[Federal Register Volume 60, Number 71 (Thursday, April 13, 1995)]
[Notices]
[Pages 18862-18864]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-9077]



-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35573; International Series Release No. 800 File No. 
SR-CBOE-95-20]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc. Relating to the 
Listing and Trading of Options on the CBOE Latin 15 Index

April 6, 1995.
    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 March 20, 1995, the Chicago Board Options Exchange (``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.

    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1994).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The CBOE proposes to list for trading options on the CBOE Latin 15 
Index (``Latin 15 Index'' or ``Index''). 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 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 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

    The purpose of the proposed rule change is to permit the Exchange 
to list and trade cash-settled, European-style\3\ stock index options 
on the Latin 15 Index, a narrow-based index created by the Exchange.

    \3\European-style options can only be exercised during a 
specified period before the options expire.
---------------------------------------------------------------------------

    The Latin 15 Index consists of fifteen components, including 
American Depositary Receipts (``ADRs''), American Depositary Shares 
(``ADSs''), and closed-end country funds from four Latin American 
countries: Argentina, Brazil, Chile, and Mexico.\4\ The exchange 
represents that no proxy for the performance of these emerging 
economies is currently available in the U.S. derivative markets, and 
options on the Index will provide investors with a low-cost means to 
participate in the performance of these markets or to hedge the risk of 
emerging markets investments.

    \4\The components of the Index are: Argentina Fund Inc.; 
Telefonica de Argentina S.A.; YPF Sociedad Anonima S.A.; Aracruz 
Celulose S.A.; Brazil Fund, Inc.; Brazilian Equity Fund, Inc.; Banco 
Osorno Y La Union; Compania de Telefonos de Chile; Empresa Nacional 
Electricidad S.A.; Empresas La Moderna S.A. de C.V.; Grupo Tribasa 
S.A. de C.V.; Coca Cola Femsa S.A.; Telofonos de Mexico S.A.; Grupo 
Televisa S.A.; and Vitro Sociedad Anonima.
---------------------------------------------------------------------------

Index Design
    As noted above, the Latin 15 Index consists of fifteen components, 
consisting of ADRs, ADSs, and closed-end country funds. All of the 
components of the Index currently trade on the New York Stock Exchange 
(``NYSE'').
    The components comprising the Index ranged in capitalization from 
$77.2 million to $10.6 billion as of March 14, 1995. The total 
capitalization as of that date was $38.8 billion; the mean 
capitalization was $2.6 billion; 

[[Page 18863]]
and the median capitalization was $812.5 million. The largest component 
accounted for 11.67% of the total weight of the Index, and the five 
largest components accounted for 46.67% of the total weight of the 
Index. On that same date, the smallest component accounted for 5.00% of 
the total weight of the Index. The components of the Index were 
initially balanced to have a combined weight for each country as 
follows: Argentina--17.5%, Brazil--35%, Chile--17.5%, and Mexico--30%.
Calculation
    The Index will be calculated by CBOE or its designee on a real-time 
basis using last-sale prices and will be disseminated every 15 seconds 
by CBOE. If a component share is not currently being traded on its 
primary market, the most recent price at which the share traded on such 
market will be used in the Index calculation.
    The Index is calculated on a ``modified equal-dollar-weighted'' 
basis, meaning that each of the components (fund shares or individual 
stocks) from each of the four countries is represented in approximately 
equal dollar amounts in relation to the other shares from that country. 
The countries in the index are then weighted, at the beginning of each 
quarter, as follows: Argentina--17.5%, Brazil--35%, Chile--17.5%, and 
Mexico--30%. The Exchange believes this methodology will present a 
fairer representation of the respective economies. The ``modified'' 
description refers to the fact that the dollar-weighting is done on a 
country by country basis and not between shares of different countries.
    The value of the Index equals the current market value (based on 
U.S. primary market prices) of the assigned number of shares of each of 
the components in the Index divided by the current Index divisor. The 
Index divisor was initially calculated to yield a bench-mark value of 
150.00 at the close of trading on January 3, 1994. The value of the 
Index at the close on March 14, 1995, was 111.68.
Maintenance
    The Index will be maintained by CBOE. To maintain continuity in the 
Index following an adjustment to a component security, the divisor will 
be adjusted. Changes which may result in divisor changes include, but 
are not limited to, certain rights issuances, quarterly re-balancing, 
and component security changes.
    The Index is re-balanced after the close of business on Expiration 
Fridays on the March quarterly cycle. In addition, the Index will be 
reviewed on approximately a monthly basis by the CBOE staff. The CBOE 
may change the composition of the Index at any time or from time to 
time to reflect changes affecting the components of the Index or the 
Latin American markets generally. If it becomes necessary to remove a 
component from the Index, every effort will be made to add a component 
that preserves the character of the Index. In such circumstances, CBOE 
will take into account the capitalization, liquidity, volatility, and 
name recognition of the proposed replacement component. CBOE will not 
decrease the number of components to less than 10.
    Additionally, the Exchange will not make any composition change to 
the Index that would result in less than 80% of the number of 
components or 85% of the weight of the Index satisfying the initial 
equity option listing criteria set forth in CBOE Rule 5.3, 
Interpretation and Policy .01 (for components which are not the subject 
of standardized options trading) or the maintenance criteria in CBOE 
Rule 5.4, Interpretation and Policy .01 (for components which are 
currently the subject of standardized options trading).\5\

    \5\Telephone conversation between Eileen Smith, Director, 
Product Development, Research, CBOE, and Brad Ritter, Senior 
Counsel, Office of Market Supervision, Division, Commission, on 
April 5, 1995.
---------------------------------------------------------------------------

Index Option Trading
    The Exchange proposes to base trading in options on the Latin 15 
Index on the full value of that Index. The Exchange may list full-value 
long-term index option series (``LEAPS''), as provided in Rule 24.9. 
The Exchange also may provide for the listing of reduced-value LEAPS, 
for which the underlying value would be computed at one-tenth of the 
value of the Index. The current and closing index value of any such 
reduced-value LEAP will, after such initial computation, be rounded to 
the nearest one-hundredth.
Exercise and Settlement
    Latin 15 Index options will have European-style exercise and will 
be ``A.M.-settled index options'' within the meaning of the Rules in 
Chapter XXIV, including Rule 24.9, which is being amended to refer 
specifically to Latin 15 Index options. The proposed options will 
expire on the Saturday following the third Friday of the expiration 
month. Thus, the last day for trading in an expiring series will be 
second business day (ordinarily a Thursday) preceding the expiration 
date.
Exchange Rules Applicable
    Except as modified herein, the rules in Chapter XXIV of the CBOE 
Rules will be applicable to Latin 15 Index options. In accordance with 
Chapter XXIV of CBOE's Rules, the Index will be treated as a narrow-
based index for purposes of policies regarding trading halts and 
suspensions,\6\ and margin treatment.\7\

    \6\See CBOE Rule 24.7.
    \7\See CBOE Rule 24.11.
---------------------------------------------------------------------------

    Index option contracts based on the Latin 15 Index will be subject 
to the position limit requirements of Rule 24.4, pursuant to which 
position and exercise limits for options on the Index would currently 
be set at 10,500 contracts. Positions in Index LEAPS will be aggregated 
with positions in Index options on a one-for-one basis. Ten reduced-
value options will equal one full-value Index option or Index LEAP for 
purposes of aggregating position.
    CBOE has the necessary systems capacity to support new series that 
would result from the introduction of the Latin 15 Index options.
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act, in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\8\ in particular, in that it will provide 
investors with an opportunity to invest in options based upon the Latin 
15 Index pursuant to rules designed to prevent fraudulent and 
manipulative acts and practices, promote just and equitable principles 
of trade, foster cooperation and coordination with persons facilitating 
transactions in securities, remove impediments to and perfect the 
mechanism of a free and open market, and protect investors and the 
public interest.

    \8\15 U.S.C. 78f(b)(5) (1988).
---------------------------------------------------------------------------

(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

    Written comments on the proposed rule change were neither solicited 
nor received.

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) 

[[Page 18864]]
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 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. 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 in the 
Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. 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-95-20 and should be 
submitted by May 4, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\

    \9\17 CFR 200.30-3(a)(12) (1994).
---------------------------------------------------------------------------

Jonathan G. Katz,
Secretary.
[FR Doc. 95-9077 Filed 4-12-95; 8:45 am]
BILLING CODE 8010-01-M