Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by Chicago Board Options Exchange, Inc. Relating to Listing Standards for Options on Securities Issued in Certain Corporate Restructuring Transactions

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35315; File No. SR-CBOE-95-11]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

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

Standards for Options on Securities Issued in Certain Corporate

Restructuring Transactions

February 1, 1995.

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

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

January 26, 1995, the Chicago Board Options Exchange, Inc. (``CBOE'' or

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

(``Commission'' or ``SEC'') 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.

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

of the Proposed Rule Change

The Exchange proposes to incorporate in its rules listing standards

applicable to options on securities issued in certain corporate

restructuring transactions. 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 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

1. Purpose

The Exchange proposes to amend its rules to permit the earlier

listing of options on securities issued by companies in connection with

certain corporate restructuring transactions (``New Securities'').

Currently, certain of the Exchange's rules preclude the listing of

options on any security until that security has been actively traded at

or above a specific price level for a certain period of time. For

example, under Exchange Rule 5.3, Interpretation and Policy .01(b)(1),

trading volume in an underlying security must be at least 2,400,000

shares during the preceding twelve months (the ``Volume Test'').

Further, under Exchange Rule 5.3, Interpretation and Policy .01(b)(2),

the market price for an underlying security must be at least $7.50 for

the majority of business days during the three calendar month period

preceding the date the security is selected as an underlying security

(the ``Price Test'').

The proposed rule change would facilitate the earlier listing of

options on New Securities by permitting the Exchange to determine

whether a New Security satisfies the Volume Test and Price Test by

reference to the trading volume and market price history of an

outstanding equity security (the ``Original Security'') previously

issued by the issuer of the New Security (or an affiliate thereof).

Specifically, if (a) the aggregate market value, assets or revenue

attributable to a New Security is at least a stated percentage of the

same measure attributable to the Original Security and if a stated

minimum value of assets or revenues represented by the New Security, as

applicable, is satisfied or (b) the aggregate market value of the New

Security is not less than $500 million,\1\ then the Exchange would be

permitted to determine whether a New Security satisfies the Volume Test

and Price Test by reference to the trading volume and market price

history of the Original Security. Reference may be made to the trading

volume and market price history of the Original Security only for

trading days occurring prior to the ex-date for the transaction in

which the New Security is issued\2\ and prior to any trading day for

which these tests are determined to be satisfied by reference to the

trading volume and market price history of the New Security. If

reference is made to either the trading volume or market price history

of the Original Security for this purpose for any period of time, then

reference must be made to both such criteria in respect of the Original

Security for that period.

\1\The proposed rule change would apply to a New Security if at

least one of the following conditions is met:

(1) Any one or more of (A) the aggregate market value of the New

Security, (B) the aggregate book value of the assets attributed to

the business represented by the New Security, or (C) the revenues

attributed to the business represented by the New Security are at

least 25% of the same measure determined with respect to the

Original Security or the business represented by the Original

Security, as applicable, calculated in a comparable manner on a

basis that reflects the inclusion of the business represented by the

New Security, provided that in the case of the qualification of a

New Security under clause (B), the aggregate book value of the

assets attributed to the business represented by the New Security is

not less than $50 million, and in the case of the qualification of a

New Security under clause (C), the revenues attributed to the

business represented by the New Security are not less than $50

million;

(2) Any one or more of (A) the aggregate market value of the New

Security, (B) the aggregate book value of the assets attributed to

the business represented by the New Security, or (C) the revenues

attributed to the business represented by the New Security are at

least 33\1/3\% of the same measure determined with respect to the

Original Security or the business represented by the Original

Security, as applicable, calculated in a comparable manner on a

basis that reflects the exclusion of the business represented by the

New Security, provided that in the case of the qualification of a

New Security under clause (B), the aggregate book value of the

assets attributed to the business represented by the New Security is

not less than $50 million, and in the case of the qualification of a

New Security under clause (C), the revenues attributed to the

business represented by the New Security are not less than $50

million; or

(3) The aggregate market value represented by the New Security

is at least five hundred million dollars ($500,000,000).

\2\Under the proposed rule change, options contracts may not

initially be listed for trading in respect of a New Security until

such time as shares of the New Security are issued and outstanding

and are the subject of trading that is not on a ``when issued''

basis or in any other way contingent on the issuance or distribution

of the shares.

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In addition, if the New Security is to be listed on an exchange or

in an automatic quotation system that has an initial listing

requirement equivalent to [[Page 7599]] the requirement of paragraph

(a)(2) of Interpretation and Policy.01 under Exchange Rule 5.3 (number

of shareholders must be at least 2,000), that requirement would be

deemed to be satisfied. Finally, if at least 40 million shares of a New

Security will be outstanding in a restructuring, the Exchange may

assume that the New Security will satisfy the listing criteria of both

paragraphs (a)(1) (sufficient public float) and (a)(2) of

Interpretation and Policy .01 under Exchange Rule 5.3. Before relying

on either of the assumptions described above, the Exchange must make a

reasonable investigation as to the number of shareholders and public

float of the New Security and must not have determined that the

requirements of paragraphs (a)(1) and (a)(2) will, in fact, not be

satisfied.

The proposed rule change also would revise one of the Exchange's

guidelines relating to the withdrawal of approval of underlying

securities. Currently, under Exchange Rule 5.4, Interpretation and

Policy .01(c) and .01(d), an underlying security will not be deemed to

satisfy the Exchange's listing criteria if the trading volume of the

underlying security in all markets was less than 1,800,000 shares in

the preceding twelve months (the ``Maintenance Volume Test'') or if the

market price of the underlying security closed below $5 on a majority

of business days during the preceding six months (the ``Market Price

Test''). Because New Securities have limited trading history, they may

be unable to satisfy the Maintenance Volume Test or the Market Price

Test at the time options on such securities are first listed for

trading on the Exchange. Accordingly, the proposed rule change would

add a new Interpretation and Policy .01(g) to Exchange Rule 5.4 to

provide that the Exchange may determine whether a New Security

satisfies the Maintenance Volume and Market Price Test set forth in

paragraphs (c) and (d) of that Interpretation, as well as the

comparable tests set forth in Interpretation and Policy .04 of Exchange

Rule 5.4, by reference to the trading volume and price history of the

Original Security prior to commencement of trading in the New Security,

including ``when issued'' trading.

2. Statutory Basis

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, by removing impediments to a free and open market in

options covering securities issued by companies engaged in corporate

restructuring transactions.

B. Self-Regulatory Organization's Statement on Burden on Competition

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

any burden on competition.

B. 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 publication of this notice in the Federal

Register or within such other 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 the 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, 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. Sec. 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-95-11 and should be

submitted by March 1, 1995.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95-3109 Filed 2-7-95; 8:45 am]

BILLING CODE 8010-01-M