Skip to Content

Notice

Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Chicago Board Options Exchange, Incorporated To Clarify Certain Provisions in Its Rules Relating to the Trading of Options on Securities That Represent an Interest in Registered Investment Companies

Document Details

Information about this document as published in the Federal Register.

Published Document

This document has been published in the Federal Register. Use the PDF linked in the document sidebar for the official electronic format.

Start Preamble April 3, 2001.

Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) [1] and Rule 19b-4 [2] thereunder, notice is hereby given that on March 16, 2001, the Chicago Board Options Exchange, Incorporated (“CBOE” or “Exchange”) file 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 Exchange. CBOE filed the proposal as a “non-controversial” rule change under Rule 19b-4(f)(6) [3] under the Act. 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

CBOE hereby proposes to clarify certain provisions in its rules relating to the trading of options on securities that represent an interest in registered investment companies, including margin requirements and strike price intervals.

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, 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. CBOE has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements.Start Printed Page 18677

A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

1. Purpose

On July 2, 1998, the Commission approved a CBOE rule change relating to the listing and trading of options on securities that represent an interest in listed, open-end, registered investment companies that hold securities comprising or based on broad-based indexes or portfolios of securities.[4] On August 3, 2000, the Commission approved a CBOE rule change proposing to allow for the trading of options on securities that represent interests in registered investment companies based on narrow-based indexes or portfolios of securities.[5] The Exchange is now proposing to clarify certain rules relating to the trading of these products (“Fund Shares”).[6] More specifically, the Exchange is proposing to make clear in its rules (1) the margin requirements applicable to options on Fund Shares and (2) strike price intervals applicable to trading in certain Fund Shares.

In SR-CBOE-97-03, the Commission approved margin requirements for options on Fund Shares at the same levels that apply to options generally under CBOE Rule 12.3, except that margin must be deposited and maintained equal to 100% of the current market value of the option plus 15% of the market value of equivalent units of the underlying security value.[7] Because that filing only contemplated options on Fund Shares based on broad-based indexes, it had the effect of making these margin requirements comparable to margin requirements for broad-based index options traded under CBOE Chapter 24. However, as a result of a CBOE rule filing making broad revisions to Rule 12.3 governing margin requirements that was filed after SR-CBOE-97-03 but approved before SR CBOL-97-03, [8] the margin provisions adopted in SR-CBOE-97-03 were mistakenly never incorporated into the text of CBOE Rule 12.3 despite the fact that they were approved.

The Exchange now merely seeks to incorporate into CBOE Rule 12.3 the omitted language previously approved in SR-CBOE-97-03. The Exchange also proposes to formalize margin requirements for options on Fund Shares based on narrow-based indexes or portfolios of securities. As with broad-based Fund Share options, these narrow-based Fund Share options would be comparable to their index option equivalent. Accordingly, the Exchange proposes to amend CBOE Rule 12.3 to provide that, for options on Fund Shares based on narrow-based indexes or portfolios of securities, minimum margin must be deposited and maintained equal to 100% of the current market value of the option plus 20% of the market value of equivalent units of the underlying security value.[9] The Exchange notes that these proposed changes are consistent with the American Stock Exchange's (“Amex”) margin requirements for Fund Shares set forth in Amex Rule 462.

The CBOE is also proposing to clarify in CBOE Rule 5.5 that the intervals for strike prices of series of options on Fund Shares based on the Nasdaq-100 Index shall be $1.00. The Exchange notes that the Amex, Philadelphia Stock Exchange, and International Securities Exchange trade such options with $1.00 strike intervals.[10]

2. Statutory Basis

CBOE believes that the proposed rule change is consistent with the requirements of section 6(b)(5) Act.[11] Section 6(b)(5) requires, among other things, that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices; to promote just and equitable principles of trade; to facilitate transactions in securities; to remove impediments to and perfect the mechanisms of a free and open market and a national market system; and, in general, to protect investors and the public interest.

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

CBOE does not believe that the proposed rule change will impose a burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.

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

Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed (or such shorter time as the Commission may designate) it has become effective pursuant to section 19(b)(3)(A) of the Act [12] and Rule 19b-4(f)(6) [13] thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in the furtherance of the purposes of the Act.[14]

CBOE has requested that the Commission waive the 30-day pre-operative period because the CBOE believes that the proposed rule change does not significantly affect the protection of investors or the public interest or impose any significant burden on competition. The Commission agrees with the CBOE and believes that it is consistent with the protection of investors and the public interest that the proposed rule change become effective immediately. Accordingly, the commission finds good cause to waive the 30-day operative waiting period and to designate that the proposal become operative immediately.[15]

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Persons making written submissions should file six copies thereof with the Start Printed Page 18678Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 Room. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All submissions should refer to File No. SR-CBOE-01-11 and should be submitted by May 1, 2001.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[16]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

4.  See Securities Exchange Act Release No. 40166 (July 2, 1998) 63 FR 37430 (July 10, 1998) (File No. SR-CBOE-97-03).

Back to Citation

5.  See Securities Exchange Act Release No. 43114 (August 3, 2000) 65 FR 49041 (August 10, 2000) (File No. SR-CBOE-00-31).

Back to Citation

6.  There are several Fund Share structures that can be listed and traded on CBOE, including Index Portfolio Receipts and Index Portfolio Shares.

Back to Citation

7.  The margin requirement is subject to CBOE Rule 12.3(c)(5).

Back to Citation

8.  See Securities Exchange Act Release No. 36709 (June 2, 1997), 62 FR 31643 (June 10, 1997) (File No. SR-CBOE-97-17)

Back to Citation

9.  The margin requirement is subject to CBOE Rule 12.3(c)(5).

Back to Citation

10.  See Securities Exchange Act Release No. 40157 (July 1, 1998), 63 FR 37426 (July 10, 1998); Securities Exchange Act Release No. 44037 (March 2, 2001), 66 FR 14613 (March 13, 2001); and Securities Exchange Act Release No. 44055 (March 8, 2001), 66 FR 15310 (March 16, 2001).

Back to Citation

14.  Upon request from the CBOE, the Commission has waived the requirement that the Exchange provide written notice of its intent to file the proposed rule change at least five business days prior to the date of filing. 17 CFR 240.19b-4(f)(6)(iii).

Back to Citation

15.  For purposes only of accelerating the operative date of this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f).

Back to Citation

[FR Doc. 01-8770 Filed 4-9-01; 8:45 am]

BILLING CODE 8010-01-M