Federal Register / Vol. 65, No. 108 / Monday, June 5, 2000 / Notices 35679

1 17 CFR 240.9b–1.

2The Commission previously reviewed OM

London’s ODD and found that its complied with

Rule 9b–1 under the Act. See Securities Exchange

Act Release No. 39080 (September 15, 1997), 62 FR

49553 (September 22, 1997) (order approving File

No. SR–ODD–97–1).

3This provision is intended to permit the

Commission either to accelerate or extend the time

period in which definitive copies of a disclosure

document may be distributed to the public.

4Rule 9b–1 provides that the use of an ODD shall

not be permitted unless the option class to which

the document relates is the subject of an effective

registration statement on Form S–20 under the

Securities Act of 1933. On September 12, 1997, the

Commission, pursuant to delegated authority,

declared effective OM London’s revised Form S–20

registration statement. See File No. 333–34519.

5 17 CFR 240.9b–1.

6 17 CFR 200.30–3(a)(39)(i).

6 17 CFR 200.30–3(a)(39(i)

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

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42832; File No. SR–ODD–

00–02]

Self-Regulatory Organizations; OM

London Exchange Limited; Order

Approving Proposed Amendment to

Options Disclosure Document

May 25, 2000.

On May 25, 2000, the OM London

Exchange Limited (‘‘OM London’’)

submitted to the Securities and

Exchange Commission (‘‘Commission’’

or ‘‘SEC’’), pursuant to Rule 9b–1 under

the Securities Exchange Act of 1934

(‘‘Act’’) 1 five definitive copies of OM

London’s options disclosure document

(‘‘ODD’’), which OM London has

revised to reflect the introduction of

OMXcap Index options.2

OM London’s ODD currently contains

general disclosures concerning the

characteristics and risks of trading

equity and index options on OM

London. Prior to May 26, 2000, OM

London listed options on Swedish

equity securities and on the OMX Index.

On May 26, 2000, OM London will also

list options on the OMXcap Index, a

modified capital-weighted index

designed to reflect the development of

the Swedish stock market. OM London

has revised its ODD to accommodate the

introduction of OMXcap Index options.

OM London’s revised ODD also

includes disclosures concerning certain

restrictions on the trading of OMX Index

options after May 26, 2000.

The Commission has reviewed OM

London’s revised ODD and finds that it

complies with Rule 9b–1 under the Act.

OM London’s revised ODD provides

information regarding OMXcap Index

options sufficient to describe the special

characteristics of OMXcap Index

options.

Rule 9b–1 provides that an options

market must file five preliminary copies

of an amended ODD with the

Commission at least 30 days prior to the

date definitive copies of the ODD are

furnished to customers, unless the

Commission determines otherwise,

having due regard for the adequacy of

information disclosed and the

protection of investors.3 The

Commission has reviewed OM London’s

revised ODD and finds that it is

consistent with the protection of

investors and in the public interest to

allow the distribution of OM London’s

revised ODD as of the date of this

order.4

It is Therefore Ordered, pursuant to

Rule 9b–1 under the Act,5 that OM

London’s ODD as amended to reflect the

listing of OMXcap index options (File

NO. SR–ODD–00–02) is approved on an

accelerated basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–13960 Filed 6–2–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42833; File No. SR–CBOE–

00–11]

Self Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the Chicago Board

Options Exchange, Inc. Relating to the

Listing and Trading of Index Portfolio

Shares

May 26, 2000.

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 March 29,

2000, 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 and II below, which Items

have been prepared by the Exchange.

The Commission is publishing this

notice to solicit comments on the

proposed rule change from interested

persons and to approve the proposal on

an accelerated basis.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to adopt

listing standards to list and trade Index

Portfolio Shares (‘‘IPS’’), securities

issued by an open-end management

investment company that seek to

provide investment results similar to the

price and yield performance of its

underlying index. Once these listing

standards have been approved, the

Exchange intends to trade IPSs of a

Fund based on the S&P 100 Index.

Below is the text of the proposed rule

change. New language is italicized and

deletions are bracketed.

* * * * *

Chicago Board Options Exchange,

Incorporated Rules

Rule 1.1

* * * * *

. . . Interpretations and Policies:

* * * * *

.03 the term ‘‘Index Portfolio

Shares’’ or IPSs means securities that (a)

are issued by an open-end management

investment company based on a

portfolio of stocks designed to provide

investment results that correspond

generally to the price and yield

performance of a specified foreign or

domestic stock index; (b) are issued by

such an open-end management

investment company in a specified

aggregate minimum number in return

for a deposit of specified number of

shares of stock and/or a cash amount

with a value equal to the next

determined net asset value; and (c)

when aggregated in the same specified

minimum number, may be redeemed at

a holder’s request by such open-end

management investment company

which will pay to the redeeming holder

stock and/or cash with a value equal to

the next determined net asset value.

* * * * *

Rule 30.10 The unit of trading in

stocks, [and] the unit of trading in IPRs

and the unit of trading in IPSs shall be

100 shares or units, except as otherwise

established [in either case] by the

Exchange. The unit of trading in all

other securities traded subject to the

rules in this Chapter shall be as

determined by the Board of Directors.

* * * * *

Rule 30.33

* * * * *

. . . Interpretations and Policies:

.01 The minimum fractional change

for IPRs and IPSs shall be 1/64 of $1.00.

* * * * *

Rule 30.36 Rule 24.7 shall apply to

the trading of stock index warrants, IPSs

and IPRs. The term ‘‘option’’ as used

therein shall be deemed for the

purposes of this Rule to include a stock

index warrant, IPSs or IPRs, as the case

may be.

* * * * *

35680 Federal Register / Vol. 65, No. 108 / Monday, June 5, 2000 / Notices

3See Securities Exchange Act Release No. 36947

(March 8, 1996), 61 FR 10606 (March 14, 1996).

4See Securities Exchange Act Release No. 39581

(January 26, 1998), 63 FR 5579 (February 3, 1998).

5At the time, the CBOE has no plans to list series

of IPSs for indices other than that described in the

present rule filing. Telephone conversation between

Kevin An, Attorney, Schiff, Hardin & Waite, and

Heather Traeger, Attorney, Division of Market

Regulation (‘‘Division’’), Commission; Susie Cho,

Attorney, Division, Commission, on April 25, 2000.

6The Commission notes that if in the future the

number of shares per Creation Unit of an S&P 100

series were to be changed, or the value of a Creation

Unit were to fall significantly, such a change could

require the filing of a proposed rule change by the

Rule 30.55

(b) The disclaimers found under Rule

24.14 shall apply to any Reporting

Authority with respect to any index or

portfolio underlying a series of IPRs,

IPSs, index warrants or any other indexrelated security governed by the rules of

Chapter XXX. The terms ‘‘option’’ and

‘‘option contract’’ as used in Rule 24.14

shall be deemed for the purpose of this

rule to include IPRs, IPSs, index

warrants or other index-related security

governed by the rules of Chapter XXX,

as the case may be.

* * * * *

Special Provisions for IPSs

Rule 30.56 

Designation of an index or portfolio.

The Exchange may list and trade Index

Portfolio Shares (as defined in

Interpretations and Policies .03

following rule 1.1) based on one or more

foreign or domestic stock indexes or

securities portfolios. Each issue of Index

Portfolio Shares based on each

particular stock index or portfolio shall

be designated as a separate series and

shall be identified by a unique symbol.

The stocks that are included in an index

or portfolio on which a series of Index

Portfolio Shares is based shall be

selected by the Exchange or its agent or

by such other person as shall have

authorized use of such index or

portfolio. Such index or portfolio may

be revised from time to time as may be

deemed necessary or appropriate to

maintain the quality and character of

the index or portfolio.

* * * * *

Rule 31.5

* * * * *

M. IPSs. Notwithstanding any other

provisions in these Rules to the

contrary, a series of IPSs representing

interests in a particular open-end

management investment company (as

those terms are defined in

Interpretations and Policies .03

following Rule 1.1) may be listed on the

Exchange subject to the criteria set forth

below: 

(a) Public Distribution—For each

open-end management investment

company, the Exchange will establish a

minimum number of IPSs required to be

outstanding at the time of

commencement of trading on the

Exchange.

(b) Voting—Voting rights shall be as

set forth in the applicable open-end

management investment company

prospectus. ]

* * * * *

Rule 31.94

* * * * *

H. Policies Regarding IPSs.

Twelve months following the

commencement of trading on the

Exchange of a series of Index Portfolio

Shares, the Exchange will consider the

suspension of trading in, or removal

from listing of, such series of IPSs, when

in its opinion further dealing in such

securities appears unwarranted under

any of the following circumstances: 

(a) there are fewer than 50 beneficial

holders of the series of Index Portfolio

Shares for 30 or more consecutive

trading days; or 

(b) the value of the index or portfolio

of securities on which the series of Index

Portfolio Shares is based is no longer

calculated or available; or 

(c) such other event shall occur or

condition exists which in the opinion of

the Exchange, makes further dealings on

the Exchange Inadvisable. 

Upon termination of an open-end

management investment company, the

Exchange requires that Index Portfolio

Shares issued in connection with such

entity be removed from Exchange

listing.

* * * * *

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 Exchange 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 adopt new

Interpretation .03 to CBOE Rule 1.1,

new CBOE Rule 30.56, new paragraph

M to CBOE Rule 31.5, and new

paragraph H to CBOE Rule 31.94; and to

amend CBOE Rule 30.10, Interpretation

.01 to CBOE Rule 30.33, CBOE Rule

30.36, and CBOE Rule 30.55, to permit

the listing and trading of IPSs, i.e.,

securities issued by an open-end

management investment company that

seeks to provide investment results

similar to the price and yield

performance of its underlying index.

The Exchange believes that IPSs would

provide investors with increased

flexibility in meeting their investment

needs.

a. Index Portfolio Shares. IPSs will be

issued by an entity registered with the

Commission under the Investment

Company Act of 1940, as amended, as

an open-end management investment

company, commonly known as a mutual

fund (‘‘Fund’’). A Fund may be

organized as a series fund providing for

the creation of separate series of

securities, each with a portfolio

consisting of some or all of the

component securities of a specified

securities index. The Exchange

represents that IPSs are essentially the

same as Index Fund Shares, securities

that have traded on the American Stock

Exchange LLC (‘‘Amex’’) since the

Commission approved Amex Rules

1000A et seq. in March 1996,3 The

CBOE also states that IPSs are similar to

CBOE’s Index Portfolio Receipts

(‘‘IPRs’’), which are securities issued by

a unit investment trust rather than a

Fund. The Commission approved

standards for the listing and trading of

IPRs in 1998.4

The CBOE intends to list and trade

IPSs of a Fund (to be managed by

Barclays Global Fund Advisors) that

will seek to provide investment results

that correspond generally to the price

and yield performance of the S&P 100

Index.5 The CBOE states that this index

represents the large capitalization

growth sector of the U.S. market and

accounts for approximately 38% of the

market capitalization of all U.S. equity

securities. The CBOE represents that the

index consists of 100 stocks that are

some of the largest companies in the

U.S. equity market and that size,

liquidity, and sector representations are

the primary determinants in choosing

index constituents.

b. Issuance and Redemption.

Issuances of IPSs by a Fund will be

made only in minimum size

aggregations or multiples thereof

(‘‘Creation Units’’). The size of the

applicable Creation Unit will be set

forth in the Fund’s prospectus, and will

vary from one series of IPSs to another,

but generally will be substantial (e.g., at

least 50,000 shares).6 It is expected that

Federal Register / Vol. 65, No. 108 / Monday, June 5, 2000 / Notices 35681

Exchange pursuant to Section 19(b) of the Act.

Telephone conversation between Kevin An,

Attorney, Schiff, Hardin & Waite, and Heather

Traeger, Attorney, Division, Commission, on April

25, 2000.

7See Securities Exchange Act Release No. 39581

(January 26, 1998), 63 FR 5579 (February 3, 1998)

(noting that CBOE surveillance procedures for the

trading of IPRs, which incorporate and rely upon

existing CBOE surveillance procedures governing

equities, were adequate under the Act).

8 15 U.S.C. 78f(b).

9 15 U.S.C. 78f(b)(5).

a Fund will issue and sell IPSs through

a principal underwriter on a continuous

basis at the net asset value (‘‘NAV’’) per

share next determined after an order to

purchase IPSs in Creation Unit size

aggregations is received in proper form.

The Exchange expects that Creation

Unit size aggregations of IPSs generally

will be issued in exchange for the ‘‘in

kind’’ deposit of a specified portfolio of

securities, together with a specified

amount of cash. The Exchange

anticipates that such deposits will be

made primarily by institutional

investors, arbitrageurs, and market

maker members of the Exchange.

Similarly, redemption of IPSs generally

will be made ‘‘in kind,’’ with a portfolio

of securities and/or cash exchanged for

IPSs that have been tendered for

redemption.

c. Trading of IPSs. Following

issuance, IPSs will be trade on the

Exchange like other equity securities,

and CBOE equity trading rules generally

would apply to the trading of IPSs. IPSs

will be registered in book entry form

through The Depository Trust Company

(‘‘DTC’’), which means no stock

certificates will be issued. The Exchange

represents that the trading prices of IPSs

on the Exchange may differ in varying

degrees from their daily NAVs and can

be affected by market forces such as

supply and demand, economic

conditions and other factors. Trading in

IPSs on the Exchange may be effected

until 3:15 p.m. (central time) each

business day. The unit of trading of IPSs

will be 100 shares or units and the

minimum fractional change in IPSs will

be 1⁄64 of $1.00.

d. Distributions. A Fund may make

periodic distributions of dividends from

net investment income, if any. A Fund

also distribute its capital gains, if any,

to investors annually.

e. Criteria for Initial and Continued

Listing. The Exchange believes that the

proposed standards for listing and

delisting of IPSs allow some flexibility

for the Exchange. The Exchange will

establish a minimum number of IPSs

required to be outstanding at the time of

commencement of trading on the

Exchange. The Exchange anticipates

that a minimum of two Creation Units

in any series of IPSs would be required

to be outstanding before trading could

begin. Each series of IPSs will be subject

to the initial and continued listing

criteria of new proposed CBOE Rules

31.5M and 31.94H.

CBOE Rule 31.94H provides that

twelve months after the commencement

of Exchange trading of a series of IPSs,

the Exchange will consider suspension

of trading in, or removal from listing of,

such series under any of the following

circumstances:

(a) There are fewer than 50 beneficial

holders of the series of IPSs for 30 or

more consecutive trading days;

(b) The value of the index or portfolio

of securities on which the series of IPSs

is based is no longer calculated or

available; or

(c) Such other event shall occur or

condition exists which, in the opinion

of the Exchange, makes further dealings

on the Exchange inadvisable.

The Exchange will also require that

IPSs be removed from listing upon

termination of the Fund that issued

such shares.

f. Disclosure. With respect to investor

disclosure, the Exchange notes that,

pursuant to the requirements of the

Securities Act of 1933, as amended, all

investors in IPSs will receive a

prospectus, including investors

purchasing in secondary market

transactions on the Exchange. This is

due to the fact that the Creation Units

will be in continuous distribution.

Prior to commencement of trading of

a series of IPSs, the Exchange will

distribute to Exchange members an

Information Circular calling attention to

characteristics of the specific series and

to applicable Exchange rules. That

circular will inform members of their

responsibilities with respect to

transactions in such IPSs. The circular

will inform member organizations of

their responsibility to deliver a

prospectus to all investors purchasing

IPSs. The circular will also note that

IPSs are not individually redeemable;

they may be redeemed in Creation Units

only.

g. Trading Halts. Prior to

commencement of trading in IPSs, the

Exchange will issue a circular to

members informing them of Exchange

policies regarding trading halts in IPSs.

The circular will make clear that, in

addition to other factors that may be

relevant, the Exchange may consider

factors such as those set forth in CBOE

Rule 24.7 in exercising its discretion to

halt or suspend trading. These factors

would include: (1) Whether trading has

been halted or suspended in the primary

market(s) for any combination of

underlying stocks accounting for 20% or

more of the applicable current index

group value; or (2) whether other

unusual conditions or circumstances

detrimental to the maintenance of a fair

and orderly market are present. Also,

trading in IPSs would be halted (along

with the trading of other securities on

the Exchange) if the circuit breaker

parameters under CBOE Rule 6.3B are

reached.

h. Surveillance. The Exchange will

use the surveillance procedures that it

has been using for the trading of other

non-option securities traded on the

Exchange.7 These procedures

incorporate and rely upon existing

CBOE surveillance procedures

governing equities.

2. Statutory Basis

The Exchange believes that the

proposed rule change is consistent with

Section 6 of the Act 8 in general, and in

particular, with section 6(b)(5),9 in that

it is designed to promote just and

equitable principles of trade, remove

impediments to and perfect the

mechanism of a free and open market

and a national market system, and

protect investors and the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any inappropriate burden on

competition. The CBOE believes that the

proposed rule change will enhance

competition for the listing and trading

of IPSs and similar securities that are

currently listed and traded on the

Amex.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

The Exchange did not receive any

written comments on the proposed rule

change.

III. 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

Secretary, 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

35682 Federal Register / Vol. 65, No. 108 / Monday, June 5, 2000 / Notices

10 15 U.S.C. 78f.

11 15 U.S.C. 78f(b)(5).

12 15 U.S.C. 78(f)(b).

13See supra, note 4.

14See Securities Exchange Act Release No. 39581

(January 26, 1998), 63 FR 5579 (February 3, 1998).

15 In approving this rule, the Commission notes

that it has also considered the proposed rule’s

impact on efficiency, competition, and capital

formation. 15 U.S.C. 78c(f).

16Telephone conversation between Kevin An,

Attorney, Schiff, Hardin & Waite, and Heather

Traeger, Attorney, Division, Commission; Susie

Cho, Attorney, Division, Commission, on May 22,

2000.

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 at

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–00–11 and should be

submitted by June 26, 2000.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

After careful review, the Commission

finds, for the reasons set forth below,

that the proposed rule change is

consistent with the requirements of

section 6 of the Act 10 and the rules and

regulations thereunder applicable to a

national securities exchange, and in

particular, the requirements of section

6(b)(5) of the Act.11 Specifically, the

Commission finds that the proposed

standards governing the listing and

trading of IPSs, and, in particular, the

IPSs Fund on the S&P 100 Index, will

provide investors with a convenient and

less expensive way of participating in

the securities markets. The proposal

should advance the public interest by

providing investors with increased

flexibility in satisfying their investment

needs by allowing them to purchase and

sell a single security replicating or to a

large extent representing the

performance of several portfolios of

stocks at negotiated prices throughout

the business day. Accordingly, the

Commission finds that the Exchange’s

proposal will promote just and equitable

principles of trade, foster cooperation

and coordination with persons engaged

in regulating, clearing, settling,

processing information with respect to,

and facilitating transactions in

securities, and, in general, protect

investors and the public interest

consistent with section 6(b)(5) of the

Act.12

On January 26, 1998, the Commission

approved the listing and trading on the

CBOE of IPRs, securities issued by a

unit investment trust that seek to

provide investment results that

correspond generally to the price and

yield performance of a specified

index.13 The proposed IPSs are similar

to IPRs except that IPSs are issued by a

Fund instead of a unit investment trust.

The Commission believes that the

proposal to list and trade IPSs, and

specifically the Fund based on the S&P

100 Index, will provide investors with

an alternative to trading a broad range

of securities on an individual basis, and

will give investors the ability to trade a

product representing an interest in a

portfolio of securities designed to reflect

substantially the applicable underlying

index. IPSs will allow investors to: (1)

Respond quickly to market changes

through intra-day trading opportunities;

(2) engage in hedging strategies similar

to those used by institutional investors;

and, (3) reduce transactions costs for

trading a portfolio of securities.

Although IPSs are not leveraged

instruments, and therefore do not

possess any of the attributes of stock

index options, their prices will be

derived and based on the value of the

securities and the cash held in the

Fund. Accordingly, the level of risk

involved in the purchase or sale of these

IPSs is similar to the risk involved in

the purchase or sale of traditional

common stock, with the exception that

the pricing mechanism for these IPSs is

based on a portfolio of securities.

The Commission finds that the

CBOE’s proposal contains adequate

rules and procedures to govern the

trading of IPSs. Under CBOE rules, IPSs

are subject to the full panoply of rules

governing the trading of equity

securities on the CBOE, including,

among others, rules and procedures

governing the priority, parity and

precedence of orders, responsibilities of

all types of market-makers, trading

halts, disclosures to members, margin

requirements, and customer suitability

requirements. Further, the Commission

notes that the CBOE will use

surveillance procedures that incorporate

and rely upon existing CBOE

surveillance procedures governing

equities, and the Commission has found

in the past that these procedures are

adequate under the Act.14 In addition,

the rules we are approving today

contain specific listing and delisting

criteria for IPSs that will help to ensure

that the markets for IPSs will be deep

and liquid to allow for the maintenance

of fair and orderly markets. The

Commission believes that these criteria

should serve to ensure that the

underlying securities of an IPSs series

are well capitalized and actively traded,

and that new series of IPSs do not

contain features that are likely to impact

adversely the U.S. securities markets.

In addition, the Exchange has

designated that a minimum of two

creation units, approximately 100,000

shares, will be required to be

outstanding at start-up of trading. The

Commission believes this minimum

number is sufficient to help to ensure

that a minimum level of liquidity will

exist at the start of trading. Furthermore,

the Commission finds that registering

the IPSs in book-entry form through

DTC, managing the distribution of

dividends from net investment income,

if any, and distributing capital gains, if

any, are characteristics of IPSs that are

consistent with the Act and should

allow for the maintenance of fair and

orderly markets and perfect the

mechanism of a free and open market

pursuant to section 6(b)(5) of the Act.15

Furthermore, the Commission

believes that the Exchange’s proposal to

trade IPSs in minimum fractional

increments of 1⁄64 of $1.00 is consistent

with the Act. The Commission believes

that such trading should enhance

market liquidity, and should promote

more accurate pricing, tighter

quotations, and reduced price

fluctuations. The Commission also

believes that such trading should allow

customers to receive the best possible

execution of their transactions in IPSs.

The Exchange represents that the

Reporting Authority will disseminate

for each Fund of IPSs an estimate,

updated every 15 seconds, of the value

of a share of each Fund. The

Commission believes that the

information the Exchange proposes to

have disseminated will provide

investors with timely and useful

information concerning the value of

each Fund.16

The Commission also believes that the

CBOE has developed adequate policies

regarding trading halts in IPSs.

Specifically, the Exchange would halt

trading in IPSs if the circuit breaker

parameters under CBOE Rule 6.3B were

reached. In addition, in deciding

whether to halt trading or conduct a

delayed opening in IPSs, the CBOE

could consider factors such as those set

forth in CBOE Rule 24.7, including: (1)

Whether trading has been halted or

suspended in the primary market(s) for

any combination of underlying stocks

accounting for 20% or more the

applicable current index group value; or

(2) whether other unusual conditions or

circumstances detrimental to the

Federal Register / Vol. 65, No. 108 / Monday, June 5, 2000 / Notices 35683

17Telephone conversation between Kevin An,

Attorney, Schiff, Hardin & Waite, and Heather

Traeger, Attorney, Division, Commission; Susie

Cho, Attorney, Division, Commission, on May 22,

2000.

18See supra notes 3 and 4.

19 15 U.S.C. 78s(b)

20 15 U.S.C. 78s(b)(2).

21 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 41609

(July 8, 1999), 64 FR 38494.

4See Section III below for a description of the

comment letters.

5The substantive modifications made by these

amendments are incorporated in the description of

the proposal in Section II below, and are further

discussed in Section IV.

6Under the CBOE’s rules, facilitation orders may

be provided only to cross the orders of public

customers. See CBOE Rule 6.74(b). This same

stipulation is retained under the proposed rule

change.

7 In the case where the floor broker is proposing

to cross two customer orders, the crowd may take

all or part of either customer order. In the case

where the floor broker is seeking to effect a

facilitation cross, the crowd may take all or part of

the customer order.

maintenance of a fair and orderly

market are present.

In addition, the Commission believes

that the IPSs proposal contains several

provisions that will ensure that

investors are adequately apprised of the

terms, characteristics, and risks of

trading IPSs. All investors in IPSs will

receive a prospectus prior to or

concurrently with the confirmation of a

transaction therein, including investors

purchasing in secondary market

transactions on the Exchange. The

prospectus should address the special

terms and characteristics of the

particular IPSs Fund, including a

statement regarding their redeemability

and method of creation, and a statement

that the trading prices of IPSs on the

Exchange may differ in varying degrees

from their daily NAVs and can be

affected by market forces such as supply

and demand, economic conditions, and

other factors.17

Furthermore, the Commission notes

that prior to the commencement of

trading of a series of IPSs, the Exchange

will distribute to Exchange members an

Information Circular calling attention to

characteristics of the specific Fund and

to applicable Exchange rules, such as

trading halt rules. The circular will

inform members of their responsibilities

with respect to transactions in such IPSs

and of their responsibility to deliver a

prospectus to all investors purchasing

IPSs. The circular will also note that

IPSs are not individually redeemable,

but must be redeemed in Creation Units

only.

The Commission is approving in

general the CBOE’s proposed listing

standards for IPSs, and, specifically, the

listing of IPSs of a Fund based on the

S&P 100. The Commission specifically

notes that, notwithstanding approval of

the listing standards for IPSs, other

similarly structured products, including

IPSs based on other indices, will require

review by the Commission prior to

being traded on the Exchange.

Additional series cannot be listed prior

to contacting Division staff. In addition,

the CBOE may be required to submit a

rule filing prior to trading a new issue

or series on the Exchange.

The Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice thereof in the

Federal Register. The Commission notes

that the proposed rule change is based

on Amex Rule 1000A et seq. and is

similar to CBOE rules relating to IPRs,

both of which the Commission

approved in the past.18 The Commission

also observes that the proposed rule

change concerns issues that previously

have been the subject of a full comment

period pursuant to section 19(b) of the

Act.19 The Commission does not believe

that the proposed rule change raises

novel regulatory issues that were not

addressed in the previous filings. In

view of these factors, the Commission

believes it is appropriate to permit

investors to benefit from the flexibility

afforded by these new instruments by

trading them as soon as possible.

Accordingly, the Commission finds that

there is good cause, consistent with

section 6(b)(5) of the Act, to approve the

proposal today.

V. Conclusion

It is Therefore Ordered, pursuant to

section 19(b)(2) of the Act,20 that the

proposed rule change (SR–CBOE–00–

11) is hereby approved on an

accelerated basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.21

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–13954 Filed 6–2–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42835; File No. SR–CBOE–

99–10]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change and

Notice of Filing and Order Granting

Accelerated Approval to Amendment

Nos. 1, 2, and 3 to the Proposed Rule

Change by the Chicago Board Options

Exchange, Inc., Relating to

Participation Rights for Firms Crossing

Orders.

May 26, 2000.

I. Introduction

On March 18, 1999, the Chicago

Board Options Exchange, Inc. (‘‘CBOE’’

or ‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’), pursuant to section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 1 and Rule 19b–4

thereunder,2 a proposed rule change to

amend its rule governing the crossing of

equity option orders by floor brokers, to

give the member firm from which an

order originates (‘‘originating firm’’ a

participation right in trades that are

proposed to be crossed in certain

circumstances. Notice of the proposed

rule change was published for comment

in the FEDERAL REGISTER on July 16,

1999.3 The Commission received four

comment letters regarding the

proposal.4 On October 4, 1999, April 11,

2000, and May 25, 2000, the CBOE filed

Amendment Nos. 1, 2, and 3,

respectively, to the proposal.5 This

order approves the proposed rule

change, accelerates approval of

Amendment Nos. 1, 2, and 3, and

solicits comments from interested

persons on those amendments.

II. Description of the Proposal

CBOE Rule 6.74 sets forth the

procedures by which a floor broker

holding a customer order (‘‘original

order’’) may cross it with either: (i)

Another customer order or orders from

the same originating firm: or (ii) a contra

side order provided by the originating

firm from its own proprietary account

(‘‘facilitation order’’).6

Under CBOE Rules 6.74(a) and (b), a

floor broker seeking to cross buy and

sell orders for the same options series

must first bring the transaction to the

trading floor and request a market from

the trading crowd. After receiving bids

and offers from the crowd, the floor

broker must propose a price at which to

cross the original order that improves

upon the price provided by the crowd.

However, before the floor broker can

effect the cross, the market makers in

the crowd are given the opportunity to

take all or part of the transaction at the

proposed price.7

Under these rules, if the crowd does

not want to participate in the trade, the

floor broker may proceed with the cross.

If the crowd wants to take part of the

order, however, the crowd has

precedence and the floor broker may

cross only that amount remaining after