Federal Register / Vol. 60, No. 5 / Monday, January 9, 1995 / Notices 2409

23 15 U.S.C. 78s(b)(2) (1988).

24 17 CFR 200.30–3(a)(12) (1991).

1 15 U.S.C. 78s(b)(1) (1988).

2 17 CFR 240.19b–4 (1991).

3Currency warrants, as used in this filing, may

refer to warrants on individual currencies (or cross

currencies) or to warrants on a specific currency

index group (‘‘currency index warrants.’’)

4Securities Exchange Act Release No. 28556, 55

FR 43233 (Oct. 26, 1990).

5Although the Exchange has conformed its

proposed rule to those of other exchanges by

including these provisions giving special margin

treatment to covered writing positions, the

Exchange strongly believes that such provisions

should not be approved for any exchange unless the

Commission concurrently approves the same

margin treatment for covered writing of stock index

call options and stock index put options.

impediments to and perfect the

mechanism of a national market system.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,23 that the

proposed rule change (SR–BSE–94–12)

is approved on a pilot basis until

December 31, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.24

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–387 Filed 1–6–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35178; File No. SR–CBOE

94–34]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment No. 1 to Proposed Rule

Change by the Chicago Board Options

Exchange, Inc. Relating to the

Establishment of Uniform Listing and

Trading Guidelines for Stock Index and

Currency Warrants

December 29, 1994.

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

September 29, 1994, the Chicago Board

Options Exchange, Inc. (‘‘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 self-regulatory organization. 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 CBOE proposes to adopt rules

governing stock index and currency

warrants.3 On December 21, 1994, the

CBOE amended certain surveillance

related matters addressed in the filing.

(See footnote 6 infra.)

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 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 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 October 19, 1990, the Commission

approved SR–CBOE–90–08 authorizing

the Exchange to list and trade stock,

warrants and other securities.4 This

filing proposes rules governing

customer protection and margin

requirements for stock index warrants,

currency index warrants and currency

warrants and position limits for stock

index warrants. This filing incorporates

the results of numerous

communications with the Commission

staff and other exchanges, including

comments contained in a letter from

Sharon Lawson to Joanne Moffic-Silver

dated January 28, 1993 (‘‘Lawson

letter’’). This filing also makes certain

changes in the listing criteria for stock

index and currency warrants and makes

clear that certain rules applicable to

currency warrants would apply equally

to currency index warrants.

Position Limits. The Exchange is

proposing position limits for stock

index warrants that, in general, are

approximately 75%, in terms of

underlying dollar value, of the current

position limits for index options.

Existing Exchange Rule 4.13, Reports

Related to Position Limits, and Rule

4.14, Liquidation of Positions, are made

applicable to transactions in stock index

warrants.

Customer Protection. Modifications

are proposed to Exchange Rule 30.50,

Doing Business With the Public, to

incorporate references to proposed new

Rule 30.52. In addition, Interpretation

.02 is being deleted as unnecessary in

that, subject to certain ‘‘grandfather’’

provisions identified below, rules

applicable to domestic index warrants

will apply equally to warrants on

foreign indexes.

Proposed new Rule 30.52, Special

Requirements for Stock Index Warrants,

Currency Index Warrants and Currency

Warrants, sets out various customer

protection rules applicable to stock

index, currency index and currency

warrants. In addition to the rules

actually set forth therein, Rule 30.52

makes the following existing options

customer protection rules applicable to

stock index, currency and currency

index warrants.

Rule 9.2 Registration of Options

Principals

Rule 9.6 Registration of Branch Offices

Rule 9.7 Account Approval

Requirements

Rule 9.8 Supervision Requirements

Rule 9.9 Suitability Requirements

Rule 9.10 Discretionary Account

Requirements

Rule 9.21 Requirements for Customer

Communications

Rule 9.23 Record-keeping

Requirements for Customer

Complaints

Margin. The Exchange’s proposed

margin requirements for customers

having positions in index warrants,

currency index warrants and currency

warrants are included in proposed new

Rule 30.52. In general, the proposed

margin requirements for long and short

positions in stock index warrants and

currency index warrants are the same as

margin requirements for positions in

stock index options and the margin

requirements for long and short

positions in currency warrants are the

same as those for currency options.

CBOE believes that such requirements

are more appropriate than applying

stock margin treatment to such

warrants.

CBOE’s proposed margin rule also

follow the proposals of the other

exchanges in providing spread margin

offsets between offsetting warrants and

between warrants and listed options on

the same underlying interest and

providing special margin treatment for

‘‘covered writing positions’’ (i.e.,

‘‘short’’ stock index warrant positions

covered by positions in all the stocks

comprising the index).5 Nevertheless,

CBOE believes that a broker-dealer

carrying such positions must bear in

mind that special characteristics of

warrants—such as pricing differences,

the necessity of borrowing to make
2410 Federal Register / Vol. 60, No. 5 / Monday, January 9, 1995 / Notices

6Telephone conversation between James R.

McDaniel, Schiff Hardin & Waite, and Stephen M.

Youhn, SEC, on December 21, 1994 (‘‘Amendment

No. 1’’). The Exchange proposes that the ‘‘20% test’’

be applied in the same manner as that contained in

Securities Exchange Act Release No. 34157 (June 3,

1994), 59 FR 30062 (June 10, 1994) (Commission

approval order allowing the expedited trading

approval of certain narrow-based index options).

7Telephone conversation between James R.

McDaniel, Schiff Hardin & Waite, and Stephen M.

Youhn, SEC, on December 22, 1994.

8 17 CFR 200.30–3(a)(12) (1993).

1 15 U.S.C. 78s(b)(1) (1988).

delivery on short sales, and the issuer

credit risk associated with long

warrants—may cause these margin

requirements to be insufficient to fully

cover the risk of such positions in

certain circumstances, and brokerdealers must therefore be prepared to

call for additional margin when

appropriate. CBOE further believes that

each exchange listing stock index,

currency index or currency warrants

should draw the attention of its member

firms to this issue in connection with

the adoption of these margin rules.

In accordance with the Lawson letter,

the proposed rules would be applicable

only to warrants issued after the

effective date of this filing. Warrants

issued prior to that date would remain

subject to rules then in effect.

Applicability of Other Exchange

Rules. Appendix A to Chapter XXX,

which is a cross-reference table to other

rules of the Exchange that are applicable

to securities otherwise covered in

Chapter XXX, is being updated to reflect

the applicability of certain options rules

(i.e., customer protection rules

including, but not limited to, options

account approval, suitability, etc.,) to

stock index warrants, currency index

warrants and currency warrants.

Listing Criteria. The listing criteria for

stock index warrants and currency

warrants are being amended to reflect

the comments contained in the Lawson

letter and to make clear that they apply

to currency index warrants. In

particular, issuers would be required to

have a minimum tangible net worth in

excess of $150 million. In addition, the

aggregate original issue price of all of a

particular issuer’s warrant offerings

(combined with offerings by its

affiliates) that are listed on a national

securities exchange or that are National

Market securities traded through

NASDAQ would not be permitted to

exceed 25 percent of the issuer’s net

worth. Finally, opening prices for all

U.S. traded securities will be used to

determine an index’s settlement value

where 25 percent or more of the value

of the index is represented by securities

whose primary trading market is in the

U.S.

Trading Halts or Suspensions.

Proposed new Rule 30.36 makes the

provisions in Rule 24.7 concerning

trading halts or suspensions in stock

index options applicable to stock index

warrants.

Specific Warrant Issues. It is the

Exchange’s understanding that, upon

approval of the foregoing amendments,

no rule filing pursuant to Section 19(b)

of the Act will be required in order for

the Exchange to list specific issues of

warrants on a board-based index that is

the underlying index for warrants or

standardized options that have

previously been listed or approved for

listing by the Commission on a national

securities exchange or national

securities association.

Initial and maintenance listing

standards for stock index warrants will

require that no more than 20% of the

securities in the underlying index, by

weight, may be comprised of foreign

securities that are not subject to

comprehensive surveillance sharing

agreements between the CBOE and the

primary exchange on which the foreign

security (including a foreign security

underlying an ADR) is traded.6 Prior to

trading stock index or currency

warrants, the Exchange will distribute a

circular to its membership providing

guidance regarding member firm

compliance responsibilities (including

suitability recommendations) when

handling transactions in index or

currency warrants.7

2. Statutory Basis

The Exchange believes 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 is designed to

prevent fraudulent and manipulative

acts and practices and to promote just

and equitable principles of trade, and is

not designed to permit unfair

discrimination between customers,

issuers, brokers and dealers.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange believes the proposed

rule change will impose no burden on

competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

The Exchange has neither solicited

nor received written comments on the

proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the publication of

this notice in the Federal Register or

within such other 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 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.

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

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 File No. SR–CBOE–94–

34 and should be submitted by January

30, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–427 Filed 1–6–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35186; File No. SR–DTC–

94–16]

Self-Regulatory Organizations; The

Depository Trust Company; Notice of

Filing of a Proposed Rule Change

Clarifying the Depository Trust

Company’s Policy on Depository-toDepository Services and Fees

December 30, 1994.

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

Securities Exchange Act of 1934

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