standards. 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 and

discussed any comments it received on the proposed rule change. The

text of these statements may be examined at the placed 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 enable the CBOE to

list classes of index options on narrow-based (sector) stock indices

that satisfy specified listing standards pursuant to a filing submitted

to the Commission for effectiveness upon filing under section

19(b)(3)(A) of the Act. The proposed rule change includes both the

listing standards that a narrow-based stock index must meet to qualify

for such expedited effectiveness, as well as the procedures and

conditions that will apply to such a filing. These listing standards,

procedures and conditions were developed during the course of

discussions among the Commission staff and representatives of the CBOE

and other options exchanges.

The initial listing standards that must be met to qualify a narrow-

based index option for filing under section 19(b)(3)(A) include that

the options must be designated for A.M.-settlement, that the index must

be capitalization-weighted, price-weighted, of equal-dollar weighted,

and consist of ten or more component securities, and that the component

securities must meet stated minimum market capitalization and trading

volume criteria. In addition, the proposed rule includes ``weight''

limits for individual components securities and for the five highest-

weighted component securities in the subject index, and it requires

that a high percentage of the component securities in the index must

meet the issue-specific listing criteria set forth in CBOE Rule 5.3.

Further, each component security must be a ``reported security'' under

Rule 11Aa3-1 under the Act, and the non-U.S. component securities in a

subject index that are not subject to comprehensive surveillance

agreements may not exceed 20 percent of the index's weight. Finally,

the current index value must be reported at least once every fifteen

seconds during trading hours, any equal dollar-weighted index must be

rebalanced at least once each calendar quarter, and any underlying

index that is maintained by a broker-dealer must be subject to suitable

``Chinese Wall'' arrangements.

The proposed rule change also contains maintenance listing

standards. These include most of the initial listing standards,

somewhat reduced minimum trading volume criteria, and a percentage

limitation respecting changes in the number of component securities in

an index subsequent to initial listing. These maintenance standards

would apply to each class of narrow-based index options listed pursuant

to a section 19(b)(3)(A) filing, unless and until the class of option

is subsequently approved pursuant to a filing made under section

19(b)(2).

The proposed rule change amends CBOE Rule 24.2, which provides that

each new underlying index must be approved by the Commission. Practice

under this rule to date has dictated use of filing and approval

procedures pursuant to a subparagraph (2) of subsection 19(b) of the

Act. Although that process would remain available to the CBOE under

this proposed rule change, this rule change is designed to produce more

expeditious trading of options on new indices that meet the listing

standards.

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 is designed to foster

cooperation and coordination with persons engaged in facilitating

transactions in securities and to protect investors and the public

interest.

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

The 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 5U.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-93-59 and should be

submitted by March 18, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\2\

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\2\17 CF 200.30-3(a)(12) (1993).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-4337 Filed 2-24-94; 8:45 am]

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