5266 Federal Register / Vol. 62, No. 23 / Tuesday, February 4, 1997 / Notices

5See Memorandum from Joe Corrigan, OPRA, to

Eileen Smith, CBOE, dated November 21, 1996.

6 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3A vertical spread is the combination of one long

and one short options having the same expiration.

A call vertical spread will have a lower strike price

on the long option and a put spread will have a

higher strike price on the long option. For example,

a call vertical spread might consist of one long

December (expiration month) 700 (strike price) call

option and one short December 690 call option.

Miscellaneous. CBOE will use the

same surveillance methods it currently

employs with respect to their broadbased index options.

CBOE has also been informed that the

Options Price Reporting Authority

recently added another outgoing high

speed line from OPRA processor and

thus, has the capacity to support the

new series associated the listing of

Packaged Butterfly Spreads.5

The Exchange believes that the

proposal will provide investors with

certain advantages over current

products in the way of reduced

transaction costs and risk reduction.

The Exchange believes, therefore, 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 is designed to

perfect the mechanisms of a free and

open market and to protect investors

and the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange believes that the

proposed rule change will impose no

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 Exchange 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

Interestd 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 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 NW.,

Washington, DC 20549. 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–96–

75 and should be submitted by February

25, 1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–2630 Filed 2–3–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38214; File No. SR–CBOE–

96–76]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Board Options Exchange,

Incorporated Relating to the Listing

and Trading of Vertical Spreads

January 28, 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 December

16, 1996, the (‘‘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 Exchange.

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

The CBOE proposes to list for trading

Vertical Spreads based on the S&P 100

and S&P 500 indexes. A Vertical Spread

is a packaged European-style option

which replicates the behavior and

payout of a vertical spread composed of

standard index option contracts. A

Vertical Spread may have a multiplier of

100 (as with standard index option

contracts overlying the S&P 100 and the

S&P 500) or a multiplier of 500. The text

of the proposed rule change is available

at the Office of the Secretary, 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

Exchange included statements

concerning the purpose of and basis for

the proposed rule change. The text of

these statements may be examined at

the places specified in Item IV 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

The purpose of the proposed rule

change is to amend Exchange rules to

provide for the listing and trading of

Vertical Spreads based upon the S&P

100 index and the S&P 500 index. A

Vertical Spread is a packaged Europeanstyle option which replicates the

behavior and payout of a vertical

spread 3 composed of standard index

option contracts. Vertical Spreads may

have a multiplier of 100 (as with

standard index options overlying the

S&P 100 and the S&P 500) or a

multiplier of 500.

The Exchange believes Vertical

Spreads will provide advantages to the

investing public that are not provided

for by standard index options. First, the

Exchange believes these Vertical

Spreads offer investors a relatively low

risk security where the risk reduction

results because Vertical Spreads, by

their nature, have a maximum gain and

loss that can be realized regardless of

the movement of the index level. In

addition, with Vertical Spreads there is

no early exercise risk. These options are

the equivalent of standard vertical

spreads (i.e., the combination of one

long and one short options position

with the same expiration) traded as a

single security. Second, the ‘‘packaging’’

of a strategy of two option positions into

one option product reduces transactionrelated expenses because the investor
Federal Register / Vol. 62, No. 23 / Tuesday, February 4, 1997 / Notices 5267

4 17 CFR 200.30–3(a)(12).

will only have to enter into one

transaction. In the case of Vertical

Spreads with a multiplier of 500, the

transaction-related expenses would be

substantially reduced from a

comparable trade involving standard

index options. Third, in the case of

Vertical Spreads overlying the S&P 100,

the investor will have the opportunity to

invest in an option product that has

European-style exercise. Standard S&P

100 options (‘‘OEX’’) have Americanstyle exercise. The exchange expects

Vertical Spreads to be supported

enthusiastically by market-makers

because spread trading is a familiar

strategy to professional traders and the

Vertical Spreads can be easily

incorporated into the overall risk profile

of the market-maker’s trading strategy in

standard index options.

An addition will be made to Rule 24.1

to describe the new product as well as

the term ‘‘vertical spread interval.’’

Position and Exercise Limits. The

Exchange is proposing position limits

for Vertical Spreads overlying the S&P

100 of 100,000 contracts where the

index multiplier is 100. The Exchange

also is proposing position limits for

Vertical Spreads overlying the S&P 500

Index of 100,000 contracts where the

index multiplier is 100. The Exchange

believes these position limits are

consistent with the position limits that

have been established for standard

index options on the S&P 100 and 500

indexes. To the extent that the Exchange

lists and a member holds Vertical

Spread positions with different

multipliers (i.e., 100 and 500) yet

overlying the same index, these

positions would be aggregated in

determining compliance with the

position limits. Each Vertical Spread

with a 500 multiplier would count as 5

Vertical Spread contracts for the

purpose of determining compliance

with the position limits. The exercise

limits for Vertical Spreads will be equal

to the positions limits set forth above in

accordance with the terms of current

Rule 24.5.

Margin. With respect to margin

requirements, risk exposure is limited in

Vertical Spreads, and therefore, the

maximum margin requirements should

not exceed the maximum exposure

amount which, for each Vertical Spread

option contract equals the vertical

spread interval times the index

multiplier. The proposed amendments

state that the maximum margin required

for a put or call Vertical Spread option

contract carried in a short position shall

not exceed this maximum exposure

amount. In addition, the amendment

provides that for each put or call

Vertical Spread option contract carried

in a short position in a cash account, the

customer must deposit cash equal to the

maximum exposure amount. The rules

will also provide that the required

margin for a spread when the exercise

price of the long call index option is

greater than the exercise price of the

short call index option where at least

one leg of the spread is a CAPS or

Vertical Spread would be the lesser of

(1) the difference in the aggregate

exercise prices or (2) the cap interval or

the vertical spread interval as

appropriate.

Listing of Series. The Exchange

expects to list both put and call

contracts having various spread

intervals. Initially, the Exchange intends

to list an at-the-money strike and

various strikes around the at-the-money

level in the first two near-term months.

New strikes will be added when the

underlying indexes trade through the

highest or lowest strike available.

Settlement. The expiration date for

Vertical Spreads will be the Saturday

immediately following the third Friday

of the expiration month. Exercise will

result in the delivery of cash on the

business day following expiration. The

exercise settlement amount will be

equal to the difference between the OEX

or SPX settlement value, as appropriate,

and the strike price of the Vertical

Spread contract; or the amount of the

spread interval, whichever is less,

multiplied by the multiplier, i.e., either

$100 or $500. Vertical Spreads will have

a European-style of exercise.

Miscellaneous. CBOE will use the

same surveillance methods it currently

employs with respect to other broadbased index options.

CBOE has also been informed that the

Options Price Reporting Authority

(‘‘OPRA’’) has the capacity to support

the new series associated with the

listing of Vertical Spreads.

By adopting rules that will provide for

the trading of index options that will

provide investors with certain

advantages over current products in the

way of reduced transaction costs and

risk reduction, CBOE believes the

proposed rule change is consistent with

and furthers the objectives of Section

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

to perfect the mechanisms of a free and

open market and to protect investors

and the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange believes that the

proposed rule change will impose no

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 Exchange 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 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, NW.,

Washington, DC 20549. 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–96–

76 and should be submitted by February

25, 1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.4

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–2631 Filed 2–3–97; 8:45 am]

BILLING CODE 8010–01–M