24580 Federal Register / Vol. 63, No. 85 / Monday, May 4, 1998 / Notices

12 15 U.S.C. 78s(b)(2).

13 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1).

2 12 CFR 220 et seq. The Board of Governors of

the Federal Reserve System issued Regulation T

pursuant to the Act.

along’’ orders does not prohibit a floor

broker from properly exercising

discretion in the representation of an

order or prevent market participants

from effecting legitimate trading

strategies. In addition, the proposed rule

change was published for the full

comment period and Amendment Nos.

1 and 2 do not substantively change the

proposal. Accordingly, the Commission

believes that it is consistent with

Section 6(b)(5) of the Act to approve

Amendment Nos. 1 and 2 to the

proposal on an accelerated basis.

Interested persons are invited to

submit written data, views, and

arguments concerning Amendment Nos.

1 and 2 to the rule proposal, 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, 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 at

the Commission’s Public Reference

Room. Copies of such filing also will be

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to File No.

SR–CBOE–97–50 and should be

submitted by May 26, 1998.

V. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,12 that the

proposed rule change (SR–CBOE–97–

50), including Amendment Nos. 1 and

2, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Jonathan G. Katz,

Secretary.

[FR Doc. 98–11746 Filed 5–1–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39925; File No. SR–CBOE–

97–67]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Board Options Exchange,

Incorporated, Relating to Substantive

Revisions of the Exchange’s Rules

Governing Margin Regulation

April 27, 1998.

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

Securities Exchange Act of 1934

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

December 29, 1997, the Chicago Board

Options Exchange, Incorporated

(‘‘Exchange’’ or ‘‘CBOE’’) 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 Exchange proposes substantive

changes to its rules concerning margin

requirements. The revisions would: (i)

Expand the types of short positions that

would be considered ‘‘covered’’ in a

cash account, specifically, certain short

positions that are components of

limited-risk spread strategies (e.g.,

butterfly and box spreads); (ii) allow a

bank-issued escrow agreement to serve

as cover in lieu of cash for certain

spread positions held in a cash account;

(iii) recognize butterfly and box spreads

as strategies for purposes of margin

treatment and establish appropriate

margin requirements; (iv) recognize

various strategies involving stocks (or

other underlying instruments) paired

with long options, and provide for lower

maintenance margin requirements on

such hedged stock positions; (v) permit

the extension of credit on certain long

term options and certain long box

spreads; (vi) consolidate in one chapter,

the various margin requirements that

presently are dispersed throughout the

Exchange’s rules; (vii) revise other

Exchange rules impacted by the

proposal; and (viii) update and improve,

as necessary, current margin rules.

The text of the proposed rule change

is available at the Office of the

Secretary, the Exchange, 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 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. 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

1. Purpose

The Exchange proposes to make

revisions to its rules governing margin

regulation that would: (i) Expand the

types of short positions that would be

considered ‘‘covered’’ in a cash account,

specifically, certain short positions that

are components of limited-risk spread

strategies (e.g., butterfly and box

spreads); (ii) allow a bank-issued escrow

agreement to serve as cover in lieu of

cash for certain spread positions held in

a cash account; (iii) recognize butterfly

and box spreads as strategies for

purposes of margin treatment and

establish appropriate margin

requirements; (iv) recognize various

strategies involving stocks (or other

underlying instruments) paired with

long options, and provide for lower

maintenance margin requirements on

such hedged stock positions; (v) permit

the extension of credit on certain long

term options and certain long box

spreads; (vi) consolidate in one chapter,

the various margin requirements that

presently are dispersed throughout the

Exchange’s rules; (vii) revise other

Exchange rules impacted by the

proposal; and (viii) update and improve,

as necessary, current margin rules.

Previously, the margin requirements

governing options were set forth in

Regulation T, ‘‘Credit by Brokers and

Dealers.’’ 2 However, recent

amendments to Regulation T that

became effective June 1, 1997, modified

or deleted certain margin requirements

regarding options transactions in favor

of rules to be adopted by the option selfregulatory organizations (‘‘OSROs’’),
Federal Register / Vol. 63, No. 85 / Monday, May 4, 1998 / Notices 24581

3See Board of Governors of the Federal Reserve

System Docket No. R–0772 (Apr. 26, 1996), 61 FR

20386 (May 6, 1996).

4See Securities Exchange Act Release No. 38709

(June 2, 1997), 62 FR 31643 (June 10, 1997).

5Telephone conversation between Richard

Lewandowski, Assistant Vice President, Exchange,

and Michael Loftus, Attorney, Division of Market

Regulation, Commission, April 27, 1998.

6The proposed rules are outlined below under

the ‘‘Cash Account’’ and ‘‘Margin Account’’

sections.

7Throughout the remainder of this notice, the

term ‘‘warrant(s)’’ means this type of warrant.

subject to approval by the Commission.3

In a rule filing approved last year, the

Exchange adopted certain optionsrelated margin requirements that were

dropped from Regulation T.4 The rule

filing also made changes to clarify

several margin rules and to establish

consistency with certain margin rules

maintained by the New York Stock

Exchange (‘‘NYSE’’).

At the present time, the Exchange

seeks to revise its margin rules to

implement enhancements long desired

by Exchange members and member

firms, public investors, and the

Exchange staff. The Exchange believes

that certain multiple options position

strategies and other strategies that

combine stock with option positions

warrant identification and recognition

for purposes of establishing more

equitable margin requirements.

Currently, the two components of a

strategy that combines stock with an

options position must be margined

separately. The Exchange believes the

risk limitation that results if the stock

and options position are viewed

collectively is not reflected in the

current maintenance margin

requirements.5 Lastly, the proposal

would permit credit to be extended on

certain types of options.

During the development of the

proposed rule change, the Exchange

reviewed its margin rules with a view

towards updating and improving the

rules. In some instances, the Exchange

found it necessary to make minor

changes to certain rules because they

would be impacted by the more

substantive proposals.

a. Definition Section. Presently, the

Exchange’s definition ‘‘current market

value’’ is equivalent to the definition

found in Regulation T. Instead of

repeating the Regulation T definition,

the proposal would revise the definition

found in the Exchange’s rules to note

that the meaning of the term ‘‘current

market value’’ is as defined in

Regulation T. Because the Exchange and

other OSROs intend to seek a change in

the Regulation T definition, a linkage to

the Regulation T definition would keep

the Exchange’s definition equivalent

without requiring a future rule filing.

The Exchange also seeks to establish

definitions for the ‘‘butterfly spread’’

and ‘‘box spread’’ options strategies.

The definitions relate to the Exchange’s

proposed rules that would recognize

and specify cash and margin account

requirements for butterfly and box

spreads.6 The Exchange believes the

definitions are necessary to specifically

establish what multiple option

positions, if held together, qualify for

classification as butterfly or box

spreads, and consequently are eligible

for the proposed cash and margin

treatment.

Finally, the proposal would define the

term ‘‘listed.’’ Because ‘‘listed’’ is

frequently used in the Exchange’s

margin rules, the Exchange believes it

would be more efficient to define the

term once rather than specifying the

meaning each time the term is utilized.

b. Extension of Credit on Long

Options, Stock Index Warrants, Foreign

Currency Warrants, and Currency Index

Warrants. The proposal would allow

extensions of credit on certain listed

long options and warrant productions

(including currency and index warrants,

but excluding traditional stock warrants

issued by a corporation on its own

stock).7 Only those options or warrants

that are more than 9 months from

expiration would be eligible for credit

extension. The proposal requires initial

and maintenance margin of not less than

75% of the current market value of a

listed option or warrant. Therefore, a

broker-dealer would be able to loan up

to 25% of the current market value of

a listed option or warrant.

The proposal also would permit the

extension of credit on options and

warrants not listed or traded on a

registered national securities exchange

or a registered securities association

(‘‘OTC options’’). However, in addition

to being more than 9 months from

expiration, an OTC option or warrant

must be in-the-money and guaranteed

by the carrying broker-dealer. The

proposal requires initial and

maintenance margin of not less than

75% of the OTC option’s (warrant’s) inthe-money amount (or intrinsic value),

plus 100% of the amount, if any, by

which the current market value of the

OTC option or warrant exceeds the inthe-money amount.

When the time remaining until

expiration for a warrant or option (listed

and OTC) on which credit has been

extended reaches nine months, the

maintenance margin requirement would

become 100% of the purchase price.

The proposal also would provide for

the extension of credit on a long box

spread composed entirely of Europeanstyle option. A long box spread is a

strategy composed of four option

positions which essentially lock-in the

ability to buy and sell the underlying

component or index for a profit, even

after netting the cost of establishing the

long box. The two exercise prices

embedded in the strategy determine the

buy and the sell price. The Exchange

believes that because the cost of

establishing the long box is covered by

the profit realizable at expiration, there

is no risk in carrying the debit incurred

to establish the box spread. Although

the Exchange believes that 100% of the

debit could be loaned, the Exchange

proposes to implement a margin

requirement and approximates 50% of

the debit. The Exchange’s proposal

would require 50% of the aggregate

difference in the two exercise prices

(buy and sell) which results in a margin

requirement slightly higher than 50% of

the debit typically incurred. This is both

an initial and maintenance margin

requirement. The proposal would afford

a long box position a market value for

margin equity purposes of not more

than 100% of the aggregate exercise

price differential.

c. Cash Account. The proposal would

make butterfly and box spreads in cashsettled, European-style options eligible

for the cash account. To quality for

carrying in the cash account, the

butterfly and box spreads would be

required to meet the specifications,

contained in the proposed definition

section. The proposal would require full

cash payment of the debit that is

incurred when a long butterfly or box

spread strategy is established. The

Exchange believes that if the debit is

fully paid, there is no risk to the

carrying broker-dealer.

Short butterfly spread generate a

credit balance when established.

However, in the worst case scenario

where all options are exercised, a debit

(loss) greater than the initial credit

balance received would accrue to the

account. This debit or loss is limited. To

eliminate the risk to the carrying brokerdealer, the proposal would require that

the initial credit balance, plus an

amount equal to the difference between

the initial credit and the total risk, be

held in the account in the form of cash

or cash equivalents. The total risk

potential in a short butterfly spread

comprised of call options is the

aggregate difference between the two

lowest exercise prices. When respect to

short butterfly spreads comprised of put

options, the total potential is the

aggregate difference between the two

highest exercise prices. Therefore, to

carry short butterfly spreads in the cash
24582 Federal Register / Vol. 63, No. 85 / Monday, May 4, 1998 / Notices

8The writer of a call option has an obligation to

sell the underlying component at the call exercise

price. The writer cannot receive the benefit of a

market value that is above the call exercise price

because, if assigned an exercise, the underlying

component would be sold at the exercise price, not

the market price.

9The writer of a put option has an obligation to

buy the underlying component at the put exercise

price. If assigned an exercise, the underlying

component would be purchased (the short position

effectively closed) at the exercise price, even in the

event the market price is lower. To offset the benefit

to the account of a lower market value, the put inthe-money amount is added to the requirement.

account, the proposal would require

that cash or cash equivalents equal to

the maximum risk be held or deposited.

Short box spreads also generate a

credit balance when established, but

unlike the butterfly spread, this credit is

sufficient to cover the total debit (loss)

that, in the case of a box spread, will

accrue to the account if held to

expiration. The Exchange believes the

credit should be retained in the account.

Therefore, the proposal would require

that cash or cash equivalent coverings

the maximum risk, which is equal to the

aggregate difference in the two exercise

prices involved, be held or deposited.

In addition, the proposal would allow

an escrow agreement to be utilized in

lieu of the cash or cash equivalents that

are a prerequisite to carrying short

butterfly and box spreads in the cash

account.

d. Margin Account. Currently, the

Exchange’s margin rules do not

recognize butterfly and box spreads for

margin purposes. Therefore, margin

requirements tailored to the risks of

these respective strategies, which the

Exchange believes have limited risk, are

not currently provided. A butterfly

spread is a pairing of two standard

spreads, one bullish and one bearish.

Under current Exchange margin rules,

the two spreads (bullish and bearish)

must be margined separately. The

Exchange believes this practice requires

more margin than necessary because the

two spreads serve to offset each other

with respect to risk. The Exchange

believes that the two individual spreads

should be viewed in combination to

form a butterfly spread, and that

commensurate with the lower combined

risk, investors should receive the benefit

of lower margin requirements. The

proposal would recognize butterfly

spreads as distinct strategies and specify

requirements that are the same as the

cash account requirements described

above.

As noted earlier, under the proposal

the margin required for a long box

spread would be 50% of the aggregate

difference in the two exercise prices

framing the strategy. This is both an

initial and maintenance margin

requirement. For margin equity

purposes, a long box spread could not

be valued at more than 100% of the

aggregate exercise price differential. The

requirement for a short box spread in

the margin account would be the same

as the cash account requirement

described earlier. Short box spreads

would not be recognized for margin

equity purposes.

In addition to butterfly and box

spreads, the Exchange proposes to

recognize five options strategies that are

designed to limit the risk of a position

in the underlying component. The

strategies are: (i) Long Put/Long Stock;

(ii) Long Call/Short Call; (iii)

Conversion; (iv) Reverse Conversion;

and (v) Collar. Proposed Exchange Rule

12.3(c)(5)(C)(3), ‘‘Exceptions,’’ would

identify and set forth the requirements

for these hedge strategies.

The five strategies are summarized

below in terms of a stock position held

in conjunction with an overlying option

(or options). However, the proposal is

structured to also apply to components

that underlie index options and

warrants. The Exchange’s proposal only

addresses maintenance margin relief for

the stock component (or other

underlying instrument) of the five

proposed strategies. The Exchange

believes that a reduction in the initial

margin for the stock component of these

strategies is not currently possible

because the 50% initial margin

requirement under Regulation T

continues to apply, and the Exchange

does not possess the independent

authority to lower the initial margin

requirement for stock. However, the

Exchange notes that the Federal Reserve

Board is considering recognizing the

reduced risk afforded stock by these

option strategies for the purpose of

lowering initial stock margin

requirements and is also considering

other changes that would facilitate riskbased margins.

The ‘‘Long Put/Long Stock’’ and the

‘‘Long Call/Short Stock’’ strategies are

very similar to the ‘‘Collar’’ and

‘‘Reverse Conversion’’ strategies that are

addressed below.

A ‘‘Conversion’’ is a long stock

position held in conjunction with a long

put and a short call. The put and call

must have the same expiration and

exercise price. The long put/short call is

essentially a synthetic short stock

position which offsets the long stock,

and the exercise price of the options

acts like a predetermined sale price. The

short call is covered by the long stock

and the long put is a right to sell the

stock at a predetermined price—the put

exercise price. Regardless of any decline

in market value, the stock, in effect, is

worth no less than the put exercise

price.

A ‘‘Reverse Conversion’’ is a short

stock, short put, and long call trio.

Again, the put and call must have the

same expiration and exercise price. The

long call/short put is essentially a

synthetic long stock position which

offsets the short stock and the exercise

price of the options acts like a

predetermined purchase (buy-in) price.

The short put is covered by the short

stock and the long call is a right to buy

the stock (in this case closing the short

position) at a predetermined price—the

call exercise price. Regardless of any

rise in market value, the stock can be

acquired for the call exercise price, in

effect, the short position is valued at no

more than the call exercise price. The

‘‘Long Call/Short Stock’’ hedge

described above is a Reverse Conversion

without the short put, or simply short

stock offset by a long call.

A ‘‘Collar’’ is a long stock position

held in conjunction with a long put and

a short call. A Collar differs from a

Conversion in that the exercise price of

the put is lower than the exercise price

of the call in the Collar strategy,

therefore, the options do not constitute

a pure synthetic short stock position.

The ‘‘Long Put/Long Stock’’ hedge

mentioned above is similar to a Collar

without the short call, or simply long

stock hedged by a long put.

The proposal would establish reduced

maintenance margin requirements for

the stock component of these five

strategies as described below:

1. Long Put/Long Stock

The lesser of:

• 10% of the put exercise price, plus

100% of any amount by which the put

is out-of-the-money; or

• 25% of the long stock market value.

2. Long Call/Short Stock

The lesser of:

• 10% of the call exercise price, plus

100% of any amount by which the call

is out-of-the-money; or

• The maintenance margin

requirement on the short stock.

3. Conversion

• 10% of the exercise price.

The stock may not be valued at more

than the exercise price.8

4. Reverse Conversion

• 10% of the exercise price, plus any

in-the-money amount.9

5. Collar

The lesser of:

• 10% of the put exercise price, plus

100% of any amount by which the put

is out-the-money; or
Federal Register / Vol. 63, No. 85 / Monday, May 4, 1998 / Notices 24583

10A row also has been added to the table to

incorporate the margin requirement for a narrowbased stock index warrant. This requirement is

being moved from Chapter 30. 11 12 CFR 220.2. 12 15 U.S.C. 78f(b)(5).

• 25% of the call exercise price.

The stock may not be valued at more

than the call exercise price.

These same maintenance margin

requirements will apply, for example,

when these strategies are utilized with

a mutual fund or a stock basket

underlying index options or warrants.

e. Restructuring. The proposal would

replace the present margin requirement

for short (uncovered) listed options with

current Interpretation and Policy .01 to

Exchange Rule 12.3 (‘‘Interpretation’’).

The Interpretation contains a table

listing all existing options and warrant

products, their underlying component

or index, the percentage used in a basic

formula for calculating the margin

requirement, and the percentage used in

the calculation of a minimum

requirement that becomes operative

whenever the basic formula results in a

lower requirement.10 The revision will

ensure that the margin requirements for

all types of options and warrants will be

set forth in one section in an efficient

and organized manner. The

restructuring also allows the deletion of

the short, uncovered option margin

requirements for option/warrant

products that now appear in the other

chapters (Chapter 23 (interest rate

options), Chapter 24 (index options),

and Chapter 30 (warrants)) because the

methodology for calculating the margin

is identical—only the percentages and

underlying components or indexes

differ.

The margin requirements for short

(uncovered) positions in OTC options

would be relocated under Exchange

Rule 12.3(c)(5)(B). The text of the

Interpretation (margin requirements for

short listed options) currently differs

from the text of the Exchange rule that

sets forth the margin requirements for

short OTC options. The difference stems

from the fact that the current Exchange

rule relating to OTC options was

modeled after the NYSE margin rule. To

establish consistency and better

organization, the proposal would revise

the text of the margin requirements for

both listed and OTC short options to

make them similar. The Exchange has

noted that the methodology of both

margin requirements is essentially the

same, only different percentages are

applied.

In addition, to the extent possible, the

proposal has combined the margin

requirements pertaining to long position

offsets for short OTC options with those

for short listed options. The revision

will combine two sets of relatively

identical requirements that currently

exist.

f. Consolidation. For the most part,

the proposal would delete the margin

requirements applicable to short

options/warrants and spreads that

currently appear in Chapters 23, 24, and

30. Exchange Rule 12.3 would be

restructured to generically cover the

margin requirements for short and

spread positions in options/warrants of

the types currently in the other

chapters. Other complex requirements

located elsewhere that are not amenable

to such generic treatment, have been

incorporated into Exchange Rule 12.3 as

necessary.

g. Miscellaneous. 1. Time Margin

Must Be Obtained. The proposal would

clarify the time in which initial margin,

or payment in respect of cash account

transactions, is due. Exchange Rule

12.2, which was adopted at a time when

the Exchange had authority only to set

maintenance margin levels, currently

requires that margin be obtained as

promptly as possible. Because the

Exchange now has additional

rulemaking responsibility for initial

margin requirements, the proposal

specifies that initial margin

requirements are due in one ‘‘payment

period’’ as defined in Regulation T.11

The proposal also revises Exchange Rule

12.2 to specify that maintenance margin

must be obtained as promptly as

possible, but in any event within 15

days (rather than the former standard—

‘‘within a reasonable time’’). The

Exchange believes this revision is

consistent with the current NYSE

requirement.

2. Effect of Mergers and Acquisitions

on the Margin Required for Short Equity

Options. The proposal would

implement as Interpretation and Policy

.13 of Exchange Rule 12.3, an exception

to the margin requirement for short

options in the event trading in the

underlying security ceases due to a

merger or acquisition. The exception

currently exists pursuant to an

Exchange Regulatory Circular. Under

the exception, if an underlying security

ceases to trade due to a merger or

acquisition, and a cash settlement price

has been anounced by the issuer of the

option, margin would be required only

for in-the-money options and would be

set at 100% of the in-the-money

amount. The Exchange has noted that

the NYSE currently maintains a similar

written interpretation.

3. Determination of Value for Margin

Purposes. The proposal would revise

Exchange Rule 12.5 to make it

consistent with the other portion of the

Exchange’s proposal that allows the

extension of credit on certain long-term

options. Currently, Exchange Rule 12.5

does not allow the market value of longterm options to be considered for

margin equity purposes. The revision

would allow options and warrants

eligible for loan value pursuant to

proposed Rule 12.3 to be valued at

current market prices for margin

purposes. The Exchange believes the

change in necessary to ensure that the

value of the option or warrant (the

collateral) is sufficient to cover the debit

carried in conjunction with the

purchase.

4. OTC Options. Some minor

corrections have been made to the table

in Exchange Rule 12.3(c)(5)(B) that

displays the margin requirements for

short OTC options.

5. Exempted Securities. Currently, the

Exchange’s maintenance margin

requirement for a non-convertible debt

security is found in Exchange Rule

12.3(c)(1), ‘‘Exempted Securities.’’

However, the term ‘‘non-convertible

debt security’’ refers to corporate bonds

which are not considered exempt

securities under the Act. Therefore, the

Exchange seeks to remove the paragraph

regarding non-convertible debt

securities from the ‘‘Exempted

Securities’’ category, and redesignate it

as a separate section of Exchange Rule

12.3(c)(2).

2. Statutory Basis

The Exchange believes the proposed

rule change is consistent with and

furthers the objectives of Section 6(b)(5)

of the Act,12 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 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

The Exchange did not solicit or

receive written comments 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
24584 Federal Register / Vol. 63, No. 85 / Monday, May 4, 1998 / Notices

13 17 CFR 200.30–3(a)(12)

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

2Securities Exchange Act Release No. 39836

(April 7, 1998), 63 FR 18239.

3The proposed rule change will add the

following terms to DTC’s rules: (1) Certificated

security; (2) control; (3) deposit; (4) entitlement

holder; (5) entitlement order; (6) free pledge; (7) free

release; (8) NYUCC; (9) person; (10) pledge; (11)

pledge versus payment; (12) release; (13) release

versus payment; (14) security entitlement; (15)

security certificate; (16) uncertificated security; and

(17) withdrawal.

4The proposed rule change will make technical

revisions to the following terms: (1) Clearing agency

agreement; (2) deliverer; (3) delivery; (4) deposited

security; (5) incomplete transaction; (6) instructor;

(7) minimum amount securities; (8) net addition

securities; (9) participant; (10) payee; (11) payor;

(12) pledge security; (13) pledgee; (14) pledgor; (15)

receiver; (16) securities account; (17) security; (18)

segregated account; and (19) settlement amount.

5 15 U.S.C. 78q–1(b)(3)(F).

6The staff of the Board of Governors of the

Federal Reserve System has concurred with the

Commission’s granting of accelerated approval.

Telephone conversation between Kristen Wells,

Senior Analyst, Division of Reserve Bank

Operations, Board of Governors of the Federal

Reserve System, and Jeffrey Mooney, Special

Counsel, Division of Market Regulation,

Commission (April 24, 1998).

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 the 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,

including whether the proposed rule

change is consistent with the Act.

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

submissions, 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 persons, 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 Exchange. All submission

should refer to File No. SR–CBOE–97–

67 and should be submitted May 26,

1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Jonathan G. Katz,

Secretary.

[FR Doc. 98–11747 Filed 5–1–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39924; File No. SR–DTC–

98–01]

Self-Regulatory Organizations; The

Depository Trust Company; Order

Granting Accelerated Approval of

Proposed Rule Change to Conform

DTC’s Rules to Revised Article 8 of the

Uniform Commercial Code of the State

of New York

April 27, 1998.

On January 14, 1998, The Depository

Trust Company (‘‘DTC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) a proposed rule change

(File No. SR–DTC–97–14) pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’).1 Notice

of the proposal was published in the

Federal Register on April 14, 1998.2

The Commission received no comment

letters in response to the filing. For the

reasons discussed below, the

Commission is granting accelerated

approval of the proposed rule change.

I. Description

The rule change amends DTC’s rules

to make them consistent with revised

Article 8 of the Uniform Commercial

Code (‘‘UCC’’) as adopted by the State

of New York. Generally, the revisions to

Article 8, which governs the transfer of

securities, reflect that the transfer of

ownership of securities and other

investment vehicles are no longer

effected by the delivery and holding of

certificates. Instead, securities are

transferred by debits and credits to

securities accounts maintained by

securities intermediaries. The rule

change adds new terminology to DTC’s

rules,3 revises certain definitions,4 and

deletes section references based on the

prior version of Article 8. The

amendments do not change the

substance or meaning of DTC’s current

rules.

The rule change also amends DTC

Rule 20 to specifically state that DTC’s

board of directors may be resolution

delegate to the chairman of the board

the power to approve fees and charges.

II. Discussion

Section 17A(b)(3)(F) 5 of the Act

requires that the rules of a clearing

agency be designed to assure the

safeguarding of securities and funds

which are in the custody or control of

the clearing agency or for which it is

responsible. The Commission believes

that the proposed rule changes are

consistent with this requirement

because by conforming its rules to the

revised Article 8 of the UCC, DTC

should help maintain certainty with

respect to the substantive rights and

obligations under New York State’s

version of the UCC that are applicable

to DTC and its participants.

The Commission also believes that

providing DTC’s board of directors with

the authority to delegate to the chairman

of the board the power to approve fees

and charges is consistent with this

requirement because it allows DTC’s

board to act more expeditiously.

DTC has requested that the

Commission find good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice of the filing. The

Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after

publication in order to enable DTC to

revise its rules to be consistent with

New York State’s version of Article 8 of

the UCC as soon as possible.6

III. Conclusion

On the basis of the foregoing, the

Commission finds that the proposal is

consistent with the requirements of the

Act and in particular with the

requirements of Section 17A of 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 (File No. SR–

DTC–98–01) be, and hereby is, approved

on an accelerated basis.