Federal Register / Vol. 62, No. 30 / Thursday, February 13, 1997 / Notices 6821

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

2 17 CFR 240.19b–4.

3On December 18, 1996, CBOE submitted an

amendment to the rule change. See letter from

Eileen Smith, Director, Product Development,

Research Department, CBOE to Marianne H.

Khawly, Staff Attorney, Division of Market

Regulation, SEC, dated December 18, 1996.

4A list of the securities comprising the World

Property Index was submitted by the Exchange as

Exhibit B, and is available at the Office of the

Secretary, CBOE and at the Commission.

5The following countries are represented in the

Index: Australia; Belgium; Canada; Denmark;

France; Germany; Hong Kong; Ireland; Japan;

Malaysia; the Netherlands; Norway; Singapore;

Spain; Sweden; Switzerland; the United Kingdom;

and the United States.

6The U.S. group consists of the following 12

industry subgroups: apartments; healthcare

facilities; hotels; manufactured homes; office/

industrial buildings; diversified properties; net/

lease properties; REOCs; self-storage facilities;

factory outlets; regional malls; and shopping

centers.

7The top five stocks were: Sun Hung Kai

Properties Ltd. from Hong Kong (6.43 percent);

Cheung Kong Holdings Ltd. from Hong Kong (5.29

percent); Mitsubishi Estate Co. from Japan (5.04

percent); Mitsui Fudosan Co. from Japan (3.44

percent); and New World Development Company

Ltd. from Hong Kong (2.52 percent).

8Salomon Brothers currently does not calculate

intra-day values of the Index during the U.S. trading

day.

9WM is a UK-based company that specializes in

performance measurement. WM is a neutral force,

not related to any trading firm or broker-dealer.

WM/Reuters Rates represent an effort led by WM

to standardize the closing spot rates used in the

global investment community for fund valuation,

index compilation, and performance measurement.

WM/Reuters Rates are considered to be an industry

standard and are used by various firms in index

calculation.

For the SEC, by the Division of Investment

Management, under delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–3542 Filed 2–12–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38255; International Series

Release No. 1049; File No. SR–CBOE–96–

60]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment No. 1 Thereto by the

Chicago Board Options Exchange,

Incorporated Relating to Listing and

Trading of Options on the Salomon

Brothers BMI World Property Index

February 6, 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 October

7, 1996, the Chicago Board Options

Exchange, Incorporated (‘‘CBOE’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’) the proposed rule

change 3 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.

1. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The CBOE proposes to list and trade

cash-settled, European-style stock index

options on the Salomon Brothers BMI

World Property Index (‘‘World Property

Index’’ or ‘‘Index’’), a broad-based, float

capitalization-weighted index

comprised of 339 stocks 4 from eighteen

countries.5

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

CBOE included statements concerning

the purpose of and basis for the

proposed rule change and represented it

did not receive any comments 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 parts 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 permit the CBOE to list and

trade cash-settled, European-style stock

index options on the World Property

Index. As discussed further in the

Maintenance paragraph, the World

Property Index is a broad-based float

capitalization-weighted index (price

times available shares outstanding). The

Index is currently composed of 339

high-capitalization stocks of real estate

and property companies from 18

countries. The World Property Index is

a subset of the Salomon Brothers World

Equity Index is a subset of the Salomon

Brothers World Equity Index which is

comprised of listed equities from 22

countries.

Index Design. The World Property

Index has been designed to measure the

performance of certain high

capitalization real estate and property

stocks from various countries. The

World Property Index is a broad-based

float capitalization-weighted index

calculated as described below. The

Exchange represents that the Index is

broad-based for three reasons. First,

although the stocks are all involved in

real estate and property, the types of

real estate vary widely. The Index can

be divided into the following four

industry groups: non-U.S. diversified

property activities group; non-U.S.

property development group; non-U.S.

property investment/management

group; and the U.S. group.6 Second, the

339 component stocks are from 18

countries, therefore, CBOE asserts that

the performance of the various

companies is not as closely linked as it

would generally be in a narrow-based

index. On July 31, 1996, the 339 stocks

ranged in capitalization from $75.5

million to $12.4 billion. The largest

stock accounted for 6.43% of the total

weighting of the Index, while the

smallest accounted for 0.04%. The top

five stocks in the Index accounted for

22.72 percent of the weight of the

Index.7 The median capitalization of the

firms in the Index was $247.3 million.

And third, the CBOE believes that since

each of the components from foreign

countries are traded in local currencies

and then translated into U.S. dollars,

there is an added component of

currency conversion which must be

factored into the movement of the

individual securities.

Calculation. The Index level is

calculated once per day by Salomon

Brothers and will be disseminated by

CBOE prior to the opening the next

business day over the Options Price

Reporting Authority (‘‘OPRA’’) or the

Consolidated Tape Association. Closing

prices in each company’s domestic

market are used in the final daily Index

calculations.8 WM/Reuters Closing Spot

Rates (‘‘WM/Reuters Rates’’), taken at

4:00 p.m. London time, are midmarket

rates (as opposed to bid-side quotations)

based on Reuters data that are used to

calculate the U.S. dollar value of the

Index. WM/Reuters Rates are calculated

by the WM Company (‘‘WM’’) and

appear on Reuters beginning on page

WMRA.9

Shares are adjusted for corporate

actions on their ex-dates. These actions

include splits, scrip and bonus issues,

and preemptive rights. For actions

resulting in no net change to the

capitalization of the issue, such as stock

splits and stock dividends, the Index

divisor, described below, remains

unchanged. The Index divisor is

updated at each quarter-end for changes

in share capital because of share
6822 Federal Register / Vol. 62, No. 30 / Thursday, February 13, 1997 / Notices

10 CBOE represents that it has surveillance

sharing agreements with the following countries:

Belgium; Canada; France; Germany; Hong Kong;

Ireland; Japan; Malaysia; the Netherlands; Spain;

and the United Kingdom.

11See memo from Joe Corrigan, Executive

Director, OPRA to Eileen Smith, Director of Product

issuance or buybacks. This update may

include bond and warrant conversions

or open market share buybacks. There is

no replacement of de-listed issues, per

se, prior to annual reconstitution.

However, large, newly formed

companies, spin-offs from Index

constituents and privatizations falling

within the top half of their country’s

capitalization range enter the Index at

the next month-end, following their

official listing.

If a company’s shares are no longer

available because of a cash tender offer

or bankruptcy, that company will be

deleted from the Index without

replacement. The deletion will occur on

the last trading day of the month in

which the event takes place. If the issue

stops pricing, it will be maintained in

the Index at the final offer price until its

removal. if a company is acquired by

another constituent of the Index through

a share swap, the acquired company

will be deleted from the Index on the

swap ex-date. The share weight of the

acquiring company will increase in

accordance with the terms of the offer

to reflect the combined capitalization of

both companies.

If trading in a stock is halted, the last

bid or suspension price is carried

forward. In cases of a prolonged

suspension, a dealer market or gray

market price may be used. A gray

market is a market available through

dealers or banks. In such cases of

prolonged suspension, Salomon would

attempt to obtain a price on the gray

market by getting a quote from several

dealers other than Salomon.

Maintenance. The World Property

Index was originally created using all

stocks from each country with a market

value of at least $100 million. Stocks are

retained in the Index if they maintain a

market value of at least $75 million, and

new stocks are added if they meet a

$100 million minimum market value at

the annual re-balance date on the last

trading day in May. The individual

components are classified into sectors

based on the breakdown of sales

provided by the company in financial

reports. The primary selection criteria

for adding or deleting a country is the

size of its equity market, the freedom of

capital movement and the ability to

repatriate dividends. Additionally,

reliable price, share, dividend and

corporate action data must also be

readily available.

As mentioned above, the World

Property Index is float-capitalization

weighted, i.e. the component issues in

the Index are included at a level that

accounts for the price of a share times

the available shares outstanding. To

determine the appropriate weight, all

issues are assigned an availability factor.

The factor is a percentage measurement

of its float (available capital). There are

four categories of shares which are

excluded in determining availability:

corporate cross-holdings; private control

block holdings (encompassing 10% or

more of total capital); government

holdings; and legally-restricted shares.

Availability factors are updated each

year at the same time as the annual

reconstitution of the Index on July 1 of

each year. All listed equities in the

constituent markets are evaluated by

their available capital based on their

price and total shares outstanding as of

the last business day in May. Changes

to the constituent list, effective July 1

each year, are preannounced two weeks

prior to the effective date and are

subject to change due to any major

corporate activity occurring during the

period between May 31 and the effective

date of July 1.

The level of the Index reflects the

total market value of the component

stocks relative to a particular base

period. The World Property Index base

date is December 31, 1992, when the

Index value was set to 100.00. The

Index had a closing value of 188.92 on

December 31, 1996. The daily

calculation of the World Property Index

is computed by dividing the total

market value of the companies in the

Index by the Index divisor. The divisor

keeps the Index comparable over time

and is adjusted periodically to maintain

the Index. The Index divisor is adjusted

for all extraordinary dividends, noncash

corporate distributions, and monies

distributed via share buybacks. The

Index levels are price levels and,

therefore, do not account for ordinary

dividends.

Index Option Trading. In addition to

regular Index options, the CBOE may

provide for the listing of long-term

index option series (‘‘LEAPS’’) and

reduced-value LEAPS on the Index.

For reduced-value LEAPS, the

underlying value would be computed at

one-tenth of the Index level. The current

and closing Index value of any such

reduced-value LEAP will, after such

initial computation, be rounded to the

nearest one-hundredth.

Strike prices will be set to bracket the

Index in 21⁄2 point increments for strikes

below 200 and 5 point increments above

200. The minimum tick size for series

trading below $3 will be 1⁄16th and for

series trading above $3 the minimum

tick will be 1⁄8th. The trading hours for

options on the Index will be from 8:30

a.m. to 3:15 p.m. Chicago time.

Exhibit C presents proposed contract

specifications for World Property Index

options.

Exercise and Settlement. The

proposed options on the Index will

expire on the Saturday following the

third Friday of the expiration month.

Trading in the expiring contract month

will normally cease at 3:15 p.m.

(Chicago time) on the business day

preceding the last day of trading in the

component securities of the Index

(ordinarily the Thursday before

expiration Saturday, unless there is an

intervening holiday). The exercise

settlement value of the Index at option

expiration will be based on the closing

prices of the component securities on

the business day prior to expiration. If

a stock fails to open for trading, the last

available price on the stock will be used

in the calculation of the Index, as is

done for currently listed indices. When

the last trading day is moved because of

Exchange holidays (such as when the

CBOE is closed on the Friday before

expiration), the last trading day for

expiring options will be Wednesday and

the exercise settlement value of Index

options at expiration will be determined

at the opening of regular Thursday

trading.

Surveillance. As of July 31, 1996, the

stocks from the United States

represented 24.04% of the weight of the

Index. In addition, the CBOE currently

has information sharing agreements

with 11 of the 18 foreign countries

representing 63.77% of the weight of the

Index.10 In addition, the Exchange

represents that it will use the same

surveillance procedures currently

utilized for each of the Exchange’s other

index options to monitor trading in

Index options and Index LEAPS on the

world Property Index.

Position Limits. The CBOE proposes

to establish position limits for options

on the World Property Index at 50,000

contracts on either side of the market,

and no more than 30,000 of such

contracts may be in the series in the

nearest expiration month. These limits

are roughly equivalent, in dollar terms,

to the limits applicable to options on

other indices.

Exchange Rules Applicable. As

modified herein, the Rules in Chapter

XXIV will be applicable to World

Property Index options.

CBOE has also been informed that

OPRA recently has added an additional

outgoing high speed line from the OPRA

processor and thus, also has the

capacity to support the new series.11
Federal Register / Vol. 62, No. 30 / Thursday, February 13, 1997 / Notices 6823

Research, CBOE, dated June 26, 1996 (conforming

that the traffic generated is within OPRA’s

capacity).

12 17 CFR 200.30–3(a)(12) (1994).

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

2 17 CFR 240.19b–4.

3The Exchange filed Amendment No. 1 to

accurately reflect the expiration date of the three

month extension of the waiver. See Letter from

Michael D. Pierson, Senior Attorney, Regulatory

Policy, PSE, to John V. Ayanian, Attorney, Office

of Market Supervision, Division of Market

Regulation, Commission, dated January 27, 1997

(‘‘Amendment No. 1’’).

4See Securities Exchange Act Release No. 36841

(February 14, 1996), 61 FR 6666 (February 21,

1996).

5See Securities Exchange Act Release No. 37901

(October 31, 1996), 61 FR 57508 (November 6,

1996).

6See Amendment No. 1, supra note 3.

7 15 U.S.C. 78f(b)(5).

2. Statutory Basis

The proposed rule change 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

will permit trading in options based on

the World Property Index pursuant to

rules designed to prevent fraudulent

and manipulative acts and practices and

to promote just and equitable principles

of trade, and thereby will provide

investors with the ability to invest in

options based on an additional index.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

CBOE does not believe that the

proposed rule change will impose any

inappropriate 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. 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, N.W.,

Washington, D.C. 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the CBOE. All submissions

should refer to the file number in the

caption above and should be submitted

by March 6, 1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–3539 Filed 2–12–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38254; File No. SR–PSE–

97–03]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change and

Amendment No. 1 to the Proposed

Rule Change by the Pacific Stock

Exchange Incorporated Relating to a

Waiver of All Customer, Firm and

Market Maker Transaction Fees for

Transactions in FLEX Equity Options

Until April 29, 1997

February 6, 1997.

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

Securities Exchange Act of 1934 (‘‘Act’’)

and Rule 19b–4 thereunder,2 notice is

hereby given that on January 27, 1997,

the Pacific Stock Exchange Incorporated

(‘‘PSE’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’) the proposed

rule change as described in Items I, II

and III below, which Items have been

prepared by the PSE. The Exchange

filed with the Commission Amendment

No. 1 to the proposed rule change on

January 28, 1997.3 The Commission is

publishing this notice to solicit

comments on the proposed rule change,

as amended, from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The PSE is proposing to extend for a

three month period its waiver of all

customer, firm and Market Maker

transaction fees for transactions in FLEX

Equity Options.

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

PSE included statements concerning the

purpose of and basis for the proposed

rule change, as amended, and discussed

any comments it received on the

proposed rule change, as amended. The

text of these statements may be

examined at the places specified in Item

IV below. The PSE 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

On February 14, 1996, the

Commission approved an Exchange

proposal for the listing and trading of

Flexible Exchange (FLEX) Options on

equity securities, pursuant to Rule

8.100.4 The Exchange commenced

trading of FLEX Equity Options on

October 24, 1996. On October 31, 1996,

the Commission approved an Exchange

proposal to waive for three months all

customer, firm and market maker

transaction fees for transactions in FLEX

Equity Options.5 The Exchange is now

proposing to extend this waiver for

three additional months, ending on

Wednesday, April 29, 1997.6 The

purpose of the waiver is to encourage

customers, firms and market makers to

execute transactions in FLEX Equity

Options on the Exchange and respond to

competitive actions in the industry.

2. Statutory Basis

The proposal is consistent with

Section 6(b)(5) 7 of the Act because it is

designed to facilitate transactions in

securities.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change, as amended,

will impose any burden on competition.