[Federal Register Volume 63, Number 141 (Thursday, July 23, 1998)]
[Notices]
[Pages 39610-39611]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19649]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40221; File No. SR-CBOE-98-21]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Incorporated Relating to 
Minimum Opening Transaction Size in FLEX Equity Options

July 16, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 18, 1998, the Chicago 
Board Options Exchange, Incorporated (``CBOE or Exchange'') 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 CBOE. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The CBOE proposes to change the required minimum value size for an 
opening transaction in any FLEX Equity Option \2\ series which has no 
open interest, such that the minimum value size shall be the lesser of 
250 contracts or the number of contracts overlying $1 million of the 
underlying securities.
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    \2\ FLEX equity options are flexible exchange-traded 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.
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    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 statutory 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 CBOE has prepared summaries, set forth 
in sections A, B, and C below, of the most significant parts of such 
statements.

[[Page 39611]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

Purpose
    The Exchange is proposing to change the minimum value size for 
opening transactions (other than FLEX Quotes responsive to a FLEX 
Request for Quotes) in any FLEX Equity Option series in which there is 
no open interest at the time the Request for Quotes is submitted. 
Currently, CBOE Rule 24A.4 states that the minimum value size for these 
opening transactions shall be 250 contracts. The Exchange is proposing 
to change this rule such that the minimum value size for these 
transactions shall be the lesser of 250 contracts or the number of 
contracts overlying $1 million of the underlying securities.
    The Exchange is proposing this change because it believes the 
current rule is unduly restrictive. The rule was originally put in 
place in to limit participation in FLEX Equity options to 
sophisticated, high net worth individuals. However, the Exchange 
believes that limiting participation in FLEX Equity Options based 
solely on the number of contracts purchased may diminish liquidity and 
trading interest in FLEX Equity Options for higher priced equities. The 
Exchange believes the value of the securities underlying the FLEX 
Equity Options is an equally valid restraint as the number of contracts 
and if set at the right limit can also prevent the participation of 
investors who do not have adequate resources. In fact, the limitation 
on the minimum value size for opening transactions in FLEX Index 
Options is tied to the same type of standard, the underlying equivalent 
value.\3\ The Exchange believes the number of contracts overlying $1 
million in underlying securities is adequate to provide the requisite 
amount of investor protection. An opening transaction in a FLEX Equity 
series on a stock priced at $40.01 or more would reach this $1 million 
limit before it would reach the contract size limit, i.e., 250 
contracts times the multiplier (100) times the stock price ($40.01) 
totals $1,000,250 million in underlying value.\4\ It should be noted 
that, currently, an investor can purchase 250 contracts in a FLEX 
Equity series on low priced stocks, meeting the minimum requirement 
without investing a minimum of $1 million. For example, a purchase of 
FLEX Equity Options overlying a $10 stock is permitted although the 
underlying value for the Options would be $250,000, i.e., 250 contracts 
times the multiplier (100) times the stock price ($10).
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    \3\ The term ``underlying equivalent value'' is defined in CBOE 
Rule 24A.1(r) for FLEX Index options, but it is not a defined term 
for FLEX Equity options.
    \4\ Example amended per conversation between Gail Marshall-
Smith, Division of Market Regulation, SEC, and Tim Thompson, CBOE, 
dated June 15, 1998.
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Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
and furthers the objectives of Section 6(b)(5) of the Act \5\ by 
facilitating transactions in securities, removing impediments to and 
perfecting the mechanism of a free and open market in securities and 
otherwise serving to protect investors and the public interest. The 
Exchange believes that the proposal maintains the current investor 
protection principles while providing more investors an opportunity to 
trade FLEX Equity Options.
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    \5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The CBOE does not believe that the proposed rule change will impose 
any 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, 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, NW., Washington, DC 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 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 principle office of the CBOE. All 
submissions should refer to the file number SR-CBOE-98-21 and should be 
submitted by August 13, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to the delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-19649 Filed 7-22-98; 8:45 am]
BILLING CODE 8010-01-M