Self-Regulatory Organizations; Filing of Proposed Rule Change by the Chicago Board Options Exchange, Inc., Relating to Listing Criteria for Certain Hybrid Securities

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-33843; File No. SR-CBOE-94-04]

Self-Regulatory Organizations; Filing of Proposed Rule Change by

the Chicago Board Options Exchange, Inc., Relating to Listing Criteria

for Certain Hybrid Securities

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 February

25, 1994, the Chicago Board Options Exchange, Inc. (``CBOE'' or

``Exchange'') filed with the Securities and Exchange Commission

(``SEC'' or ``Commission'') the proposed rule change as described in

Items I, II and III below, which Items have been prepared by the CBOE.

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 amend its rules to establish specific listing

criteria for certain hybrid securities. The text of the proposed rule

change 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 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 the

Statutory Basis for, the Proposed Rule Change

The purpose of the proposed rule change is to revise certain of the

Exchange's rules to permit the Exchange to list and trade the following

securities:

1. Contingent Value Rights

The Exchange is proposing to add rule 31.5.H. to its rules to

establish specific listing criteria for contingent value rights

(``CVRs''). CVRs are unsecured obligations providing for a possible

cash payment at maturity based on the value of an equity security

issued by an affiliate of the issuer of the CVRs (``related

security''). At maturity, the holder of a CVR would be entitled to a

cash payment at maturity if the market price of the related security is

lower than a predetermined target price. If the market price of the

related security equals or exceeds the target price, the holder of the

CVR would not be entitled to receive such a cash payment.

Under proposed rule 31.5.H., a CVR would be eligible for listing

if:

(1) The issuer satisfies the net worth and earnings requirements

set forth in Exchange Rule 31.5.A.;

(2) The issuer has assets in excess of $100 million;

(3) There is a minimum public distribution of 600,000 CVRs;

(4) There is a minimum of 1,200 public holders of the CVRs;

(5) The aggregate market value of the CVRs equals or exceeds $18

million; and

(6) The CVRs have an original term to maturity of at least one

year. In the alternative, a CVR would be eligible for listing if it

meets the minimum standards as established by another national

securities exchange.

2. Equity-Linked Notes

The Exchange is proposing to add rule 31.5.I. to its rules to

establish specific listing criteria for equity-linked notes (``ELNs'').

ELNs are intermediate-term, non-convertible hybrid instruments whose

value is based, in part, on the performance of a highly capitalized,

actively traded U.S. common stock or foreign security that is traded in

the U.S. in the form of American Depositary Receipts (``ADRs''),

ordinary shares or otherwise. Under proposed rule 31.5.I., the issuer

of ELNs must satisfy the earnings requirements set forth in Exchange

Rule 31.5.A. and must have a minimum tangible net worth of $150

million. In addition, although the Exchange does not believe that ELNs

will have any impact on the market for the underlying linked stock,

ELNs listed for trading on the Exchange also must satisfy the following

criteria:

(1) An ELN must have an original term to maturity of not less than

two and not more than seven years;

(2) The total original issue price of an ELN (when combined with

all of the ELNs issued by the issuer which are listed on a national

securities exchange or traded through the facilities of the National

Association of Securities Dealers Automated Quotation system

(``NASDAQ'')) cannot exceed 25 percent of the issuer's tangible net

worth at the time of issuance;

(3) The underlying stock must be listed for trading on a national

securities exchange or traded through the facilities of NASDAQ;

(4) The issuer of the underlying stock either must be subject to

the reporting requirements set forth in section 13 of the Act or exempt

from such requirements pursuant to SEC rule 12g3-2(b);

(5) The issuer of the underlying stock must have either (x) a

minimum market capitalization of $3 billion and trading volume in the

underlying stock during the 12-month period preceding the listing of

the ELNs must have been at least 2.5 million shares, or (y) a minimum

market capitalization of $1.5 billion and trading volume in the

underlying stock during the 12-month period preceding the listing of

the ELNs has been at least 20 million shares;

(6) The amount of stock underlying an ELN cannot exceed five

percent of the total amount of outstanding common shares of such stock;

and

(7) If the stock underlying an ELN is a foreign stock that is

traded in the U.S. market, then either (x) the Exchange must have in

place a market information sharing agreement with the primary exchange

on which the foreign stock is traded, or (y) the combined U.S. trading

volume of the foreign stock and other related securities\1\ must

represent (on a share equivalent basis with respect to ADRs) at least

50% of the combined worldwide trading volume in the foreign stock and

other related securities over the three month period preceding the date

of selection of the ELNs for listing. Prior to listing ELNs for

trading, the Exchange will distribute a circular providing guidance

regarding member firm compliance responsibilities when handling

transactions in ELNs.

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

\1\Related securities include any ADRs overlying the foreign

stock, other classes of common stock related to the foreign stock,

and any ADRs overlying such other stock.

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

3. Paired Securities

The Exchange is also proposing to add rule 31.5.J. to its rules to

set forth specific listing criteria for ``paired securities.'' Under

proposed rule 31.5.J., the term ``paired securities'' would be defined

as securities which may be transferred and traded only in combination

with one another as a single economic unit. Under the proposed rule,

the issuers of the paired securities would be required to satisfy the

size and earnings criteria set forth in Exchange Rule 31.5.A. on an

aggregate basis. In the event the pairing agreement between the issuers

of the paired securities is terminated, each issuer and each security

would be required to satisfy the Exchange's continuing listing

guidelines on an individual basis in order for the security to remain

listed for trading on the Exchange.

The CBOE 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) of the Act in particular in that it perfects the

mechanism of a free and open market by expanding the types of

securities that may be listed for trading on the Exchange.

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

The CBOE does not believe that the proposed rule change will impose

a 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 CBOE. All

submissions should refer to File No. SR-CBOE-94-04 and should be

submitted by April 28, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\2\

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

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

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

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-8281 Filed 4-6-94; 8:45 am]

BILLING CODE 8010-01-M