20132 Federal Register / Vol. 60, No. 78 / Monday, April 24, 1995 / Notices

11 17 CFR 200.30–3(a)(16)(1994).

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

2 17 CFR 240.19b–4 (1994).

3See Securities Exchange Act Release No. 35278

(January 25, 1995), 60 FR 6324.

4The proposal would permit five-year LEAPS on

both broad-based and narrow-based indexes on

which LEAPS have been approved for trading on

the CBOE.

5See CBOE Rule 24.9(b).

6 15 U.S.C. 78f(b)(5) (1988 & Supp. V 1993).

7The Commission also finds that extending the

maximum term for Index LEAPS from three to five

years does not alter the Commission’s designation

of index LEAPS as standardized options pursuant

to Rule 9b–1(a)(4) of the Act.

8See Securities Exchange Act Release No. 24853

(August 27, 1987), 52 FR 33486 (September 3,

1987).

9 Id.

10 Id.

11The Commission’s findings are predicated on

the somewhat limited length of five-year index

LEAPS. Any subsequent proposal to list index

LEAPS with expirations beyond five years could

alter the nature of the product and would raise new

regulatory concerns, including, among other things,

the appropriate margin treatment, disclosure, and

trading rules for the product.

12See CBOE Rule 24.9(b)(1).

13See CBOE Rule 8.7(a).

14 15 U.S.C. 78s(b)(2) (1988).

15 17 CFR 200.30–3(a)(12) (1994).

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

2 17 CFR 240.19b–4 (1994).

3See letter from David Rusoff, Foley & Lardner,

to Jennifer Choi, SEC, dated February 27, 1995. The

original filing incorrectly referenced Rule 3 of

Article IV of the Exchange Rules as the rule to be

Reference Room, 450 Fifth Street, NW.,

Washington, DC 20549.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–9986 Filed 4–21–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35617; File No. SR–CBOE–

95–02]

Self-Regulatory Organizations; Order

Approving a Proposed Rule Change by

the Chicago Board Options Exchange,

Inc., Relating to the Listing of LongTerm Index Options Series (‘‘LEAPS’’)

With a Duration of up to Sixty Months

Until Expiration

April 17, 1995.

On January 19, 1995, the Chicago

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

or ‘‘Exchange’’), pursuant to Section

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

of 1934 (‘‘Act’’)1 and Rule 19b–4

thereunder,2 filed with the Securities

and Exchange Commission

(‘‘Commission’’) a proposed rule change

to permit the listing of long-term index

options series (‘‘LEAPS’’) with a

duration of up to sixty months (five

years) until expiration. Notice of the

proposal appeared in the Federal

Register on February 1, 1995.3 No

comment letters were received on the

proposed rule change. This order

approves the CBOE proposal.

The purpose of the proposed rule

change is to permit the Exchange to list

index LEAPS with a duration of up to

sixty months (five years).4 Presently, the

Exchange has authority pursuant to

CBOE Rule 24.9(b) to list index LEAPS

that expire from twelve to thirty-six

months from the time they are listed.

The Exchange represents that there has

been increasing member firm and

customer interest in longer term

instruments. The Exchange, therefore, is

proposing to amend Exchange Rule 24.9

to permit the listing of index options

with up to sixty months until

expiration. In addition, the Exchange

proposes to amend Rule 24.9 to allow

for up to ten expiration months for

index LEAPS, as opposed to the six

months currently allowed. The proposal

does not change any other rule

regarding the listing and trading of

index LEAPS.5

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).6

Specifically, the Commission believes

the proposal is designed to provide

investors with additional means of

hedging equity portfolios from longterm market risk with an exchangetraded security (i.e., a standardized

option), thereby facilitating transactions

in options and contributing to the

protection of investors and the

maintenance of fair and orderly

markets.7

Currently, institutional customers use

index options to hedge the risks

associated with holding diversified

equity portfolios. The Commission

continues to believe, as originally stated

in its approval of the listing of index

LEAPS by the Exchange, that allowing

investors to lock in their hedges with

longer-term index LEAPS will permit

institutions to protect better their

portfolios from adverse market moves.8

Further, the Commission believes that

index LEAPS with up to five years until

expiration will allow this protection at

a known and limited cost.9 Moreover,

the proposal will provide institutions

with an additional securities product

with which to hedge their portfolios as

an alternative to hedging with futures

positions or off-exchange customized

index options.10 Accordingly, the

Commission believes that the proposed

rule change will better serve the longterm hedging needs of institutional

investors.11

Finally, although as with index

LEAPS presently trading on the

Exchange, specific strike price interval,

bid/ask differential, and price

continuity rules will not apply until the

proposed longer-term index LEAPS

have less than 12 months until

expiration,12 the Commission notes that

CBOE’s general rule obligating market

makers to maintain fair and orderly

markets will continue to apply to the

proposed longer-term index LEAPS.13

The Commission believes that the

requirements of CBOE Rule 8.7(a) are

broad enough, even in the absence of

strike price interval, bid/ask differential,

and continuity requirements, to provide

the Exchange with the authority to make

a finding of inadequate market maker

performance should market makers

enter into transactions or make bids or

offers (or fail to do so) in the proposed

longer-term index LEAPS that are

inconsistent with the maintenance of a

fair and orderly market.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,14 that the

proposed rule change (File No. SR–

CBOE–95–02) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.15

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–9978 Filed 4–21–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35614; File No. SR–CHX–

95–05]

Self-Regulatory Organizations;

Chicago Stock Exchange,

Incorporated; Order Granting Approval

to Proposed Rule Change Relating to

the Authority of the Committee on

Floor Procedure

April 17, 1995.

On February 10, 1995, the Chicago

Stock Exchange, Incorporated (‘‘CHX’’

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 amend CHX Rule 3 of Article

XII to provide the Committee on Floor

Procedure with the same authority over

persons associated with a member as it

currently has over members. On March

1, 1995, the Exchange submitted to the

Commission Amendment No. 1 to the

proposed rule change.3