75326 Federal Register / Vol. 65, No. 232 / Friday, December 1, 2000 / Notices

15 17 CFR 200.30–3(a)(16).

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 41376

(May 6, 1999), 64 FR 25937.

4Amendment No. 1 elaborates upon the rationale

for the proposal and how liquidity may be insured

when the current, 400-holder requirement is

deleted. See Letter from Stephanie C. Mullins,

Attorney, the CBOE, to Mandy Cohen, Special

Counsel, Division of Market Regulation

(‘‘Division’’), the Commission, dated July 29, 1999.

Amendment No. 2 clarifies the intent of the CBOE

to apply the proposed rule change to apply to

narrow-based index warrants, in addition to broadbased index warrants. See Letter from Angelo

Evangelou, Attorney, the CBOE, to Ira Brandriss,

Attorney, Division of Market Regulation, the

Commission, dated September 19, 2000. See also

Section III below.

5 15 U.S.C. 78f(b)(5). Section 6(b)(5) requires that

the rules of a national securities exchange be

designed, among other things, to promote just and

equitable principles of trade and protect investors

and the public interest.

6 In approving this proposal, the Commission has

considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

U.S.C. 78c(f).

7The Commission notes that for new narrowbased stock index warrants that it lists for trading,

the CBOE may be able to file a Form 19b–4(e)

pursuant to the provisions of Rule 19b–4(e) under

the Act, 17 CFR 240.19b–4(e), in fulfillment of its

rule change filing requirements. See CBOE Rule

24.2(b), which has been made applicable to narrowbased index warrants by CBOE Rule 31.5E,

Interpretation .01.

450 Fifth Street, NW., Washington, DC

20549.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority. 15

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–30666 Filed 11–30–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43611; File No. SR–CBOE–

99–14]

Self Regulatory Organizations;

Chicago Board Options Exchange,

Inc.; Order Approving a Proposed Rule

Change and Notice of Filing and Order

Granting Accelerated Approval to

Amendment Nos. 1 and 2 to the

Proposed Rule Change Relating to

Listing Criteria for Index Warrants

November 22, 2000.

I. Introduction

On April 6, 1999, the Chicago Board

Options Exchange, Inc. (‘‘CBOE’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘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

amend its Rule 31.5.E to add an

alternative set of distribution criteria for

stock index warrants. Notice of the

proposed rule change was published in

the Federal Register on May 13, 1999.3

On August 2, 1999, and September 20,

2000, the CBOE filed Amendment Nos.

1 and 2 to the proposal, respectively.4

The Commission received no comments

on the proposal. This order approves the

proposed rule change, accelerates

approval of Amendments Nos. 1 and 2,

and solicits comments from interested

persons on the amendments.

II. Description of the Proposal

Currently, before a stock index

warrant may be listed for trading on the

CBOE, certain public distribution

requirements must be met. These

criteria are enumerated in CBOE Rule

31.5.E(2):

1. The issue must include at least one

million warrants outstanding.

2. The principal amount/aggregate

market value must be at least

$4,000,000.

3. There must be at least 400 public

holders.

In addition, according to the CBOE,

industry practice has been to discourage

the listing of instruments of this kind

that are priced below $4 per unit. The

CBOE states that it finds this practice

appropriate, although Rule 31.5E does

not specifically impose this restriction.

The proposed rule change would

establish an alternative set of

distribution criteria, eliminating the

minimum public holder requirement.

To list a stock index warrant under this

alternative, the following requirements

would need to be satisfied:

1. The issue would need to include at

least two million warrants

outstanding—double the current

requirement.

2. The principal amount/aggregate

market value would need to be at least

$12,000,000—triple the current

requirement.

3. The minimum initial price would

need to be set at $6 per warrant—one

and one-half times the minimum initial

price as would be required under

current informal guidelines.

4. A minimum number of public

holders would be required as

determined on a case by case basis.

The CBOE states that it is seeking to

eliminate the 400-holder requirement so

that it can be more competitive with the

overseas and over-the-counter (OTC)

derivatives markets in the listing of

index warrants.

As explained by the Exchange,

offerings of stock index warrants—

unlike offerings of common stock and

common stock warrants—are limited to

options-approved accounts and are

primarily directed to institutional and

high net worth clients. Finding 400

initial holders thus may entail an

extensive and time-consuming

marketing effort. As a result, member

firms have told the Exchange that they

often find it considerably more cost

effective to offer stock index warrants

either offshore or in the OTC derivatives

market.

The proposed rule change would

create an alternative set of public

distribution criteria under which no

minimum number of public holders

would be defined, but would be

determined by the Exchange on a caseby-case basis. At the same time, this

alternative set of criteria would require

the issue to be significantly larger in

terms of number of warrants

outstanding and their aggregate market

value, besides imposing a minimum

initial price for each warrant that

reflects a substantial increase from the

minimum initial price currently

required for listing on the CBOE.

III. Discussion

After careful review, the Commission

finds the proposed rule change to be

consistent with the provisions of the Act

applicable to a national securities

exchange, particularly those of section

6(b)(5) 5 of the Act, and with the rules

and regulations thereunder.6 The

Commission believes that the proposal

is reasonably designed to enable the

CBOE to better compete with the

overseas and OTC derivatives markets

for the trading of stock index warrants,

while raising no significant investor

protection issues.

In lieu of the requirement that there

be 400 public holders, the Exchange

proposes to double to two million the

minimum number of warrants that must

be outstanding for the CBOE to list and

trade a stock index warrant. In addition,

the Exchange proposes to triple to $12

million the principal amount/aggregate

market value of the warrants and

increase to $6 the minimum initial price

for listing the warrant. In addition, the

Exchange on a case by case basis will

specify a minimum number of public

holders of the warrant.

These additional protections should

serve to assure that there are adequate

thresholds for the Exchange to list and

trade a particular stock index warrant

that does not otherwise satisfy the

requirement of 400 public holders.

Thus, the Commission believes the

ability of market makers to maintain

markets in such instruments should not

be impaired.7

Federal Register / Vol. 65, No. 232 / Friday, December 1, 2000 / Notices 75327

8 17 CFR 200.30–3(a)(12).

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

2The Commission has modified the text of the

summaries prepared by EMCC.

3EMCC’s Rules define an IDB as ‘‘a broker-dealer

that conducts securities trading which matches

buyers and sellers who are banks or dealers, and

who is designated as such by the Corporation.’’

4See, e.g., Government Securities Clearing

Corporation Rule 4, Section 2(c).

5October, 1997 (Asia), August, 1998 (Russia), and

January, 1999 (Brazilian).

The Commission finds good cause for

approving Amendment Nos. 1 and 2 to

the proposal prior to the thirtieth day

after the date of publication of notice of

filing thereof in the Federal Register.

Amendment No. 1 merely elaborates on

the rationale for the proposal.

Amendment No. 2 makes clear that the

proposed rule change will apply to

narrow-based index warrants as well as

broad-based index warrants. Although

the descriptive section of the original

filing referred to broad-based index

warrants, the actual text of the proposed

rule change in that filing made no

distinction between the two. The

purpose of the proposal as it relates to

broad-based index warrants relates

equally to narrow-based index warrants:

to enable the CBOE to compete with the

overseas and OTC derivative markets in

the trading of these instruments. The

Commission’s belief that elimination of

the 400 public holder requirement

would not significantly impact investors

also applies equally to narrow-based

index warrants. Acceleration of the

amendment will allow the Exchange to

implement the proposed rule change to

all stock index warrants at once.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning Amendment No.

1 and 2, including whether Amendment

Nos. 1 and 2 are consistent with the Act.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549–0609. 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

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–99–14 and should be

submitted by December 22, 2000.

V. Conclusion

For the reasons discussed above, the

Commission finds that the proposal is

consistent with the Act and the rules

and regulations thereunder.

It Is Therefore Ordered, pursuant to

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

proposed rule change (SR–CBOE–99–

14), as amended, be and hereby is

approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority. 8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–30670 Filed 11–30–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43618; File No. SR–EMCC–

00–05]

Self-Regulatory Organizations;

Emerging Markets Clearing

Corporation; Notice of Filing of

Proposed Rule Change Seeking To

Increase the Minimum Clearing Fund

Requirement for All EMCC Members to

$3,000,000 and To Establish Two Tiers

of Inter-Dealer Broker Membership

Standards

November 27, 2000.

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

Securities Exchange Act of 1934

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

July 14, 2000, the Emerging Markets

Clearing Corporation (‘‘EMCC’’) filed

with the Securities and Exchange

Commission (‘‘Commission’’) and on

August 16, 2000, and November 1, 2000,

amended the proposed rule change as

described in Items I, II, and III below,

which items have been prepared

primarily by EMCC. The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested parties.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change (1) would

increase the minimum clearing fund

requirement for all EMCC members to

$3,000,000 and (2) would establish two

tiers of inter-dealer broker (‘‘IDB’’)

membership standards.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

EMCC 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. EMCC has prepared

summaries, set forth in sections (A), (B),

and (C) below, of the most significant

aspects of these statements.2

(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 (i) increase the minimum

clearing fund requirement for all EMCC

members to $3,000,000 from the current

required minimum of $1,000,000 and

(ii) provide two tiers of IDB membership

standards.3

With respect to the proposed

increased minimum clearing fund

requirement, EMCC’s risk advisory

subgroup reviewed EMCC’s two years of

operations, including trade files and

daily margin calculations. The

subcommittee concluded that, generally,

members’ calculated clearing fund

requirements did not go below

$3,000,000. Moreover, raising the

minimum requirement from $1,000,000

to $3,000,000 is consistent with the

clearing fund requirements imposed on

IDBs by other clearing corporations,4

and it addresses the fact that IDB

members have a potential clearing fund

loss liability that could well exceed the

current $1,000,000 clearing fund

minimum. Accordingly, EMCC has

determined that it would be more

appropriate to have a greater amount of

IDB funds on hand to cover the

potential exposure than to have to

request such a deposit if needed due to

a loss. Therefore, EMCC has decided to

increase IDB’s minimum clearing fund

requirement to $3,000,000 and has

determined that it is appropriate to have

this standard apply to all members.

The rule change also proposes to

separate IDBs into two membership

categories based on excess net capital or

excess financial resources. Those IDBs

with excess net capital, or excess

financial resources for a broker or dealer

regulated by the Securities and Futures

Authority Limited, of between

$10,000,000 and $20,000,000 would be

margined using an ‘‘event factor’’ of 1.5

instead of the factor of 1.25 currently

used in EMCC’s base margining formula.

This factor is representative of the

volatilities experienced during the last

three emerging market events.5 Those