[Federal Register Volume 62, Number 197 (Friday, October 10, 1997)]
[Notices]
[Pages 53040-53041]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26901]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39192; File No. SR-CBOE-97-48]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Incorporated Relating to 
a Reduction in the Value of the Standard & Poor's 100 Stock Index

October 3, 1997.
    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 September 19, 1997, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or the ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE is filing this rule change to inform the Commission that 
Standard & Poor's (``S&P'') intends to reduce the value of its S&P 100 
Stock Index (``Index'') option (``OEX'') to one-half of its present 
value by doubling the divisor used in calculating the Index. In 
connection with this change, the Exchange proposes doubling the current 
OEX position and exercise limits. The text of the proposed rule change 
is available at the Office of the Secretary, the 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 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, Proposed Rule Change

1. Purpose
    The CBOE began trading OEX options in March 1983.\3\ OEX options 
are American-style, cash-settled options on the S&P 100 Stock Index. 
The Exchange notes that, on the strength of a sustained bull market, 
the value of the OEX has doubled in value since mid-1995, such that the 
value of the index stood at 928.20 as of August 7, 1997. As a result of 
the significant increase in the value of the underlying index, the 
premium for OEX options has also increased. This has caused OEX options 
to trade at a level that may be uncomfortably high for retail 
investors, a large and important part of the market for OEX.
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    \3\ See Securities Exchange Act Release No. 19264 (November 22, 
1982), 47 FR 53981 (November 30, 1982).
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    As a result, at the request of the CBOE, S&P, the reporting 
authority for the Index, has agreed to a ``two-for-one

[[Page 53041]]

split'' of the Index. The change will be instituted after Commission 
approval of this proposed rule change. This change will result in a 
doubling of the OEX contracts outstanding, such that for each OEX 
contract held, the holder will receive two contracts at the reduced 
value, with a strike price of one-half of the original strike price. 
For instance, the holder of an OEX 930 call will receive two OEX 465 
calls. The trading symbol will remain as OEX (plus any necessary wrap 
symbols).
    In addition to the strike price being reduced by one-half, the CBOE 
proposes to double the position and exercise limits applicable to the 
OEX from 25,000 to 50,000.\4\ The Exchange believes this increase in 
the position and exercise limits is justified because the reduction in 
the divisor would result in each contract overlying only one-half of 
the value of a current OEX contract. Consequently, the revised position 
and exercise limits would be equivalent to the current levels in terms 
of the value of the Index.
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    \4\ The Exchange has separately filed for an increase in the 
position and exercise limits for OEX in SR-CBOE-97-11 (noticed in 
Securities Exchange Act Release No. 38525 (April 18, 1997), 62 FR 
20046 (April 24, 1997). In the event that SR-CBOE-97-11 is approved 
by the Commission prior to this filing, the Exchange would seek a 
doubling of those higher limits.
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    The CBOE will announce the effective date of the change by way of 
an Exchange circular to the membership, which will also describe the 
change to the strike prices and the position and exercise limits.
    The Exchange expects the proposed changes to attract additional 
customer business in OEX in those series in which retail customers are 
most interested in trading. For example, a September 930 (at the money) 
call option series currently trades at approximately $2600 per 
contract. With the Index split, the same option series (once adjusted), 
with all else remaining equal, would trade at approximately $1300 per 
contract. The Exchange believes the proposed change will permit some 
investors to trade these options who have otherwise been priced out of 
the market due to the recent market surge. The Exchange believes that 
OEX options provide an important opportunity for investors to hedge and 
speculate upon the market risk associated with the stocks comprising 
this broad-based widely followed Index. By reducing the value of the 
Index, investors will be able to utilize this trading vehicle, while 
extending a smaller outlay of capital. The Exchange believes this 
should attract additional investors, and, in turn, create a more active 
and liquid trading environment.
    The Exchange believes that reducing the value of the Index does not 
raise manipulation concerns and will not cause adverse market impact 
because the Exchange will continue to employ the same surveillance 
procedures and has proposed an orderly procedure to achieve the Index 
split, including adequate prior notice to market participants.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with and furthers the objectives of Section 6(b)(5) of the Act,\5\ in 
that it is designed to perfect the mechanisms of a free and open market 
and to protect investors and the public interest.
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    \5\ 15 U.S.C. 78f(b)(5).
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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.

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

    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 self-regulatory organization 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, N.W. Washington, D.C. 25049. 
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 Section, 450 Fifth Street, N.W., 
Washington, D.C. 25049. 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-97-48 and should be 
submitted by October 31, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12)
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-26901 Filed 10-9-97; 8:45 am]
BILLING CODE 8010-01-M