45890 Federal Register / Vol. 62, No. 168 / Friday, August 29, 1997 / Notices

1 ‘‘Primary control’’ under rule 3a–1 means a

degree of control that is greater than that of any

other person. See Health Communications Services,

Inc. (pub. avail. Apr. 26, 1985). 1 15 U.S.C. § 78s(b)(1) (1994).

of the outstanding voting securities of

which are owned by such person, or by

a company which, within the meaning

of section 2(a)(24), is a majority-owned

subsidiary of such person.

2. Rule 3a–1 under the Act deems

certain issuers that meet the statutory

definition of investment company in

section 3(a)(1)(C) of the Act not to be

investment companies, provided such

issuers meet certain criteria. An issuer

can qualify for this exemption only if no

more than 45% of its assets consist of,

and no more than 45% of its net income

is derived from, securities other than,

among others, securities of certain

companies controlled primarily by the

issuer.1

3. Applicant represents that it seeks to

acquire a majority voting interest in its

foreign tele-media ventures or, where

such an interest is not permitted under

applicable foreign investment laws or is

inadvisable for business reasons, seeks

to acquire interests that grant it primary

control. Applicant asserts that these

ownership thresholds are prohibitively

large, as applicant often seeks to join

with two or three strategic partners in a

foreign tele-media venture. Applicant

represents that each partner typically

desires an interest in, and rights over,

the venture that is equal to that of the

other partners. Hence, applicant states

that its acquisition of a majority interest,

or the largest interest, in a foreign telemedia venture is often impossible.

4. Applicant states that it also may

participate in a foreign tele-media

venture through a ‘‘joint venture,’’ in

which applicant’s interest may not be a

‘‘security’’ for purposes of the Act.

However, applicant states that whether

an arrangement is a joint venture is

sometimes difficult to determine.

5. Applicant asserts that the need to

structure its participation in foreign

tele-media ventures in a manner that

complies with the Act has resulted in

severe constraints on its ability to

operate effectively and efficiently and

grow its business. Applicant states that

if it is unable to obtain either a majority

interest or primary control for purposes

of section 3(a)(1)(C) or rule 3a–1, or a

degree of control that will allow it to

obtain an opinion of counsel that it can

classify its participation as a joint

venture interest, then applicant most

likely will abstain from participating in

that foreign tele-media venture.

6. Applicant also states that as

ventures grow out of the development

stage, they will often seek to expand

their businesses through acquisitions, or

will seek public financing. Applicant

notes that these goals are often in direct

conflict with the need of applicant to

maintain its ownership interest at a

level that permits such interest to be

classified as a non-investment security.

Applicant submits that this has resulted

in serious delays in the development of

certain of applicant’s foreign tele-media

ventures, as applicant seeks to structure

transactions around the requirements of

the Act. Applicant states that at times,

especially when applicant’s interest

would fall below the level of

presumptive control set forth in section

2(a)(9) of the Act, applicant has denied

a foreign tele-media venture permission

to undertake a transaction that would

have been in the best interests of

applicant and that venture.

7. Section 6(c) provides that the SEC

may exempt any person, security, or

transaction from any provision of the

Act or any rule or regulation thereunder,

if and to the extent that such exemption

is necessary or appropriate in the public

interest and consistent with the

protection of investors and the purposes

fairly intended by the policy and

provisions of the Act. Applicant

requests an order under section 6(c) to

permit applicant and the other Covered

Entities to engage, directly or through

subsidiaries, in foreign tele-media

ventures without being subject to the

provisions of the Act.

8. Applicant believes that the

requested relief is necessary and

appropriate in the public interest.

Applicant states that its business does

not entail the types of risk to public

investors that the Act was designed to

eliminate or mitigate. Applicant asserts

that its assets cannot be characterized as

liquid, mobile, and readily negotiable,

or as large liquid pools of funds.

Applicant represents that it does not

acquire securities for the purpose of

disposing of them from time to time at

a profit. Applicant also states that it is

not a so-called ‘‘special situation’’

investment company; that is, a company

that takes a controlling position in other

issuers primarily for the purpose of

making a profit in the sale of the

controlled company’s securities.

Applicant states that rather, it is a

holding company that participates in

foreign tele-media ventures as a strategic

investor. Applicant states that in doing

so, it acquires a substantial interest and

participates in the development of its

foreign tele-media ventures by

providing active developmental

assistance.

9. Applicant believes that the

requested relief is consistent with the

protection of investors and the purposes

fairly intended by the policy and

provisions of the Act. Applicant

believes that the requirements of its

business, its strategy of directly or

indirectly acquiring substantial interests

in foreign tele-media companies and

tele-media partnerships, and its

representation that each Covered Entity

will provide active developmental

assistance to its foreign tele-media

ventures demonstrate that applicant is

not the type of entity and does not

engage in the type of activities that the

Act was designed to regulate.

Applicant’s Conditions

Applicant agrees that the order

granting the requested relief shall be

subject to the following conditions:

1. No Covered Entity that seeks to rely

on the exemptive order will hold itself

out as being engaged in the business of

investing, reinvesting, or trading in

securities.

2. Each Covered Entity may rely on

the exemptive order only if the manner

in which it is involved in foreign telemedia ventures is, in all material

respects, consistent with that described

in the application.

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–23004 Filed 8–28–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38962; File No. SR–CBOE–

97–36]

Notice of Filing of Proposed Rule

Change by the Chicago Board Options

Exchange, Incorporated, Related to the

Procedures Regarding Opening

Rotations

August 22, 1997.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

July 25, 1997, the Chicago Board

Options Exchange, Incorporated

(‘‘CBOE’’ or ‘‘Exchange’’) filed 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 CBOE. The Commission

is publishing this notice to solicit

comments on the proposed rule change

from interested persons.
Federal Register / Vol. 62, No. 168 / Friday, August 29, 1997 / Notices 45891

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The CBOE proposes to amend CBOE

Rule 24.7 regarding the conditions

under which the Exchange may halt

trading in a class of index options and

may resume trading after such a halt.

The text of the proposed rule change is

below. Additions are italicized;

deletions are bracketed.

Chapter XXIV—Index Options

Rule 24.7 Trading halts or Suspensions

(a) Trading on the Exchange in an index

option shall be halted whenever two floor

officials, in consultation with a designated

senior executive officer of the Exchange,

shall conclude in their judgment that such

action is appropriate in the interests of a fair

and orderly market and to protect investors.

Among the facts that may be considered are

the following:

(i) the extent to which trading is not

occurring in stocks underlying the index;

[trading has been halted or suspended in

underlying stocks whose weighted value

represents 20% or more of the index value;]

(ii) through (iv)—No Change.

(b) Trading in options of a class or series

that has been the subject of a halt or

suspension by the Exchange may resume if

two floor officials, in consultation with a

designated senior executive officer of the

Exchange determine that [the conditions

which led to the halt or suspension are no

longer present or that] the interests of a fair

and orderly market are served by a

resumption of trading. Among the factors to

be considered in making this determination

are whether the conditions which led to the

halt or suspension are no longer present and

the extent to which trading is occurring in

stocks underlying the index. [In either event,

the reopening rotation may not begin until

the Exchange has determined that trading in

underlying stocks whose weighted value

represents more than 50% of the index value

is occurring.]

(c) See also Rule 6.3B for the effect of the

initiation of a marketwide trading halt

commonly known as a circuit breaker on the

New York Stock Exchange [activation of

circuit breakers in the underlying primary

securities markets].

(d)—No change.

* * * Interpretations and Policies

.01—No change.

.02—Upon reopening, a rotation shall be

held in each class of index options unless

two floor officials, in consultation with a

designated senior executive officer of the

Exchange, conclude that a different method

of reopening is appropriate under the

circumstances, including but not limited to,

no rotation, an abbreviated rotation or any

other variation in the manner of the rotation.

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

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The purpose of the proposed rule

change is to eliminate certain fixed

percentage tests that presently apply

both to the decision to halt or suspend

trading in index options and to the

decision to resume trading after such a

halt, as well as to make certain related

changes to conform to present practice.

a. Trading Halts

Under present Rule 24.7(a)(i), one of

the enumerated factors that the

designated Exchange representatives

may consider, in deciding whether to

halt trading in an index option, is

whether trading has been halted or

suspended in underlying stocks whose

weighted value represents ‘‘20% or

more of the index value.’’ By specifying

a percentage level that ‘‘may be

considered,’’ the present rule may imply

that it would be improper for the

designated Exchange officials to

consider trading interruptions in

underlying stocks that collectively

represent less than 20% of the index

level. Moreover, the present rule may

imply that the Exchange actually must

make ongoing calculations of the extent

to which underlying stocks are trading

at any particular moment—something

that would be difficult to do on a real

time basis for some indexes, such as

those with a large number of constituent

stocks (e.g., the Russell 2000, which

consists of 2000 stocks) or those as to

which data on trading halts is not

readily available (e.g., NDX, an index

based on over-the-counter stocks).

In fact, these interpretations would

conflict with the purpose of Rule 24.7,

which grants designated Exchange

representatives the discretion to halt

index option trading whenever they

‘‘conclude in their judgment that such

action is appropriate in the interests of

a fair and orderly market and the

protection of investors.’’ Rule 24.7(a)(i)–

(iv) contains simply a non-exclusive list

of factors that those Exchange officials

may consider in exercising that

discretion, so it would be inappropriate

to appear to forbid those officials from

considering trading disruptions in

underlying stocks that fall below a

predetermined level. Accordingly, the

proposed change to Rule 24.7(a)(i)

would clarify that Exchange officials, in

evaluating whether to halt trading in

index options, are not limited to

situations in which 20% of the

underlying stocks have halted, but

rather may consider ‘‘the extent to

which’’ trading is not occurring in the

underlying stocks.

For similar reasons, the proposed

change to Rule 24.7(a)(i) also would

enable Exchange officials to consider

not just whether trading in underlying

stocks has been ‘‘halted or suspended,’’

but whether such trading is ‘‘not

occurring.’’ The term ‘‘halted or

suspended’’ implies a situation in

which a stock exchange has taken

formal action to stop trading in a stock.

However, in deciding whether to

continue trading a derivative instrument

like an index option, Exchange officials

should be able to consider the extent to

which underlying stocks are not trading,

whether trading is not occurring

because of formal exchange action,

system problems, market emergencies or

some other cause. Accordingly the

proposed change to Rule 24.7(a)(i)

would make clear that Exchange

officials, in evaluating whether to halt

index option trading, may consider the

extent to which ‘‘trading is not

occurring’’in the underlying stocks,

without limiting that consideration to

formal halts or suspensions.

b. Resumption of Trading After Trading

Halts

The proposed rule change also is

designed to eliminate any requirement

in Rule 24.7(b) that a fixed percentage

of underlying stocks must be trading

before trading in index options may

resume after a trading halt. At present,

Rule 24.7(b) allows such trading to

resume when the appropriate Exchange

officials determine either that the

conditions that led to the halt no longer

are present or that the interests of a fair

orderly market are served by a

resumption of trading. However, Rule

24.7(b) provides that in no event may

trading resume until the Exchange has

determined that trading is occurring in

underlying stocks whose weighted value

represents more than 50% of the index

value.

It is and would remain CBOE’s

practice, in deciding whether to resume
45892 Federal Register / Vol. 62, No. 168 / Friday, August 29, 1997 / Notices

2 15 U.S.C. § 78f(b)(5). 3 17 CFR 200.30–3(a)(12)(1997).

trading after an index options trading

halt, to assess the extent to which

underlying stocks are trading. However,

it is inappropriate to forbid such a

resumption until the level of stock

trading has reached some

predetermined, fixed level, particularly

since it often may be difficult to make

a precise determination about the

weighted value of the underlying stocks

that are trading—e.g., for indexes that

are composed of a large number of

underlying stocks. Accordingly, the

proposed rule change would eliminate

the 50% threshold and instead would

specify that one of the factors that

Exchange officials may consider, in

determining whether the ‘‘interests of a

fair and orderly market are served by a

resumption of trading’’ is ‘‘the extent to

which trading is occurring in stocks

underlying the index.’’ The proposed

rule therefore would enable Exchange

officials to reactivate trading as soon as

they determine that conditions warrant,

without interposing an artificial barrier

that might result from a fixed percentage

test, and would still provide a

mechanism by which CBOE officials

would be able to give appropriate

weight to the extent to which

underlying stocks are trading.

In addition, the proposed rule change

would make clear that trading may

resume only upon a determination by

the designated Exchange officials that

such a resumption is in the interests of

a fair and orderly market. The present

form of Rule 24.78 allows trading to

resume (subject to the 50% requirement)

when the proper Exchange officials

determine either that the conditions that

led to the halt no longer are present or

that a resumption of trading would

serve the interests of a fair and orderly

market. Taken literally, this would

enable trading to resume if the

conditions that led to the halt no longer

are present, even if a resumption of

trading would be contrary to the

interests of a fair and orderly market, an

interpretation that would conflict with

CBOE’s practice and would be contrary

to the policies under the Act.

Accordingly, the proposed rule change

would make clear that: (1) index option

trading may resume if and only if the

proper Exchange officials determine that

such a resumption would be in the

interests of a fair and orderly market;

and (2) the fact that the conditions

leading to the halt no longer are present

is just one of the factors (as is the extent

to which underlying stocks are trading)

that those officials may consider in

determining whether the interests of a

fair and orderly market would be served

by a resumption of trading. In SR–

CBOE–97–35, similar changes are being

proposed to Rule 6.3(b), which generally

governs the resumption of trading after

a trading halt in an equity option.

Also, the proposed rule change

conforms the cross reference to Rule

6.3B that is contained in Rule 24.7(c) to

the current language of Rule 6.3B. Rule

6.3B is the Exchange’s circuit breaker

trading halt rule, and the language of

Rule 6.3B was recently amended.

Finally, the proposed rule change

adds a proposed interpretation .02 to

address how trading shall resume after

a trading halt. This topic is not

addressed in the present form of Rule

24.7, although the last sentence of

present Rule 24.7(b) apparently assumes

that a rotation will be used. The

proposed interpretation .02 would adopt

the identical procedure that now

governs the resumption of trading after

a circuit breaker halt, which is set forth

in interpretation .02 to Rule 6.3B. In

particular, proposed interpretation .02

to Rule 24.7 would provide that trading

would resume by a rotation after a

trading halt unless the designated

exchange officials conclude that a

different method of reopening is

appropriate under the circumstances.

Under the proposed interpretation,

those officials, among other things,

could determine not to employ a

rotation, to use an abbreviated rotation

or otherwise to vary the manner of the

rotation. This proposed interpretation

should be adopted so that comparable

rules govern the resumption of trading

after circuit breaker halts as well as

halts for other reasons.

2. Statutory Basis

The proposed rule change is

consistent with and furthers the

objectives of Section 6(b)(5) of the Act 2

in that the proposed rule change is

designed to perfect the mechanisms of

a free and open market and to protect

investors and the public interest by

setting forth a procedure to review and

address delays in the commencement of

options trading.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

CBOE does not believe that the

proposal will impose any 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 proposal.

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 CBOE 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 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 CBOE. All

submissions should refer to File No.

SR–CBOE–97–36 and should be

submitted by September 19, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.3

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–23010 Filed 8–28–97; 8:45 am]

BILLING CODE 8010–01–M