19102 Federal Register / Vol. 61, No. 84 / Tuesday, April 30, 1996 / Notices

1 15 U.S.C. § 78s(b)(1) (1988).

2 17 CFR 240.19b–4 (1995).

3See Securities and Exchange Act Release No.

36953 (March 11, 1996), 61 FR 11448.

4See Letter from Claire P. McGrath, Managing

Director and Special Counsel, Derivative Securities,

Amex, to Michael Walinskas, Branch Chief,

Derivatives Regulation, Office of Self-Regulatory

Oversight, Division of Market Regulation,

Commission, dated April 15, 1996 (‘‘Amendment

No. 1’’). In Amendment No. 1, the Amex replaced

one of the Index’s component stocks, Hemlo Gold

Mines, with Cambior Inc., because Hemlo Gold

Mines is expected to merge with Battle Mountain

Gold Company in June 1996. The Amex also

removed Santa Fe Pacific Gold Corp. from the Index

because it no longer meets the Amex’s requirement

for the hedging of gold production. In addition, the

Amex represented that (1) the Exchange will

promptly notify the Commission if the Index fails

to meet the maintenance criteria provided in the

proposal; and (2) the Index will be maintained so

that foreign country securities or American

Depositary Receipts (‘‘ADRs’’) thereon that are not

subject to comprehensive surveillance sharing

agreements will not represent more than 20% of the

weight of the Index.

5Under Amex Rule 901C, Commentary .02, the

Amex may list options on a stock industry index

pursuant to Section 19b(3)(A) under the Act

provided that the index satisfies certain criteria.

Commentary .02 requires, among other things, that

the index be calculated based on either the

capitalization weighting, price weighting, or equaldollar weighting methodology, and that the trading

volume for each component stock of the index in

each of the last six months be not less than

1,000,000 shares, except that for each of the lowest

weighted component securities in the index that in

6. Applicant believes that the terms of

the requested order are consistent with

the protection of investors and the

intention of the SEC in exempting

transactions from section 10(f) pursuant

to rule 10f–3. The requested order

departs from rule 10f–3 only in that the

offerings will not be subject to

registration under section 5 of the

Securities Act as required by subsection

(a)(1) of rule 10f–3.

7. Applicant states that adherence to

the conditions contained in the

application will provide an adequate

substitute for the registration

requirement of rule 10f–3. In addition,

the nature of a public offering and a firm

commitment underwriting in Mexico

make it highly likely that a wide group

of offerees will take part in the offering,

and that the securities will be offered to

and purchased by affiliated and

unaffiliated persons on the same terms.

Furthermore, where an issuer’s financial

statements are available for the last two

years, applicant believes that it will be

assured of having the basic financial

information needed to evaluate the

security. Together with the public

offering requirement, such statements

also provide assurance that the

securities were issued in the ‘‘ordinary

course’’ of business. Applicant therefore

believes that exemption from the

provisions of section 10(f) in accordance

with the conditions set forth in the

application is consistent with the

protection of investors and the purposes

intended by the passage of section 10(f)

of the Act and rule 10f–3 thereunder.

Applicant’s Conditions

Applicant agrees that any order of the

SEC granting the requested relief will be

subject to the following conditions:

1. All securities purchased in Mexico

under circumstances subject to section

10(f) of the Act will be purchased in

public offerings conducted in

accordance with the laws of Mexico.

2. All subject foreign issuers of

securities in which the Fund invests

pursuant to the requested order will

have available to prospective

purchasers, including the Fund,

financial statements, audited in

accordance with Mexican accounting

standards, for at least the two years

prior to purchase.

3. All purchases made by the Fund

pursuant to the requested order will

comply with all provisions of rule 10f–

3 except for the registration requirement

set forth in rule 10f–3(a)(1).

For the SEC, by the Division of Investment

Management, under delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–10583 Filed 4–29–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37139; File No. SR–Amex–

96–08]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change and

Notice of Filing and Order Granting

Accelerated Approval of Amendment

No. 1 to the Proposed Rule Change by

the American Stock Exchange, Inc.,

Relating to the Trading of Options on

the Amex Gold BUGSSM Index

April 23, 1996.

I. Introduction

On February 9, 1996, the American

Stock Exchange, Inc. (‘‘Amex’’ or

‘‘Exchange’’) submitted to the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘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

provide for the listing and trading of

standardized options on the Amex Gold

BUGS SM Index (‘‘Index’’).

Notice of the proposed rule change

appeared in the Federal Register on

March 20, 1996.3 On April 15, 1996, the

Amex amended its proposal.4 No

comment letters were received on the

proposed rule change. This order

approves the Exchange’s proposal, as

amended.

II. Description of Proposal

A. General

The Amex proposes to trade options

on the Index, a modified equal-dollar

weighted index developed by the Amex

and comprised of 14 gold mining

company stocks (or ADRs thereon)

which are traded on the Amex or the

New York Stock Exchange, Inc.

(‘‘NYSE’’). In addition, the Amex

proposes to amend Commentary .01 to

Amex Rule 901C, ‘‘Designation of Stock

Index Options,’’ to indicate that 90% of

the Index’s numerical index value must

be accounted for by stocks which meet

the then current criteria and guidelines

provided in Amex Rule 915, ‘‘Criteria

for Underlying Securities’’ and to

indicate that these criteria must also be

satisfied immediately following each

quarterly rebalancing.

The Exchange believes that an index

of gold mining stocks whose values are

affected strongly by the price of gold

will be attractive to many investors.

According to the Amex, gold companies

generally manage the risks associated

with fluctuating prices by hedging their

future production. The Amex notes that

companies that hedge their gold

production for longer periods are less

affected by the fluctuating price of gold.

In an effort to give investors an index

with a significant exposure to the near

term movements in gold prices, the

Exchange has included in the Index

those gold mining companies that do

not hedge their gold production for

extensive periods into the future.

Specifically, the Amex states that only

companies that have a hedging ratio of

less than 11⁄2 years production will be

considered for inclusion in the Index.

B. Eligibility Standards for Index

Components

The Amex states that the Index

conforms with Exchange Rule 901C,

which specifies criteria for the inclusion

of stocks in an index on which

standardized options will be traded.

According to the Amex, the Index also

conforms to most of the criteria set forth

in Amex Rule 901C, Commentary .02

(which provides for the commencement

of trading of options on an index 30

days after the date of filing), except that

the Index is calculated using a modified

version of the equal-dollar weighting

method and four of the components of

the Index do not meet the six month

minimum trading volume criteria.5
Federal Register / Vol. 61, No. 84 / Tuesday, April 30, 1996 / Notices 19103

the aggregate account for no more than 10% of the

weight of the index, the trading volume must be at

least 500,000 shares in each of the last six months.

6 In the case of ADRs, this represents market

capitalization as measured by total world-wide

shares outstanding. 7See infra Section II.D. 8See Amendment No. 1, supra note 4.

According to the Amex, all of the

Index’s component securities meet the

following standards: (1) all of the

Index’s component securities are traded

on the Amex or the NYSE; (2) the

component stocks comprising the top

90% of the Index by weight have a

market capitalization 6 of at least $75

million, and those component stocks

constituting the bottom 10% of the

Index by weight have a market

capitalization of at least $50 million;

and (3) foreign country securities or

ADRs thereon that are not subject to

comprehensive surveillance agreements

do not in the aggregate represent more

than 20% of the weight of the Index.

C. Index Calculation

The Index is calculated using a

modified equal-dollar weighting

methodology. Three of the Index’s 14

component companies are given higher

weightings based upon their market

value. The following is a description of

how this modified equal-dollar

weighting calculation method works. As

of the market close on February 5, 1996,

a portfolio of gold mining company

stocks was established representing an

investment of approximately (1) $16,000

in two components in the Index; (2)

$12,000 in one of the components; (3)

$2,000 in two components; and (4)

$4,300 in the remaining 12 components

(rounded to the nearest whole share).

The value of the Index equals the

current market value (i.e., based on U.S.

primary market prices) of the sum of the

assigned number of shares of each of the

stocks in the Index portfolio divided by

the Index divisor. The Index divisor was

initially determined to yield the

benchmark value of 200.00 at the close

of trading on February 5, 1995. Each

quarter thereafter, following the close of

trading on the Thursday prior to the

third Friday of March, June, September,

and December, the Index portfolio will

be reviewed and adjusted if any one of

the three components initially

representing higher weightings in the

Index value currently represents 25% or

more of the Index value, or if any one

of the other components initially

representing lower weightings in the

Index value currently represents 5% or

more of the Index value. The Index

portfolio will be rebalanced, if

necessary, by changing the number of

whole shares of each component stock

so that the three components initially

given higher weights will again

represent less than 25% of the Index

value and the remaining lower-weighted

components will each represent less

than 5% of the Index value. In any

event, the five highest weighted

components cannot represent more than

60% of the Index value at each quarterly

rebalancing.7

The Exchange has chosen to rebalance

the Index following the close of trading

on the Thursday prior to the third

Friday of March, June, September and

December, since it allows an option

contract to be held for up to three

months without a change in the Index

portfolio while, at the same time,

maintaining the equal-dollar weighting

feature of the Index. If necessary, a

divisor adjustment will be made at the

rebalancing to ensure the continuity of

the Index’s value. The newly adjusted

portfolio becomes the basis for the

Index’s value on the first trading day

following the quarterly adjustment.

As noted above, the number of shares

of each component stock in the Index

portfolio remains fixed between

quarterly reviews except in the event of

certain types of corporate actions such

as the payment of a dividend other than

an ordinary cash dividend, stock

distribution, stock split reverse stock

split, rights offering, distribution,

reorganization, recapitalization, or

similar event with respect to the

component stocks. In a merger or

consolidation of an issuer of a

component stock, if the stock remains in

the Index, the number of shares of that

security in the portfolio may be

adjusted, to the nearest whole share, to

maintain the component’s relative

weight in the Index at the level

immediately prior to the Corporate

Action. In the event of a stock addition

or replacement, the new component

stock will be added to the Index at a

weight determined by the Exchange and

the Index will be rebalanced. In all

cases, the divisor will be adjusted, if

necessary, to ensure Index continuity.

Similar to other stock index values

published by the Exchange, the value of

the Index will be calculated

continuously and disseminated every 15

seconds over the Consolidated Tape

Association’s Network B.

D. Maintenance of the Index

The Exchange will maintain the Index

so that upon quarterly rebalancing: (1)

the total number of component

securities will not increase or decrease

by more than 331⁄3% from the number

of components in the Index at the time

of its initial listing and in no event will

the Index have fewer than nine

components; (2) components stocks

constituting the top 90% of the Index by

weight will have a minimum market

capitalization of $75 million and the

component stocks constituting the

bottom 10% of the Index by weight will

have a minimum market capitalization

of $50 million; (3) at least 90% of the

Index’s numerical index value and at

least 80% of the total number of

component securities individually will

meet the then current criteria for

standardized option trading set forth in

Amex Rule 915; (4) stocks constituting

85% of the Index will have a monthly

trading volume of at least 500,000

shares for each of the last six months;

(5) no single component will represent

more than 25% of the weight of the

Index and the highest weighted

components will represent no more than

60% of the Index at each quarterly

rebalancing; and (6) in order to maintain

the character of the Index, companies

whose gold production hedging policies

change to greater than 11⁄2 times annual

production will be considered for

removal from the Index. In addition, the

Index will be maintained so that foreign

country securities or ADRs thereon that

are not subject to comprehensive

surveillance sharing agreements will not

in the aggregate represent more than

20% of the weight of the Index.8

The Amex will not open for trading

any additional option series if the Index

fails to satisfy any of the maintenance

criteria set forth above unless the

Exchange determines that such failure is

not significant and the Commission

concurs in that determination or unless

the continued listing of options on the

Index has been approved by the

commission pursuant to Section 19(b)(2)

of the Act.

E. Expiration and Settlement

The options on the proposed Index

will be European-style (i.e., exercises

permitted only at expiration) and cashsettled. Standard option trading hours

(9:30 a.m. to 4:10 p.m. New York time)

will apply. Options on the Index will

expire on the Saturday following the

third Friday of the expiration month

(‘‘Expiration Friday’’). The last trading

day in an expiring option series

normally will be the second to last

business day preceding the Saturday

following the third Friday of the

expiration month (normally a

Thursday). Trading in expiring options

will cease at the close of trading on the

last trading day.

The Amex plans to list options series

with expirations in the three near-term

calendar months and in the two
19104 Federal Register / Vol. 61, No. 84 / Tuesday, April 30, 1996 / Notices

9Under Amex Rule 900C(b)(1), a stock index

industry group is an index of stocks representing a

particular industry or related industries.

10Amex Rule 904C(c) provides that the position

limit for an industry index option will be 9,000

contracts if the Amex determines at the

commencement of trading of the options that any

single stock in the underlying stock index industry

group accounted, on average, for 20% or more of

the numerical index value or that any five stocks

in the group together accounted, on average, for

more than 50% of the numerical index value, but

that no single stock in the group accounted, on

average, for 30% or more of the numerical index

value, during the 30-day period immediately

preceding the review.

11 ISG was formed on July 14, 1983, to among

other things, coordinate more effectively

surveillance and investigative information sharing

arrangements to the stock and options markets. See

Intermarket Surveillance Group Agreement, July 14,

1983. The most recent amendment to the ISG

Agreement, which incorporates the original

agreement and all amendments made thereafter,

was signed by ISG members on January 29, 1990.

See Second Amendment to the Intermarket

Surveillance Group Agreement, January 29, 1990.

The members of the ISG are: the Amex; the Boston

Stock Exchange, Inc.; the Chicago Board Options

Exchange, Inc.; the Chicago Stock Exchange, Inc.;

the National Association of Securities Dealers, Inc.

(‘‘NASD’’); the NYSE; the Pacific Stock Exchange,

Inc.; and the Philadelphia Stock Exchange, Inc.

Because of potential opportunities for trading

abuses involving stock index futures, stock options,

and the underlying stock, and the need for greater

sharing of surveillance information for these

potential intermarket trading abuses, the major

stock index futures exchanges (e.g., the Chicago

Mercantile Exchange and the Chicago Board of

Trade) joined the ISG as affiliate members in 1990.

12 13 U.S.C. 78f(b)(5) (1988).

13 Pursuant to Section 6(b)(5) of the Act, the

Commission must predicate approval of any new

option proposal upon a finding that the

introduction of such new derivative instrument is

in the public interest. Such a finding would be

difficult for a derivative instrument that served no

hedging or other economic function, because any

benefits that might be derived by market

participants likely would be outweighed by the

potential for manipulation, diminished public

confidence in the integrity of the markets, and other

valid regulatory concerns. In this regard, the trading

of listed options on the Index will provide investors

with a hedging vehicle that should reflect the

overall movement of the stocks representing

companies in the gold mining sector in the U.S.

stock markets.

14See supra Section II.F.

additional calendar months in the

March cycle. In addition, the Amex may

list longer term option series having up

to 36 months to expiration. In lieu of

such long-term options on a full value

Index, the Amex may instead list longterm, reduced value put and call options

based on one-tenth (1/10th) the Index’s

full value. In either event, the interval

between expiration months for either a

full value or reduced value long-term

option will not be less than six months.

The trading of any long-term Index

options will be subject to the same rules

which govern the trading of all of the

Amex’s index options, including sales

practice rules, margin requirements, and

floor trading procedures, and all Index

options will have European-style

exercise. Position limits on reducedvalue long term Index options will be

equivalent to the position limits for full

value Index options and will be

aggregated with such options. For

example, if the position limit for the full

value Index options is 9,000 contracts

on the same side of the market, then the

position limit for the reduced value

Index options will be 90,000 contracts

on the same side of the market.

The exercise settlement value for all

of the Index’s expiring options will be

calculated based upon the primary

exchange’s regular way opening sale

prices for the component stocks. In the

case of securities traded through the

facilities of the National Association of

Securities Dealers Automated Quotation

system (‘‘NASDAQ’’), the first regular

way sale price will be used. If any

component stock does not open for

trading on its primary market on the last

trading day before expiration, then the

prior day’s last sale price will be used

in the calculation.

F. Exchange Rules Applicable to Stock

Index Options

Amex Rules 900C, ‘‘Applicability and

Definitions,’’ through 980C, ‘‘Exercise of

Stock Index Option Contracts,’’ will

apply to the trading of option contracts

based on the Index. These rules cover

issues such as surveillance, margin

requirement, trading halts, exercise

prices, and position and exercise limits.

The Index is deemed to be a stock index

option under Amex Rule 901C (a) and

a stock index industry group under

Amex Rule 900C (b)(1).9 With respect to

paragraph (b) of Amex Rule 903C,

‘‘Series of Stock Index Options,’’ the

Exchange proposes to list near-themoney option series on the Index at 21⁄2

point strike (exercise) price intervals

when the value of the Index is below

200 points. In addition, the Exchange

expects that the review required by

paragraph (c) of Amex Rule 904C,

‘‘Position Limits,’’ will result in a

position limit of 9,000 contracts for

options on the Index.10

G. Surveillance

Surveillance procedures currently

used to monitor trading in each of the

Exchange’s other index options will also

be used to monitor trading in options on

the Index. Further, the Intermarket

Surveillance Group (‘‘ISG’’) Agreement,

dated July 14, 1983, as amended on

January 29, 1990, will be applicable to

the trading of options on the Index.11

III. Findings and Conclusions

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, the

requirements of Section 6(b)(5).12

Specifically, the Commission finds that

the trading of Index options, including

full-value and reduced-value long-term

Index options, will serve to promote the

public interest and help to remove

impediments to a free and open

securities market by providing investors

with an additional means to hedge

exposure to market risk associated with

stocks in the gold mining industry.13

The Amex states that the Index is

designed to provide significant exposure

to the near term movements in gold

prices and, accordingly, is comprised of

gold mining companies that do not

hedge their gold production for

extensive periods into the future.

The trading of options on the Index

and on a reduced-value Index, however,

raises several issues relating to index

design, customer protection,

surveillance, and market impact. The

Commission believes, for the reasons

discussed below, that the Amex has

addressed these issues adequately.

A. Index Design and Structure

The Commission believes it is

appropriate for the Exchange to

designate the Index as a narrow-based

index for purposes of index options

trading. The Index is comprised of 14

stocks intended to track gold mining

companies whose values are strongly

affected by the price of gold. The

Commission also finds that the reducedvalue Index is a narrow-based index

because it is composed of the same

component securities as the Index, and

merely dividing the Index value by ten

will not alter its basic character.

Accordingly, the Commission believes

that it is appropriate for the Amex to

apply its rules governing narrow-based

index options to trading in the Index

options and long-term full-value and

reduced-value Index options.14

The Commission also believes that the

large capitalizations, liquid markets,

and relative weighings of the Index’s

component stocks minimize the

potential for manipulation of the Index.

First, the stocks that comprise the Index

are actively traded, with a mean and

median average monthly trading volume

for the six month period ending March

29, 1996, of 6,429,400 shares and

3,500,655 shares, respectively. Second,

the market capitalizations of the stocks

in the Index are very large, ranging from

a high of $6.6 billion to a low of $145

million as of March 29, 1996, with the
Federal Register / Vol. 61, No. 84 / Tuesday, April 30, 1996 / Notices 19105

15This conclusion is strengthened by the fact that

the Freeport McMoran Copper & Gold convertible

preferred components, when added along with the

Freeport McMoran Copper & Gold common stock

component, result in a total weighting of only

16.59% of the Index’s total value. The Commission

notes that it would be concerned if the Freeport

McMoran components, taken together, dominated

the Index. The Amex’s maintenance criteria, along

with the quarterly rebalancings of the Index, should

help to ensure that such domination is not likely

to occur.

16See Amendment No. 1, supra note 4.

17See Securities Exchange Act Release No. 31243

(September 28, 1992), 57 FR 45849.

18See supra note 10.

19See, e.g., Securities Exchange Act Release No.

31243 (September 28, 1992), 57 FR 45849 (order

approving the listing of index options and index

LEAPS on the Chicago Board Options Exchange

Biotech Index).

20The Index will be maintained so that foreign

country securities or ADRs thereon that are not

subject to a comprehensive surveillance sharing

agreement will not in the aggregate represent more

than 20% of the weight of the Index. See

Amendment No. 1, supra note 4.

mean and median being $1.8 billion and

$759 million, respectively. Third,

because the index is modified equal

dollar-weighted, as described above, no

one particular stock or group of stocks

dominates the Index. Specifically, as of

March 29, 1996, no one stock accounted

for more than 16.79% of the Index’s

total value and the percentage weighting

of the five highest weighted stocks in

the Index accounted for 59.19% of the

Index’s value.

The Amex’s proposed inclusion of

Class B common and the Class B and

Class C convertible preferred stock of

Freeport McMoran Cooper & Gold

presents some concern since options

trading is not currently allowed on

convertible preferred stock. However,

given the de minimis representation of

these components in relation to the

overall Index (4.2% of the Index’s

weight) and the Index requirement that

over 90% of the weight of the Index

must comply with the listing criteria for

standardized options trading set forth in

Amex Rule 915, the Commission

believes it is appropriate to include

these components in the Index.15 The

Commission notes that, currently,

91.29% of the weight of the Index

complies with the listing criteria for

standardized options trading set forth in

Amex Rule 915.

Fourth, the proposed maintenance

criteria will serve to ensure that: (1) The

Index remains composed substantially

of liquid highly capitalized securities;

and (2) the Index is not dominated by

one or several securities that do not

satisfy the Exchange’s options listing

criteria. Specifically, in considering

changes to the composition of the Index,

90% of the weight of the Index and 80%

of the number of components in the

Index must at all times comply with the

listing criteria for standardized options

trading set forth in Amex Rule 915.

The Amex will notify Commission

staff promptly at any time the Amex

determines that the Index fails to satisfy

any of the foregoing maintenance

criteria.16 Further, in such an event, the

Exchange will not open for trading any

additional series of Index options or

Index long-term options unless the

Exchange determines that such failure is

not significant, and Commission staff

concurs in the determination.

Finally, the Commission believes that

the existing mechanisms to monitor

trading activity in the component stocks

of the Index, or options on those stocks,

will help deter as well as detect any

illegal activity.

B. Customer Protection

The Commission believes that a

regulatory system designed to protect

public customers must be in place

before the trading of sophisticated

financial instruments, such as Index

options (including full-value and

reduced-value long-term Index

Options), can commence on a national

securities exchange. The Commission

notes that the trading of standardized

exchange-traded options occurs in an

environment that is designed to ensure,

among other things, that: (1) the special

risks of options are disclosed to public

customers; (2) only investors capable of

evaluating and bearing the risks of

options trading are engaged in such

trading; and (3) special compliance

procedures are applicable to options

accounts. Accordingly, because the

Index options and Index long-term fullvalue and reduced-value options will be

subject to the same regulatory regime as

the other standardized index options

currently traded on the Amex, the

Commission believes that adequate

safeguards are in place to ensure the

protection of investors in Index options

and full-value or reduced-value Index

long-term options.

C. Surveillance

The Commission believes that a

surveillance sharing agreement between

an exchange proposing to list a stock

index derivative product and the

exchange(s) trading the stocks

underlying the derivative product is an

important measure for surveillance of

the derivative and underlying securities

markets. Such agreements ensure the

availability of information necessary to

detect and deter potential

manipulations and other trading abuses,

thereby making the stock index product

less readily susceptible to

manipulation.17 In this regard, the

Commission notes that the Amex and

the NYSE are members of the ISG.18 The

Commission believes that this

arrangement ensures the availability of

information necessary to detect and

deter potential manipulations and other

trading abuses, thereby making the

Index options and full-value and

reduced-value long-term Index options

less readily susceptible to

manipulation.19

The Commission notes that foreign

country securities or ADRs thereon that

are not subject to comprehensive

surveillance agreements do not in the

aggregate represent more than 20% of

the weight of the Index.20 Accordingly,

because the Amex and the NYSE are

members of the ISG, at least 80% of the

securities comprising the Index are

subject to an arrangement that ensures

the availability of information necessary

to detect and deter potential trading

abuses. As a result, the Amex should be

able to adequately investigate any

potential manipulations of Index

options or their underlying securities. In

addition, the Commission believes that

the limitation on the foreign securities

or ADRs may be included in the Index

will help to ensure that Index options

are not used as surrogate instruments to

trade options on stocks and/or ADRs

that otherwise are not eligible for

options trading.

D. Market Impact

The Commission believes that the

listing and trading of Index options,

including full-value and reduced-value

Index LEAPS on the Amex, will not

adversely affect the underlying

securities markets. First, because of the

‘‘modified equal dollar-weighting’’

method that will be used, as described

above, no one security or group of

securities represented in the Index will

dominate the weight of the Index

immediately following a quarterly

rebalancing. Second, the Index

maintenance criteria ensure that the

Index will be substantially comprised of

securities that satisfy the Exchange’s

listing standards for standardized

options trading, and that one or a few

stocks do not dominate the Index.

Third, the currently applicable 9,000

contract position and exercise limits

will serve to minimize potential

manipulation and market impact

concerns. Fourth, the risk to investors of

contra-party non-performance will be

minimized because the Index options

and Index long-term options will be

issued and guaranteed by the Options

Clearing Corporation just like any other
19106 Federal Register / Vol. 61, No. 84 / Tuesday, April 30, 1996 / Notices

21See Securities Exchange Act Release No., 30944

(July 21, 1992), 57 FR 33376 (July 28, 1992).

22 15 U.S.C. 78s(b)(2) (1988).

23 17 CFR 200.30–3(a)(12) (1995).

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 36961

(March 13, 1996), 61 FR 11452.

standardized option traded in the

United States.

Lastly, the Commission believes that

settling expiring Index options

(including full-value and reduced-value

long-term Index options) based on the

opening prices of component securities

is reasonable and consistent with the

Act. As has been noted previously,

valuing index options for exercise

settlement on expiration based on

opening rather than closing prices of

index component securities may help to

reduce adverse effects on markets for

such securities.21

The Commission finds good cause for

approving Amendment No. 1 to the

proposal prior to the thirtieth day after

the date of publication of the notice of

filing thereof in the Federal Register.

Specifically, Amendment No. 1

strengthens the Exchange’s proposal by

eliminating from the Index the stock of

one company which is expected to

merge with another company and

replacing one Index component which

no longer meets the Amex’s requirement

for the hedging of gold production. In

addition, Amendment No. 1 strengthens

and clarifies the proposal by indicating

that the Exchange will promptly notify

the Commission if the Index fails to

meet the maintenance criteria provided

in the proposal and representing that

the Index will be maintained so that

foreign country securities or ADRs

thereon that are not subject to

comprehensive surveillance sharing

agreements will not represent more than

20% of the weight of the Index.

Accordingly, the Commission believes

that it is consistent with Sections 6(b)(5)

and 19(b)(2) of the Act to approve

Amendment No. 1 to the proposal on an

accelerated basis.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning Amendment No.

1. 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. Copies of such filing

will also be available for inspection and

copying at the principal office of the

above-mentioned self-regulatory

organization. All submissions should

refer to the file number in the caption

above and should be submitted by May

21, 1996.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,22 that the

proposed rule change (SR–Amex–96–

08), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.23

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–10585 Filed 4–29–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37141; File No. SR–CBOE–

96–13]

Self-Regulatory Organizations; Order

Approving a Proposed Rule Change by

the Chicago Board Options Exchange,

Inc., Relating to the Exchange’s

Member Death Benefit Program

April 24, 1996.

I. Introduction

On March 11, 1996, the Chicago

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

or ‘‘Exchange’’) filed a proposed rule

change with the Securities and

Exchange Commission (‘‘SEC’’ or

‘‘Commission’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 1 and Rule 19b–4

thereunder,2 to revise its Member Death

Benefit Program to expand its coverage

to include certain recently active

members and to establish a defined

benefit of $50,000.

Notice of the proposal was published

for comment and appeared in the

Federal Register on March 20, 1996.3

No comment letters were received on

the proposed rule change. This order

approves the Exchange’s proposal.

II. Background

The Exchange’s Member Death

Benefit Program is set forth in CBOE

Rule 3.24 and functions in the following

manner. The Member Death Benefit

Program covers any natural person who

is a nominee of a member organization,

a Chicago Board of Trade exerciser, a

lessee of an Exchange membership, or

an owner of an Exchange membership

that is not being leased to a lessee. The

Exchange refers to the foregoing

individuals as ‘‘active members.’’ Each

active member designates a beneficiary

under the Program. Upon the death of

an active member, the Exchange pays a

member death benefit to that member’s

designated beneficiary. The amount of

the benefit is equal to the number of

active members at the time of the

member’s death multiplied by $25.

Because this benefit is based on the

number of active members, the amount

of the benefit fluctuates as the number

of active members fluctuates. As of

December 31, 1995, there were 1,384

active members. Therefore, if a benefit

were to have been paid on that date, it

would have been equal to $34,600. After

a member death benefit has been paid

under the Program, the Exchange bills

each active member $25 in order to

recoup the cost of the benefit.

III. Description of the Proposal

The Exchange proposes to revise the

Member Death Benefit Program in two

primary respects. First, the Exchange

proposes to expand the coverage of the

Member Death Benefit Program to cover

any individual who (i) was an active

member within 90 days prior to the date

of his or her death and (ii) was an active

member during at least 274 out of the

365 days preceding the date of his or her

last termination from active member

status. This expanded coverage would

be in addition to the Program’s current

coverage of any individual who is an

active member at the time of his or her

death. Second, the Exchange proposes

to establish a defined member death

benefit under the Program of $50,000.

This $50,000 benefit would replace the

current member death benefit under the

Program which is based on the number

of active members at the time of a

member’s death. Accordingly, instead of

being billed $25 by the Exchange after

a member death benefit payout has

occurred, under the proposed rule

change each active member will be

assessed an amount equal to $50,000

divided by the number of active

members at the time of the assessment.

The proposed rule change also makes

two clarifications concerning the

administration of the Member Death

Benefit Program. First, the proposed

rule change clarifies that in no event

shall more than one member death

benefit be paid by reason of the death

on an individual who is eligible to

receive the member death benefit.

Second, the proposed rule change

clarifies that the active members who

will be assessed after a member death