Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change by the Chicago Board Options Exchange, Inc., To Change the Method for Determining the Exercise Settlement Value of Options on the Mexican Indice de Precios y Cotizaciones

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-37251; International Series Release No. 987; File No.

SR-CBOE-96-32]

Self-Regulatory Organizations; Notice of Filing and Order

Granting Accelerated Approval of Proposed Rule Change by the Chicago

Board Options Exchange, Inc., To Change the Method for Determining the

Exercise Settlement Value of Options on the Mexican Indice de Precios y

Cotizaciones

May 29, 1996.

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 May 16, 1996, 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 and

II below, which Items have been prepared by the self-regulatory

organization. The CBOE has requested accelerated approval for the

proposal. This order approves the CBOE's proposal on an accelerated

basis and solicits comments from interested persons.

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\1\ 15 U.S.C. 78s(b)(1) (1988).

\2\ 17 CFR 240.19b-4

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

of the Proposed Rule Change

The CBOE is proposing to allow for an alternative method of

determining the settlement value of options on the Mexican Indice de

Precios y Cotizaciones (``IPC'' or ``Index'').\3\

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\3\ The IPC is a broad-based, capitalization-weighted index

comprised of 35 of the largest and most liquid stocks (issued by 28

issuers) on the Mexican Stock Exchange (``Bolsa'').

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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 III 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

1. Purpose

The purpose of the proposed rule change is to amend Exchange Rule

24.9 to provide the Mexican Stock Exchange (``Bolsa'') with the

discretion to utilize either the closing prices of the component

securities or a weighted average of the prices for each of the

component securities in determining the exercise settlement value of

IPC options. Currently, the settlement value of the IPC is determined

based upon the closing prices of the component stocks on the regular

Friday trading sessions in Mexico.\4\

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\4\ See Securities Exchange Act Release No. 37189 (May 9, 1996).

61 FR 24982 (May 17, 1996) (order approving the listing and trading

of options on the IPC).

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If the Bolsa elects to use the weighted average methodology, the

IPC's settlement value will be determined by reference to transactions

in the component securities during a period of time at the end of the

trading day immediately preceding expiration, or in the cases described

below on the Thursday before expiration. The Exchange notes, however,

that if a stock fails to open for trading or if a stock fails to trade

during the time period when its value is determined, the stock's last

available price will be used in the calculation of the IPC. In

addition, when expirations are moved in accordance with Exchange

holidays, such as when the CBOE is closed on the Friday before

expiration, the last trading day for expiring IPC Index options will be

the regular Thursday trading session in Mexico even if the Mexican

markets are open on Friday. Similarly, if the

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Mexican markets are closed on the Friday before expiration and the CBOE

is open for trading, the last trading day for expiring IPC Index

options on the CBOE will be Thursday.

The Exchange notes that if the Bolsa decides to use a weighted

average method to determine the settlement value of IPC options, the

CBOE will issue a press release stating that such a determination has

been made and listing which series will be affected by the new

settlement methodology. The Exchange will also issue a regulatory

circular to its members and member firms informing them of the

specifics of the settlement methodology, as well as which series will

be affected by the new settlement methodology.\5\ In addition to

distributing the regulatory bulletin on the floor of the Exchange, the

Exchange will publish the regulatory circular in its regulatory

bulletin.

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\5\ The Commission notes that such regulatory circular should,

at a minimum, specify the exact time period during which the

weighted average settlement value for expiring IPC options will be

calculated.

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According to the Exchange, the weighted average methodology is less

likely to be manipulated because the settlement value is not determined

by reference to only one transaction in each of the component

securities, but rather is determined by the weighted average of a

series of transactions in each of the component stocks over a period of

time at the end of the trading day. Presently, the Bolsa has not made a

final determination regarding which settlement methodology it will

employ.

2. Statutory Basis

The CBOE believes that the proposal 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 will allow the Exchange to trade IPC options

without interruption if the Bolsa changes its settlement methodology.

In this regard,the CBOE believes that the rule change furthers the

objectives of Section 6(b)(5) of the Act in that it is designed to

promote just and equitable principles of trade, to remove impediments

to and perfect the mechanism of a free and open market and a national

market system, 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

Comments were nether solicited nor received with respect to the

proposed rule change.

III. 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 changes that are filed

with the Commission, and all written communications relating to the

proposed rule changes 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,

NW., Washington, DC 20549. Copies of such filings also will be

available for inspection and copying at the principal office of the

CBOE. All submissions should refer to File No. SR-CBOE-96-32 and should

be submitted by [insert date 21 days from date of publication].

IV. Commission's Findings and Order Granting Accelerated Approval of

Proposed Rule Change

The Commission finds that the proposed rule change is consistent

with the Act and the rules and regulations thereunder applicable to a

national securities exchange, and, in particular, the requirement of

Section 6(b)(5) thereunder. Specifically, the Commission finds that the

CBOE's proposal to change the method for determining the settlement

value of IPC options does not present any new or novel regulatory

issues as the Commission has previously approved settlement

methodologies utilizing average weighted prices.\6\ In addition, by

issuing both a press release and a regulatory circular concerning the

change in settlement methodology for IPC options, which will include

information pertaining to which series will be affected by the new

settlement methodology, investor confusion should be avoided. Lastly,

the Commission believes that the weighted average settlement

methodology may reduce the susceptibility of the Index to manipulation

by diminishing the impact of a single trade on the settlement price.\7\

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\6\ See Securities Exchange Act Release Nos. 32120 (April 9,

1993), 58 FR 19864 (April 16, 1993) (approval order for the

Financial Times-Stock Exchange 100 Index); 37089 (April 9, 1996), 61

FR 16660 (April 16, 1996) (approval order for the Nasdaq-100 Index).

\7\ The Commission notes that if the Bolsa determines to sue a

weighted average settlement methodology, the weighted average will

be commuted from transaction prices over a period of time at the end

of the trading day. The Commission expects, however, that once the

exact time period for calculating the settlement value for IPC

options is established, the CBOE will make conforming changes to its

rules in accordance with Section 19(b) of the Act.

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The Commission finds good cause to approve the proposal prior to

the thirtieth day after the date of publication of notice of filing

thereof in the Federal Register. By accelerating the effectiveness of

the CBOE's rule proposal, the Commission is ensuring that the Exchange

will be able to list index options on the IPC without any interruption

if the Bolsa decides to change the settlement methodology while

continuing to ensure that investors are adequately informed of the

changes in settlement methodology. Accordingly, the Commission believes

that it is consistent with Sections 6(b)(5) and 19(b)(2) of the Act to

approve the proposed rule change on an accelerated basis.

V. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) \8\ of the

Act, that the proposed rule change (File No. SR-CBOE-96-32) is hereby

approved on an accelerated basis.

\8\ 15 U.S.C. 78s(b)(2) (1988).

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For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\9\

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\9\ 17 CFR 200.30-3(a)(12).

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Jonathan G. Katz,

Secretary.

[FR Doc 96-14180 Filed 6-5-96; 8:45 am]

BILLING CODE 8010-01-M