Federal Register / Vol. 63, No. 12 / Tuesday, January 20, 1998 / Notices 3009

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

2 17 CFR 240.19b–4.

3Exchange Act Release No. 39305 (November 6,

1997), 62 FR 61156 (November 14, 1997).

4FLEX equity options are flexible exchangetraded options contracts which overlie equity

securities. In addition, FLEX equity options provide

investors with the ability to customize basic option

features including size, expiration date, exercise

style, and certain exercise prices.

5Under CBOE Rule 24A.1(g), a FLEX Post Official

is the Exchange employee designated pursuant to

Rule 24A.12 to perform the FLEX post functions set

forth in that rule.

6SR–CBOE–95–43 approved in Exchange Act

Release No. 36841 (February 14, 1996), 61 FR 6666

(February 21, 1996).

arguments presented in memoranda it

previously filed in this docket. If

necessary, the Commission also may ask

petitioners or the Postal Service for

more information.

The Commission Orders

(a) The Postal Service shall file the

record in this appeal by January 29,

1998.

(b) The Secretary of the Postal Rate

Commission shall publish this Notice

and Order and Procedural Schedule in

the Federal Register.

By the Commission.

Cyril J. Pittack,

Acting Secretary.

Nassau, Minnesota 56272

[Docket No. A98–1]

Appendix

December 22, 1997: Filing of Appeal letter.

January 14, 1998: Commission Notice and

Order of Filing of Appeal.

February 3, 1998: Last day of filing of

petitions to intervene (see 39 CFR

3001.111(b)).

February 13, 1998: Petitioner’s Participant

Statement or Initial Brief (see 39 CFR

3001.115 (a) and (b)).

March 2, 1998: Postal Service’s Answering

Brief (see 39 CFR 3001.115(c)).

March 17, 1998: Petitioner’s Reply Brief

should Petitioner choose to file one (see 39

CFR 3001.115(d)).

March 24, 1998: Deadline for motions by

any party requesting oral argument. The

Commission will schedule oral argument

only when it is a necessary addition to the

written filings (see 39 CFR 3001.116).

April 21, 1998: Expiration of the

Commission’s 120-day decisional schedule

(see 39 U.S.C. 404(b)(5)).

[FR Doc. 98–1275 Filed 1–16–98; 8:45 am]

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Sunshine Act Meeting

Notice is hereby given, pursuant to

the provisions of the Government in the

Sunshine Act, Pub. L. 94–409, that the

Securities and Exchange Commission

will hold the following meetings during

the week of January 19, 1998.

A closed meeting will be held on

Wednesday, January 21, 1998, at 3:00

p.m. An open meeting will be held on

Thursday, January 22, 1998, at 10:00

a.m.

Commissioners, Counsel to the

Commissioners, the Secretary to the

Commission, and recording secretaries

will attend the closed meeting. Certain

staff members who have an interest in

the matters may also be present.

The General Counsel of the

Commission, or his designee, has

certified that, in his opinion, one or

more of the exemptions set forth in 5

U.S.C. 552b(c)(4), (8), (9)(A) and (10)

and 17 CFR 200.402(a)(4), (8), (9)(i) and

(10), permit consideration of the

scheduled matters at the closed meeting.

Commissioner Hunt, as duty officer,

voted to consider the items listed for the

closed meeting in a closed session.

The subject matter of the closed

meeting scheduled for Wednesday,

January 21, 1998, at 3:00 p.m., will be:

Institution and settlement of injunctive

actions

Institution and settlement of

administrative proceedings of an

enforcement nature

The subject matter of the open

meeting scheduled for Thursday,

January 22, 1998, at 10:00 a.m., will be:

The Commission will consider adopting (1)

a rule requiring plain English for the cover

page, summary, and risk factor sections of

prospectuses filed under the Securities Act of

1933; and (2) codifying earlier interpretive

advice on how public companies can comply

with the current rule that prospectuses be

clear, concise and understandable. The

purpose of the proposed change is to make

prospectuses simpler, clearer, more useful,

and more used. For further information,

please contact David Maltz at (202) 942–

1921.

At times, changes in Commission priorities

require alterations in the scheduling of

meeting items. For further information and to

ascertain what, if any, matters have been

added, deleted or postponed, please contact:

The Office of the Secretary at (202) 942–7070.

Dated: January 14, 1998.

Jonathan G. Katz,

Secretary.

[FR Doc. 98–1296 Filed 1–14–98; 4:01 pm]

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[Release No. 34–39524; File No. SR–CBOE–

97–57]

Self-Regulatory Organizations;

Chicago Board Options Exchange,

Inc.; Order Granting Approval to

Proposed Rule Change Relating to an

Extension of the Permissible Maturity

Term of FLEX Equity Options

January 8, 1998.

I. Introduction

On October 23, 1997 the Chicago

Board Options Exchange, Inc. (‘‘CBOE’’

or ‘‘Exchange’’) submitted to 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

permit a FLEX equity option to have a

term of five years in certain

circumstances.

The proposed rule change was

published for comment in the Federal

Register on November 14, 1997.3 No

comments were received on the

proposal. This order approves the

proposal.

II. Description

The CBOE is proposing to allow FLEX

equity options 4 traded on the Exchange

to have a maturity beyond three years

and up to five years when the longer

term is requested by a submitting

member and the FLEX Post Official 5

determines that sufficient liquidity

exists among Equity FLEX Qualified

Market Makers. Currently, FLEX equity

options, by operation of Rule

24A.4(a)(4)(i), are limited to a maturity

of three years.

When the Exchange filed for

permission to list and trade FLEX equity

options 6 it determined to limit the

maturity of these options to three years

because, unlike FLEX Index options

which had been traded on the Exchange

since February 1993 and which could

have a maturity of up to five years, the

Exchange was concerned that there

would not be sufficient liquidity in

many equity option classes to support

series with a longer term to expiration.

The CBOE represents, however, that

since it has traded FLEX equity options,

the Exchange has had numerous

requests from broker-dealers to extend

the maturity of FLEX equity options to

five years. According to the Exchange,

among the reasons the broker-dealer

firms have been interested in seeking an

extension in the allowable maturity is

that such longer expiration FLEX equity

options might be used to hedge a firm’s

issuance of long-term structured

products linked to returns of an

individual stock. The Rule would

permit the longer term FLEX equity

options (up to a maximum of five years)

to be listed when requested by the

submitting member if the FLEX Post
3010 Federal Register / Vol. 63, No. 12 / Tuesday, January 20, 1998 / Notices

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

8 15 U.S.C. 78f(b)(5).

9 In approving this rule, the Commission has

considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

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

10For example, with a required minimum size of

250 contracts to open a transaction in a new series,

FLEX equity options are designed to appeal to

institutional investors. See Exchange Act Release

No. 36841 (February 14, 1996), 61 FR 6666, 6669

(February 21, 1996); see also Exchange Act Release

No. 37336 (June 19, 1996), 61 FR 33558, 33560,

(June 27, 1996).

11Position and exercise limits for FLEX equity

options have recently been eliminated. See

Exchange Act Release No. 39032 (Sept. 9, 1997), 62

FR 48683 (Sept. 16, 1997). In eliminating these

limits, the Exchange adopted several important

safeguards to monitor large positions in order to

identify instances of potential risk and to assess

additional margin and/or capital charges, if

necessary. These safeguards also continue to apply

to large positions in FLEX equity options regardless

of the term of the option.

12As to any future proposal to permit options

instruments with terms longer than five years, the

Commission would need to re-evaluate several

issues including margin requirements, disclosure,

sales practices, and other legal and regulatory

issues.

13 15 U.S.C. 78s(b)(2).

14 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3On November 13, 1997, the Board filed the same

proposal under Section 19(b)(3)(A) of the Act,

which renders the proposal effective upon receipt

of filing by the Commission. See Securities

Exchange Act Release No. 39391 (December 3,

1997), 62 FR 65114 (December 10, 1997). The

Commission received four comment letters on the

filing. See infra note 12. In order to provide

additional time to fully air the concerns of

commenters, the Board agreed to withdraw this

filing and resubmit it, pursuant to Section 19(b)(2).

See letter from Diane G. Klinke, General Counsel,

Municipal Securities Rulemaking Board, to

Katherine A. England, Assistant Director, Division

of Market Regulation, dated January 9, 1998.

Official determined that sufficient

liquidity existed among Equity FLEX

Qualified Market Makers. The CBOE

believes that by allowing for the

extension of the maturity of FLEX

equity options to five years in situations

where there is demand for a longer term

expiration and where there is sufficient

liquidity among Exchange qualified

market-makers to support the request,

the proposed rule change will better

serve the needs of CBOE’s customers

and the Exchange members who make a

market for such customers.

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 Section 6(b) of the Act.7

Specifically, the Commission believes

the proposal is consistent with the

Section 6(b)(5) 8 requirement that the

rules of an exchange be designed to

promote just and equitable principles of

trade, to remove impediments to and

perfect the mechanism of a free and

open market and a national market

system, and to protect investors and the

public interest.9

The Commission believes it is

appropriate to extend the maximum

permissible maturity term of FLEX

equity options to five years for several

reasons. First, FLEX equity options with

a maturity term of up to five years

should benefit investors by allowing

them to hedge positions on a longer

term basis through investment in one

options series, rather than having to roll

shorter term expirations into new series

to remain hedged on a longer basis. In

this regard, the Commission notes that

the FLEX equity options market is

characterized by large, sophisticated

institutional investors (or extremely

high net worth individuals) who have

the experience, ability and, in many

cases, need to engage in negotiated,

customized transactions.10 The longerterm FLEX equity options will allow

investors to customize their portfolios

further over an extended period of time.

Second, the extension of the permissible

maturity term for FLEX equity options

to five years potentially could expand

the depth and liquidity of the FLEX

equity market without significantly

increasing concerns regarding

intermarket manipulations or

disruptions of the options or the

underlying securities.11 Third, under

the rule, FLEX equity options with

maturity terms between three and five

years could only be issued if a FLEX

Post Official determines that there is

sufficient liquidity among Equity FLEX

Qualified Market Makers. This will help

to ensure that there is not a proliferation

of longer term FLEX equity options

series where no interest in trading such

options exist. Finally, as with all

exhange-traded options, the Options

Clearing Corporation will act as the

counter-party guarantor, thereby

ensuring that obligations will be met

over the long-term.12

For the foregoing reasons, the

Commission finds that CBOE’s proposal

to extend the permissible maturity term

of certain FLEX equity options, as

described above, is consistent with the

requirements of the Act and the rules

and regulations thereunder.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,13 that the

proposed rule change (SR–CBOE–97–

57) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–1180 Filed 1–16–98; 8:45 am]

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[Release No. 34–39541; File No. SR–MSRB–

98–1]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Municipal Securities Rulemaking

Board Relating to Interpretation of

Rule G–38 on Consultants

January 12, 1998.

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 January 9,

1998,3 the Municipal Securities

Rulemaking Board (‘‘Board’’ or

‘‘MSRB’’) filed with the Securities and

Exchange Commission (‘‘Commission’’

or ‘‘SEC’’) the proposed rule change,

(File No. SR–MSRB–98–1), as described

in Items I, II, and III below, which Items

have been prepared by the Board. 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 Board is filing herewith a notice

of interpretation concerning Rule G–38

on consultants (hereafter referred to as

‘‘the proposed rule change’’). The

proposed rule change is as follows:

Rule G–38 Questions and Answer Bank

Affiliates and Definition of Payment

Q: A bank and its employees communicate

with an issuer on behalf of an affiliated

dealer to obtain municipal securities

business for that dealer. In return, the bank

and its employees receive certain ‘‘credits’’

from the dealer. These credits, which do not

involve any direct or indirect cash payments

from the dealer to the bank or its employees,

are used for internal purposes to identify the

source of business referrals. Are the credits

considered a ‘‘payment’’ under rule G–38

thereby requiring the dealer to designate the

bank or its employees as consultant and

comply with the requirements of rule G–38?

A: Rule G–38 defines a consultant as any

person used by a dealer to obtain or retain