Federal Register / Vol. 62, No. 205 / Thursday, October 23, 1997 / Notices 55289

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 38730

(June 10, 1997), 62 FR 32846.

4Lipper Analytical is a major provider of mutual

fund information and currently calculates

approximately 100 other mutual fund indexes

designed to track specific investment objectives.

protection of investors. The

Commission, based on the information

submitted to it, will issue an order

granting the application after the date

mentioned above, unless the

Commission determines to order a

hearing on the matter.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Jonathan G. Katz,

Secretary.

[FR Doc. 97–28028 Filed 10–22–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

Issuer Delisting; Notice of Application

To Withdraw From Listing and

Registration; (UNC Incorporated, 91⁄8%

Senior Notes Due July 15, 2003, Issued

Pursuant to the Indenture Dated as of

July 15, 1993) File No. 1–7795

October 17, 1997.

UNC Incorporated (‘‘Company’’) has

filed an application with the Securities

and Exchange Commission

(‘‘Commission’’), pursuant to Section

12(d) of the Securities Exchange Act of

1934 (‘‘Act’’) and Rule 12d2–2(d)

promulgated thereunder, to withdraw

the above specified security (‘‘Security’’)

from listing and registration of the New

York Stock Exchange, Inc. (‘‘NYSE’’ or

‘‘Exchange’’).

The reasons cited in the application

for withdrawing the Security from

listing and registration include the

following:

The Security was issued pursuant to

the Indenture, dated as of July 15, 1993,

as amended (the ‘‘Indenture’’) between

the Company and the Chase Manhattan

Bank, as successor Trustee (‘‘Trustee’’)

and were sold pursuant to a registration

statement filed with the Commission

and declared effective July 22, 1993.

The Security is registered pursuant to

Section 12(d) of the Act and listed for

trading on the NYSE.

As a result of the Merger, on

September 18, 1997. Standard & Poor’s

Rating Group raised its rating of the

Security to AAA. On September 30,

1997, the Company completed a debt

tender and consent solicitation for all of

the issued and outstanding Security.

Through the debt tender, the Company

purchased $87,952,000 to the

$100,000,000 aggregate principal

amount of the Security outstanding.

After the debt tender, there remained

issued and outstanding $11,900,000

aggregate principal amount of the Notes

held of record by 11 persons, including

the Depository Trust Company (DTC).

Through DTC, there are approximately

37 holders. Pursuant to the terms of the

Indenture, the Company will commence

a Change in Control offer for the

remaining Notes at a price of 101% of

par plus accrued and unpaid interest.

Since the price is below the price

offered in the recent offer, the Company

does not anticipate that any of the

remaining holders will tender into the

Change in Control offer. Therefore, the

Company intends to redeem the

outstanding Security on June 15, 1998,

the earliest possible redemption date

pursuant to the Indenture.

The Company believes that its

application to withdraw the Security

from listing and registration on the

NYSE should be granted for, among

others, the following reasons:

(a) The small principal amount of the

Security outstanding. Only $11,900,000

aggregate principal amount of the

Security remains issued and

outstanding.

(b) The Security is held by small

number of holders.

(c) The Security is the Company’s

only listed security.

(d) The costs of satisfying the

Company’s reporting obligations under

the Act. The Company represents that it

is no longer subject to the report

requirements of the Act for any other

Securities. Furthermore, as a result of

the consent solicitation, the Company is

no longer obligated under the terms of

the Indenture to file reports with the

Commission. As a consequence the

Company will not be required to incur

the costs of preparing separate annual

and periodic reports. The Company

represents that it is not obligated under

the Indenture or any other document to

maintain the listing or registration of the

Security on the NYSE or on any other

national securities exchange.

The Company notified the NYSE on

September 29, 1997 that it was

requesting delisting of the Security and

the NYSE raised no objection to such

delisting.

Any interested person may, on or

before November 7, 1997, submit by

letter to the Secretary of the Securities

and Exchange Commission, 450 Fifth

Street, NW., Washington, DC 20549,

facts bearing upon whether the

application has been made in

accordance with the rules of the

exchange and what terms, if any, should

be imposed by the Commission for the

protection of investors. The

Commission, based on the information

submitted to it, will issue an order

granting the application after the date

mentioned above, unless the

Commission determines to order a

hearing on the matter.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Jonathan G. Katz,

Secretary.

[FR Doc. 97–28029 Filed 10–22–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39244; File No. SR–CBOE–

97–25]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

the Chicago Board Options Exchange,

Incorporated, Relating to the Listing

and Trading of Options on the Lipper

Analytical/Salomon Brothers Growth

and Growth & Income Fund Indexes

October 15, 1997.

I. Introduction

On June 4, 1997, the Chicago Board

Options Exchange, Incorporated

(‘‘CBOE’’ or ‘‘Exchange’’) filed a

proposed rule change with the

Securities and Exchange Commission

(‘‘SEC’’ or ‘‘Commission’’), pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’) 1 and Rule

19b–4 thereunder,2 to list and trade

options on two mutual fund indexes

designed by Lipper Analytical Services,

Inc. in conjunction with Salomon

Brothers Inc.

Notice of the proposal was published

for comment and appeared in the

Federal Register on June 17, 1997.3 No

comment letters were received on the

proposed rule change. This order

approves the Exchange’s proposal.

II. Description of the Proposal

The Exchange is proposing to list and

trade cash-settled, European-style

options on two mutual fund indexes

designed by Lipper Analytical Services,

Inc. (‘‘Lipper Analytical’’ or LAS) 4 in

conjunction with Salomon Brothers

Inc.—the Lipper Analytical/Salomon

Brothers Growth Fund Index (‘‘Growth

Fund Index’’) and the Lipper

Analytical/Salomon Brothers Growth &

Income Fund Index (‘‘Growth & Income

Fund Index’’).

A. Index Design

The Indexes are composed of the 30

largest U.S. funds in each investment
55290 Federal Register / Vol. 62, No. 205 / Thursday, October 23, 1997 / Notices

5The Exchange represents that Index values are

updated only at the close of trading each day

because that is the only time when the fund net

asset values comprising the Indexes are determined

and disseminated. The Exchange believes that this

should not pose an obstacle to options trading, any

more than it prevents investors from entering intraday orders to purchase or redeem shares of the

funds themselves at closing net asset values that are

unknown at the time the orders are entered.

6The Commission notes that pursuant to Article

XVII, Section 4 of the OCC by-laws, OCC is

empowered to fix an exercise settlement amount in

the event it determines a current index value is

unreported or otherwise unavailable. See Securities

Exchange Act Release No. 37315 (June 17, 1996), 61

FR 42671 (order approving SR–OCC–95–19).

7Because Salomon’s only role is to continue to

provide technical support on such things as index

design and the index construction methodology,

and is not involved in any way with the ongoing

maintenance of the Indexes, it is not necessary to

erect informational barriers at Salomon with regard

to the Indexes at this time. The Commission notes,

however, that should Salomon’s role change so that

it is involved, whether through consultation or

directly, in any maintenance of the Indexes, it may

need to erect an informational barrier between

personnel having access to information and

Salomon’s sales and trading personnel concerning

changes and adjustments to the Indexes.

Accordingly, should Salomon become involved in

any maintenance of the Indexes, the CBOE should

contact the Commission’s Division of Market

Regulation immediately to determine if CBOE may

continue to list and trade options overlying the

Indexes until such informational barriers are in

place.

8A European-style option can be exercised only

during a specified period before the option expires.

objective (i.e., Growth or Growth &

Income), based on their total net assets

as of the close on the last trading day

of December. The Indexes include only

those funds that report net asset values

(‘‘NAV’’) through the facilities of the

National Association of Securities

Dealers Automated Quotation System

(‘‘Nasdaq’’). Some mutual funds are

composed of more than one class which

have different fees and expenses. If

there is more than one class of a specific

mutual fund, only the class with the

highest total net assets will be included.

As of December 31, 1996, the Growth

Fund Index had total net assets (‘‘TNA’’)

of $218.6 billion, an average TNA per

component of $7.3 billion and a median

TNA per component of $4.2 billion. The

TNAs ranged from $2.5 billion to $54.0

billion. As of the same date, the Growth

& Income Fund Index had a TNA of

$241.2 billion, an average TNA per

component of $8.0 billion and a median

TNA per component of $5.0 billion. The

TNAs ranged from $2.5 billion to $30.9

billion.

Lipper Analytical determines the

investment objective of each fund by

reviewing both the language in the

prospectus and the fund’s investment

characteristics as shown in the LipperEquity Analysis Report on the Weighted

Average Holdings of Large Investment

Companies. A Growth Fund is described

as a fund that normally invests in

companies whose long-term earnings

are expected to grow significantly faster

than earnings of the stocks represented

in the major unmanaged stock indexes.

A Growth & Income Fund is described

as a fund that combines a growth of

earnings orientation and an income

requirement for level and/or rising

dividends.

B. Calculation

The Indexes are equal-dollar weighted

and re-balanced quarterly after the close

on expiration Fridays in March, June,

September, and December. The Index

value is calculated in essentially the

same manner as other equal-dollar

weighted indexes. The total number of

shares for each component is calculated

by dividing $1,000 by the closing NAV,

adjusted for distributions, of the

component on the re-balancing date and

rounding to two decimal places. The

share amount is held constant

throughout the quarter. The Indexes are

calculated by summing the product of

the current NAV adjusted for

distributions and the share amount for

each component and then dividing by

the index divisor. The divisors were

calculated to produce a value of 150.00

for the Growth Fund Index and 250.00

for the Growth and Income Fund Index

as of December 31, 1996, the base date.

The Indexes are calculated once per day

as soon as the NAVs for each of the

components are available.5 The Index

values will be disseminated by CBOE

through the facilities of the Options

Price Reporting Authority (‘‘OPRA’’)

prior to the opening on the next

business day.

Lipper has informed the Exchange

that it has not had any difficulty in

obtaining net asset values for the funds

in the Indexes. The funds comprising

the Indexes are among the largest funds

in existence. In the unlikely event that

any of these funds do not comply with

Rule 22c–1 under the Investment

Company Act of 1940, which requires

daily computation of a fund’s current

net asset value, the Exchange would

follow the same procedure it uses for

dissemination of standard indexes when

a component price is unavailable; it will

use the last available price.6

C. Maintenance

Lipper Analytical has the sole

responsibility of maintaining the

Indexes. Salomon Brothers acted as an

adviser to provide technical support,

including advice on index design and

the methodology of index construction.7

Lipper Analytical reviews the

components annually after the close on

the last trading day of December to

include the thirty largest funds by total

net assets. Any component changes

resulting from the annual review will be

announced by LAS and CBOE at least

two weeks prior to implementation

which will occur after the close on

expiration in March. The index

calculation reflects reinvestment of all

distributions of component funds.

Generally, there will be no need for any

other adjustments intra-quarter.

D. Index Option Trading

The proposed options on the Indexes

will be cash-settled, European-style

options.8 Standard options trading

hours for broad-based index options

(8:30 a.m. to 3:15 p.m. Chicago time)

will apply to the contracts. The

multiplier for each Index will be 100.

The Exchange intends to list up to three

near-term months plus up to 3 months

on a quarterly cycle. The Exchange

proposes to base trading in options on

the Lipper Analytical Indexes on the

full-value of each Index. Further, the

exchange also may list full-value longterm index option series (‘‘LEAPS’’), as

provided in Rule 24.9. The Exchange

also may provide for the listing of

reduced-value LEAPS, for which the

underlying value would be computed at

one-tenth of the value of the Index. The

current and closing index value of any

such reduced-value LEAP will, after

such initial computation, be rounded to

the nearest one-hundredth.

E. Exercise and Settlement

Options on the Indexes will settle

based on the closing NAVs of the

component funds two business days

prior to expiration. The proposed

options will expire on the Saturday

following the third Friday of the

expiration month. Thus, the last day for

trading in an expiring series will be two

business days (ordinarily a Thursday)

preceding the expiration date. The

settlement value (which is the same as

Thursday’s closing value) will be

disseminated prior to the opening on

Friday.

F. Exchange Rules Applicable

Except as modified herein, the Rules

in Chapter XXIV will be applicable to

mutual fund index options. Index

option contracts based on the Lipper

Analytical Indexes will be subject to a

position limit and exercise limit of

75,000 contracts, with no more than

50,000 contracts in the nearest

expiration month. Ten reduced-value

options will equal one full-value

contract for such purposes. The

Exchange believes that the proposed

position limits are reasonable and
Federal Register / Vol. 62, No. 205 / Thursday, October 23, 1997 / Notices 55291

9See CBOE Rule 24.7

10See CBOE Rule 24.11

11Section 13(f) of the Act requires institutional

investment managers to file reports with the

Commission, generally quarterly, that disclose each

equity security held on the last day of the reporting

period by accounts with respect to which the

institutional investment manager exercises

investment discretion, the name of the issuer and

the title, class, CUSIP number, number of shares or

principal amount, and aggregate fair market value

of each such security. 15 U.S.C. 78m(f).

12 15 U.S.C. 78f(b)(5). In approving this rule, the

Commission notes that it has considered the

proposed rule’s impact on efficiency, competition,

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

13Pursuant to Section 6(b)(5) of the Act, the

commission must predicate approval of any new

securities product upon a finding that the

introduction of such product is in the public

interest. Such a finding would be difficult with

respect to a warrant that served no hedging or other

economic function, because any benefits that might

be derived by market participants likely would be

outweighed by the potential for manipulation,

diminished public confidence in the integrity of the

markets, and other valid regulatory concerns.

14The CBOE is a member of the Intermarket

Surveillance Group (‘‘ISG’’) which was formed on

July 14, 1983 to, among other things, coordinate

more effectively surveillance and investigative

information sharing arrangements in the stock and

options markets. See Intermarket Surveillance

Group Agreement, July 14, 1983. The most recent

amendment to the ISG Agreement, which

incorporates the original agreement and all

amendments made thereafter, was signed by ISG

members on January 29, 1990. See Second

Amendment to the Intermarket Surveillance Group

Agreement, January 29, 1990. The members of the

ISG are: the Amex; the Boston Stock Exchange, Inc.;

the CBOE; the Chicago Stock Exchange, Inc.; the

National Association of Securities Dealers, Inc.

(‘‘NASD’’) the NYSE; the Pacific Exchange, Inc.; and

the Philadelphia Stock Exchange, Inc. Because of

potential opportunities for trading abuses involving

stock index futures, stock options, and the

underlying stock and the need for greater stock

options, and the underlying stock and the need for

greater sharing of surveillance information for these

potential intermarket trading abuses, the major

stock index futures exchanges (e.g., the Chicago

Mercantile Exchange and the Chicago Board of

Trade) joined the ISG as affiliate members in 1990.

appropriate for this product, and are

consistent with the position and

exercise limits that apply to other index

options.

The Exchange is proposing to amend

Rule 24.9 Interpretation and Policy

.01(a) to include 21⁄2 point strike price

intervals for mutual fund indexes with

strike prices less than $200. Broad-based

margins will apply to mutual fund

index options. CBOE is also amending

Rule 24.1(e) to reflect the fact that

mutual funds can underlie indexes.

CBOE is also proposing to amend

Exchange Rule 24.14 in order to include

specific reference to Lipper Analytical

Services as entitled to the benefit of the

disclaimer of liability in respect of the

Indexes.

Exchange rules applicable to options

on both Indexes will be identical to the

rules applicable to other broad-based

index options for purposes of trading

rotations, halts, and suspension,9 and

margin treatment.10

G. Surveillance

As with any other option product, the

CBOE will closely monitor activity in

these options and therefore, should be

able to identify any potentially unusual

activity in the options. It should be

noted that with respect to the

component funds that comprise the

Indexes, trading in the funds themselves

has no effect on the value of the

Indexes. Instead, the value of the

Indexes depends entirely on the net

asset values of the component funds,

which in turn depends on the values of

the stocks held in the portfolios of the

various funds. The Exchange believes

that the concerns with manipulative

activity are not as great with respect to

options on these Indexes as they are on

stock index options. First, the Indexes

are equal-dollar weighted, thus no

single component dominates the Index.

Therefore any person attempting to

manipulate the Indexes would have to

manipulate the NAVs of a majority of

the Index components. Second, in order

to manipulate the NAVs of the

component funds, a person would have

to have knowledge of the component

securities held by the funds. This

information is not disseminated to the

public until after the fact (generally only

quarterly);11 thus the Exchange believes

that it would be difficult for any

individual to know, with any degree of

certainty, the components of enough of

the funds to make any manipulative

efforts worthwhile. The CBOE also

states that if it became necessary, the

CBOE could examine the activity in the

underlying stocks being held by various

funds if it detects unusual activity in the

Index options.

H. Capacity

CBOE has the necessary systems

capacity to support new series that

would result from the introduction of

the Lipper Analytical/Salomon Brothers

Index options. CBOE has also been

informed that OPRA has the capacity to

support such new series.

III. Commission Findings and

Conclusions

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act 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.12 Specifically, the Commission

finds that the trading of options based

on the Lipper Analytical/Salomon

Brothers Growth and Growth & Income

Fund Indexes, including full-value and

reduced-value LEAPS, will serve to

protect investors, promote the public

interest, and help to remove

impediments to a free and open

securities market by providing investors

with a means to hedge exposure to

market risk associated with some of the

largest U.S. mutual funds holding

securities representing the growth and

growth & income portion of the U.S.

equity market.13

The Commission believes that the

Indexes are broad-based, and the

proposed options are designed to reduce

the potential for manipulation, and is

consistent with the CBOE’s obligation to

promote investor protection.14

Moreover, the Commission believes, for

the reasons discussed below, that the

CBOE has adequately addressed issues

related to customer protection, index

design, surveillance, and market impact

of options based on the Lipper

Analytical/Salomon Brothers Growth

and Growth & Income fund Indexes.

A. Index Design and Structure

The Commission finds that it is

appropriate and consistent with the Act

for the CBOE to designate the Indexes as

broad-based. Specifically, the

Commission believes the Indexes,

representing the growth and growth &

income portion of the U.S. equity

market, are broad-based for the

following reasons. First, the indexes

each consist of the 30 largest U.S. funds

in each investment objective, based on

their total net assets as of the close on

the last trading day of December. The

Indexes include only those funds that

report net asset values (‘‘NAV’’) through

the facilities of the National Association

of Securities Dealers Automated

Quotation System (‘‘Nasdaq’’). Second,

the total net assets of the mutual funds

comprising the Indexes are very large.

As of December 31, 1996, the Growth

Fund Index had total net assets (’’TNA’’)

of $218.6 billion, an average TNA per

component of $7.3 billion and a median

TNA per component of $4.2 billion. The

TNAs ranged from $2.5 billion to $54.0

billion. As of the same date, the Growth

& Income Fund Index had a TNA of

$241.2 billion, an average TNA per

component of $8.0 billion and median

TNA per component of $5.0 billion. The

TNAs ranged from $2.5 billion to $30.9

billion. Third, no one particular mutual

fund or group of mutual funds

dominates the weight of the Index. As

noted above, each Index value is

calculated using an equal-dollar

weighting methodology. Specifically,
55292 Federal Register / Vol. 62, No. 205 / Thursday, October 23, 1997 / Notices

15The Commission notes that in order to promote

investor protection and to ensure adequate

disclosure in connection with Mutual Fund Index

options, the rules pertaining to standardized

options and the requirements of Exchange Act Rule

9b–1 will apply to trading in Growth and Growth

& Income Fund Index Options. The Commission

believes it is important to provide investors with

information regarding the rights and characteristics

of these options. In this regard, Growth and Growth

& Income Fund Index options investors will receive

a special supplement to The Options Clearing

Corporation’s (‘‘OCC’’) Options Disclosure

Document (‘‘ODD Supplement’’) explaining in

detail the risks and characteristics of Packaged

Spreads. In reviewing any disclosure materials

submitted, the Commission intends to assure that

the materials specifically describe the risks and

characteristics associated with trading Mutual Fund

Index Options. The CBOE’s trading of Growth and

Growth & Income Fund Index options is expressly

contingent upon the Commission’s approval of such

an ODD supplement.

16 In addition, the CBOE has represented that it

and OPRA have the necessary systems capacity to

support those new series of index options that

would result from the introduction of options and

LEAPS based on both Indexes.

17See supra note 11.

18 If any one of these factors were not present, the

Commission may have determined it was not

appropriate to allow the product to trade without

real-time dissemination of Index values.

each component will account for

approximately 3.33% of its respective

Index, and the Exchange will re-balance

to equal-dollar weighting quarterly.

Accordingly, the Commission believes it

is appropriate to classify the Index as

broad-based.

B. Customer Protection

The Commission believes that a

regulatory system designed to protect

public customers must be in place

before the trading of sophisticated

financial instruments, such as options

on the Lipper Analytical/Salomon

Brothers Growth and Growth & Income

Fund Indexes (including full-value and

reduced value LEAPS), can commence

on a national securities exchange. The

Commission notes that the trading of

standardized, exchange-traded options

occurs in an environment that is

designed to ensure, among other things,

that: (1) The special risks of options are

disclosed to public customers;15 (2) only

investors capable of evaluating and

bearing the risks of options trading are

engaged in such trading; and (3) special

compliance procedures are applicable to

options accounts. Accordingly, because

options on both Indexes will be subject

to the same regulatory regime as the

other standardized options currently

traded on the CBOE, the Commission

believes that adequate safeguards are in

place to ensure the protection of

investors in options on the Lipper

Analytical/Salomon Brothers Growth

and Growth & Income Fund Indexes.

C. Surveillance

The Commission believes that is

important to ensure the availability of

information necessary to detect and

deter potential manipulation and other

trading abuses, thereby making the

mutual fund index product less likely to

be manipulated. Further, the

Commission believes that an exchange

proposing to list a mutual fund index

derivative where the mutual fund

components themselves are not traded

in the secondary market, must have in

place appropriate surveillance

procedures for the derivative product

and the markets trading the underlying

securities that comprise the mutual fund

components. In this regard, the

Commission notes that the CBOE will

closely monitor activity in these options

and should be able to identify any

potentially unusual activity in the

options. Moreover, the CBOE represents

that if it became necessary, the CBOE

could examine the activity in the

underlying stocks if it detects unusual

activity in the Index options. The

Commission believes that this

arrangement ensures the availability of

information necessary to detect and

deter potential manipulations and other

trading abuses, thereby making the

Index options and full-value and

reduced-value Index LEAPS less

susceptible to manipulation.

D. Market Impact

The Commission believes that the

listing and trading of Growth and

Growth & Income Fund Index options

on the CBOE will not adversely impact

the securities markets in the United

States.16 First, the Commission notes

that the Indexes are broad-based and

diversified and include component

mutual funds that comprise the 30

largest U.S. funds in each investment

objective. Second, the 75,000 contract

position and exercise limit, with no

more than 50,000 contracts in the

nearest expiration month, will serve to

minimize potential manipulation and

other market impact concerns. Third,

the risk to investors of contra-party nonperformance will be minimized because

the Index options, and full-value and

reduced-value LEAPS, will be issued

and guaranteed by The Options Clearing

Corporation, similar to all other

standardized options traded in the

United States.

E. Index Calculation and Dissemination

As discussed above, the CBOE is

proposing to update the Indexes’ values

at the close of trading each day when

the net asset values of the component

funds of the Indexes are determined and

disseminated. The result of this is that

the disseminated value during the

trading day is based on the prior day net

asset value established at the prior day

close.

Generally, the Commission believes

that continually updated index values

on a real-time basis are essential to the

trading of any index product. The

Commission has only allowed

exceptions to this for certain indexes

composed of foreign securities where

the primary market for the component

securities are closed during the U.S.

trading hours for the overlying options

and thus the value of the components

are generally not changing during the

U.S. trading day. In contrast, in the case

of the Growth Fund Index and the

Growth Fund Index, the Index values

are based on closing NAVs, even though

the component funds’ portfolio

securities are themselves trading during

the same trading hours as the Index

options thereby causing the value of the

portfolio to fluctuate throughout the

trading day.

Nevertheless, the Commission has

determined to allow the CBOE to trade

options overlying the Indexes using the

Indexes’ values established at the prior

day close because only the fund

manager will have knowledge of the

funds’ portfolio securities and their

values on a regular basis throughout the

trading day. Information regarding the

component funds’ portfolios will only

be generally available to the public on

a quarterly basis as required under

Section 13(f) of the Act and all investors

should have equal access to this

information when it is disseminated.17

Further, CBOE surveillance should also

help to detect and deter manipulation

through the misuse of such intra-day

information available only to the

component fund managers. Finally,

there are other widely published

resources and indexes available that

track growth and growth & income

stocks which investors may use to

determine an indicative value for the

Growth and the Growth & Income Fund

Indexes.18

IV. Conclusion

Based upon the aforementioned

factors, the Commission finds that the

proposed changes relating to the listing

and trading of Growth and Growth &

Income Fund Index options are

consistent with the requirements of

Section 6(b)(5) and the rules and

regulations thereunder. The initiation of

Growth and Growth & Income Fund

Index options trading, however, is

conditioned upon the issuance of an

order approving an ODD Supplement,

pursuant to Rule 9b–1 of the Act.
Federal Register / Vol. 62, No. 205 / Thursday, October 23, 1997 / Notices 55293

19 15 U.S.C. 78s(b)(2).

20 17 CFR 200.30–3(a)(12).

1 15 U.S.C. § 78s(b)(1).

2 17 CFR 240.19b–4.

3 17 CFR 240.15c3–1.

4 Id.

5 Id.

6 15 U.S.C. § 78f(b); 15 U.S.C. § 78k(b).

7 In approving this proposed rule change, the

Commission has considered the proposed rule’s

impact on efficiency, competition, and capital

formation. 15 U.S.C. § 78c(f).

8 15 U.S.C. § 78k(b).

9 17 CFR 240.11b–1.

10 17 CFR 240.11b–1(a)(2)(i).

11Securities Exchange Act Rel. No. 31512 (Nov.

24, 1992), 57 FR 57027 (Dec. 2, 1992).

12 Id.

13 Id.

14 Id.

15 15 U.S.C. § 78s(b)(2).

16 17 CFR 200.30–3(a)(12).

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,19 that the

proposed rule change (File No. SR–

CBOE–97–25) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.20

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–28027 Filed 10–22–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39245; File No. SR–CSE–

97–09]

Self-Regulatory Organizations;

Cincinnati Stock Exchange, Inc.; Order

Granting Approval to Proposed Rule

Change Increasing Net Capital

Requirements

October 16, 1997.

On July 30, 1997, the Cincinnati Stock

Exchange, Inc. (‘‘CSE’’ or ‘‘Exchange’’)

submitted to the Securities and

Exchange Commission (‘‘SEC’’ or

‘‘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

increase net capital requirements for

members and Designated Dealers.

I. Introduction

The proposed rule change was

published for comment in Securities

Exchange Act Release No. 38956

(August 21, 1997), 62 FR 45893 (August

29, 1997). No comments were received

on the proposal.

II. Description of the proposals

Exchange Article II, Section 5.1

presently requires a minimum net

capital level on non-specialist Exchange

members equal to the greater of the net

capital level required by Commission

Rule 15c3–1 3 or $25,000. The Exchange

proposes to amend this rule to increase

that requirement from $25,000 to

$250,000. As previously required,

members would still be subject to any

higher net capital requirements imposed

by Commission Rule 15c3–1.4

The Exchange also proposes to amend

Exchange Rule 11.9(a). That rule

currently requires Designated Dealers to

maintain net capital of at least the

greater of $100,000 or the amount

required under Commission Rule 15c3–

1. The Exchange proposes to amend this

rule to increase the Exchange

requirement from $100,000 to $500,000.

Again, members would still be subject

to any higher net capital requirement

imposed by Commission Rule 15c3–1.5

III. Discussion

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange, and, in particular, with the

requirements of Sections 6(b) and 11(b)

of the Act.6 In particular, the

Commission believes the proposal is

consistent with the Section 6(b)(5)

requirements that the rules of an

exchange be designed to promote just

and equitable principles of trade, to

prevent fraudulent and manipulative

acts, and, in general, to protect investors

and the public.7 The Commission also

believes that the proposal is consistent

with Section 11(b) of the Act,8 and Rule

11b–1 9 thereunder, which allows

securities exchanges to promulgate rules

relating to specialists in order to

maintain fair and orderly markets. The

proposal is consistent with Rule 11b–

(a)(2)(i) 10 which requires that the rules

of a national securities exchange which

permit a member to register as a

specialist and to act as a dealer include,

among other things, adequate minimum

capital requirements in view of the

markets for securities on such exchange.

The Commission finds that the rule

change will help ensure greater

financial stability of the Exchange’s

members by requiring those members to

maintain higher capital levels. The

Commission examined this issue when

it revised Rule 15c3–1 in 1992.11 In

proposing to raise the minimum net

capital requirements under Commission

rules, the Commission noted that under

Rule 15c3–1 customers are placed at

risk by brokers that do not receive or

hold customer securities because such

brokers have indirect access to customer

funds and securities, and can direct the

movement of such assets by placing

orders with clearing firms. Customers

are often unaware of or unable to

distinguish between introducing brokers

and clearing firms, and tend to rely

heavily upon the representations of

brokers of introducing firms. Higher net

capital requirements will help ensure

the financial integrity of such

introducing firms and thereby help to

protect investors.12 The Commission

concurs with the Exchange that better

capitalized introducing firms are less

likely to become insolvent and in the

event that an introducing firm does

become insolvent, higher net capital

levels would help increase the changes

that the firm can quickly find a

purchaser of its assets and minimize the

impact of such a failure on the investing

public.13 Finally, the Commission has

previously stated its belief that raising

minimum net capital levels will further

the antifraud provisions of the federal

securities laws.14 The Exchange noted

that member firms have access to

customer securities and funds either

directly, as a clearing firm, or indirectly,

as an introducing firm that places orders

with a clearing firm on behalf of its

customers. In either case, firms can

convert those assets to their own

benefit. A firm with sufficient net

capital may be less likely to attempt to

convert funds in this manner.

The Commission also believes that it

is important that Designated Dealers are

adequately prepared to provide depth

and liquidity to the Exchange’s markets

in times of market stress or volatility.

The Commission agrees with the

Exchange that the growth in the U.S.

capital markets generally, and in the

CSE’s market in particular, has created

market conditions which have created a

need for greater capital levels on the

CSE. The Commission finds that the

increased net capital requirement for

Designated Dealers will better protect

the integrity and quality of the

Exchange’s market.

IV. Conclusion

It is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,15 that the

proposed rule change (SR–CSE–09) is

approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.16

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–28030 Filed 10–22–97; 8:45 am]

BILLING CODE 8010–01–M