24982 Federal Register / Vol. 61, No. 97 / Friday, May 17, 1996 / Notices

18See PHLX Approval Order and PSE Approval

Order, supra note 4.

19 15 U.S.C. 78f(b)(2) (1988).

20 17 CFR 200.30–3(a)(12) (1995).

1 15 U.S.C. 78s(b)(1) (1988 & Supp. V 1993).

2 17 CFR § 240.19b–4 (1994).

3See Securities Exchange Act Release No. 36902

(March 5, 1996), 61 FR 10043.

4See Letter from Joseph Levin, CBOE, to Howard

Kramer, SEC, dated March 29, 1996.

5See Letter from Joseph Levin, CBOE, to Howard

Kramer, SEC, dated April 8, 1996.

6See Letter from Eileen Smith, CBOE, to Stephen

Youhn, SEC, dated May 6, 1996.

7A European-style option may only be exercised

during a specified period before expiration.

8The Commission notes that Hylsamex SA–BCP

is 82% owned by Alfa SA–A and that Tolmex SA–

B2 is 99% owned by Cemex Sa.

dealers may help to increase the depth

and liquidity of the market for industry

index options and may help to ensure

that public customers receive the full

benefit of the exemption. Moreover, the

CBOE’s monitoring procedures, as

described above, should be able to

detect any abuses and ensure that the

options position, whether broker-dealer

or customer, is properly hedged.

The Commission finds good cause for

approving the proposed rule change and

Amendment No. 1 to the proposed rule

change prior to the thirtieth day after

the date of publication of notice of filing

thereof in the Federal Register. As

noted above, the Commission

previously has approved similar

proposals submitted by the PHLX and

the PSE.18 The PHLX’s and PSE’s

proposals were published for the full

notice and comment period and the

Commission received no comments on

their proposals. The CBOE’s proposal

raises no new regulatory issues.

Amendment No. 1 strengthens the

CBOE’s proposal by indicating that the

CBOE’s Department of Market

Regulation will monitor hedge

exemption accounts daily to determine

that each exempted option contract is

hedged by the equivalent dollar amount

of component securities. Accordingly,

the Commission believes it is consistent

with Sections 6(b)(5) and 19(b)(2) of the

Act to approve the proposed rule change

and Amendment No. 1 to the proposed

rule change on an accelerated basis.

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, NW.,

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, NW.,

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

[insert date 21 days after the date of this

publication].

It is therefore ordered, pursuant to

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

proposed rule change (SR–CBOE–96–

18), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.20

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–12382 Filed 5–16–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37189; International Series

Release No. 977; File No. SR–CBOE–96–

09]

Self-Regulatory Organizations;

Chicago Board Options Exchange,

Inc.; Order Approving Proposed Rule

Change and Notice of Filing and Order

Granting Accelerated Approval of

Amendments Thereto Relating to the

Listing and Trading of Options on the

Mexican Indice de Precios y

Cotizaciones

May 9, 1996.

On February 27, 1996, the Chicago

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

or ‘‘Exchange’’) submitted to the

Securities and Exchange Commission

(‘‘SEC’’ or ‘‘Commission’’), pursuant to

Section 19(b) of the Securities Exchange

Act of 1934 (‘‘Act’’),1 and Rule 19b–4

thereunder,2 a proposed rule change to

list and trade options on the Indice de

Precios y Cotizaciones (‘‘IPC’’ or

‘‘Index’’), a cash-settled, broad-based

index designed to represent the overall

Mexican equity market. The IPC was

created, and is maintained, by the

Mexican Stock Exchange (‘‘Bolsa’’) and

is widely recognized as the benchmark

equity index for Mexico. Notice of the

proposed rule change appeared in the

Federal Register on March 12, 1996.3

No comments were received on the

proposal.

On March 29, 1996, CBOE submitted

Amendment No. 1 (‘‘Amendment No.

1’’) to the proposal to address issues

related to Index maintenance criteria.4

On April 11, 1996, CBOE submitted

Amendment No. 2 (‘‘Amendment No.

2’’) to the proposal to clarify certain

Index maintenance criteria and to

address issues relating to the reduction

and aggregation of position limits.5 On

May 7, 1996, CBOE submitted

Amendment No. 3 (‘‘Amendment No.

3,’’ together with Amendments No. 1

and 2, ‘‘Amendments’’) to the proposal

to clarify CBOE’s procedures for

reducing position limits if the Index is

subsequently reclassified as narrowbased.6 This order approves the

proposal, as amended, and solicits

comments on the Amendments.

I. Description of the Proposal

The purpose of the proposed rule

change is to permit the Exchange to list

and trade cash-settled, European-style 7

stock index options on the IPC, a broadbased, capitalization-weighted index

comprised of 35 of the largest and most

liquid stocks (issued by 28 issuers) on

the Bolsa.8 The Exchange believes that

options on the Index will provide

investors with a low-cost means of

participating in the performance of the

Mexican economy and hedging against

the risk of investing in that economy.

Index Design

The Index was designed by and is

maintained by the Bolsa. These stocks

selected for inclusion in the IPC were

chosen based upon a combination of

criteria relating to their trading volume

and market capitalization. The Bolsa

reviews a component’s compliance with

these criteria every two months. There

are three criteria which could keep a

potential replacement component stock

from being added to the Index. First,

suspended issues or those which have a

material possibility of being suspended

will not be included in the Index.

Second, if the combined weight of two

or more series of an index represented

company were to exceed 15% of the

weight of the Index, then only the series

with the highest trading volume will be

allowed to remain in the Index. Third,

if a company is a subsidiary of another

company that is in the Index and it

represents more than 75% of the assets

of the holding company it will not be

included.

The IPC is composed of stocks from

eighteen (18) industry groups including:

Telecommunications, Diversified

Holding Companies, Banks,

Broadcasting, Building Materials,

Mining, and Financial Services. The
Federal Register / Vol. 61, No. 97 / Friday, May 17, 1996 / Notices 24983

2As noted below, CBOE intends to trade index

options based on 1⁄10th of the full value of the IPC.

10See Amendment No. 2. $25 billion represents

the approximate U.S. dollar equivalent of 200

billion Mexican pesos, which CBOE originally

proposed.

11See Amendment No. 1. In this regard, each of

an issuer’s securities which are included in the

Index would be counted as separate components.

For example, Cemex SA–A and SA–B would be

counted as two components, despite being issued

by the same company.

12See Amendment No. 2.

13Such series include all long-term index option

series (‘‘LEAPS’’) and reduced-value LEAPS, as

discussed below, on the Index.

14See Amendment No. 3.

15 IPC options will continue to trade for 15

minutes after the Bolsa closes. This is consistent

with trading times for other broad-based index

options and also gives market participants the

opportunity to adjust their positions after the Bolsa

closes.

median capitalization of the firms in the

Index on February 2, 1996, was 6.581

billion Pesos (US$889.38 million at the

exchange rate of 7.4 pesos per dollar

prevailing on February 2, 1996). The

average market capitalization of these

firms was US$1.553 billion on the same

date and using the same rate for

exchange. The individual market

capitalization of these firms ranged from

US$11.956 billion to US$36.29 million

on February 2, 1996. The largest stock

accounted for 21.99% of the Index,

while the smallest accounted for 0.07%.

The top five stocks in the Index by

weight accounted for 49.71% of the

Index.

Calculation

The Index is capitalization weighted

and its value is determined by

multiplying the price of each stock

times the number of shares outstanding,

adding those sums and then dividing by

a divisor which gave the Index a value

of 0.78 on its base date of October 30,

1978. The Index can also be

characterized as a ‘‘total return’’ index

since it is adjusted for cash

distributions. The Index had a closing

value of 2862.59 on February 28, 1996.9

This divisor is adjusted for pertinent

changes as described below in the

section titled ‘‘Maintenance.’’

Maintenance

The Index will be maintained by the

Bolsa. To maintain Index continuity, the

divisor will be adjusted to reflect certain

events relating to the component stocks.

These events include, but are not

limited to, ordinary cash dividends,

changes in the number of shares

outstanding, spin-offs, certain rights

issuances, and mergers and acquisitions.

When components are substituted, the

Bolsa makes every effort to notify the

public in advance of the upcoming

changes. If it becomes necessary to

replace a component between reviews,

the Bolsa maintains a list of stocks for

substitution. The balsa will publicly

commuicate these changes (e.g., news

release) with as much notice as possible.

The main selection criteria utilized by

the Bolsa are trading volume and market

capitalization. Although the IPC is

presently comprised of 35 stocks, there

have been as many as 50 components

and the Bolsa is not precluded from

increasing (or decreasing) this number.

Because the Index is maintained by

the Bolsa, CBOE does not have the

ability to ensure that the Bolsa

maintains the Index in such a manner

that guarantees its continued

classification as a broad-based index.

Accordingly, CBOE has imposed

specific maintenance criteria which, if

breached, will result in the Index being

re-classified as a narrow-based stock

index for index options trading

purposes. Upon the occurrence of one of

the events listed below, CBOE will

immediately re-classify the index as

narrow-based: (a) the total market value

of the Index falls to less than US$25

billion for the majority of business days

in the previous six-month period; 10 (b)

the largest component stock accounts

for more than 35% of the weight of the

Index for the majority of business days

in the previous six-month period; (c) the

top three component stocks account for

more than 60% of the weight of the

Index for the majority of days in the

previous six-month period; or (d) the

number of Index components falls to

less than 20.11

If one of the above events occurs and

the Index is reclassified as narrowbased, CBOE will impose margin

requirements consistent with those

currently applicable to other narrowbased index options. Accordingly,

CBOE will raise the initial margin level

requirements for positions carried short

in a customer’s account from 15% to

20%. CBOE will also reduce the

position limits from 50,000 contracts on

the same side of the market to a level

consistent with narrow-based index

options. Specifically, CBOE will require

that positions in IPC Index options be

subject to the highest position limit

level then applicable to narrow-based

index options, as governed by CBOE

Rule 24.4A.12 CBOE will reduce

position limits in the same manner as is

currently used for reducing position

limits for existing index options. Thus,

all series of IPC options 13 will be

scheduled for a position limit decrease

effective the Monday following the

expiration of the farthest out then

trading, non-LEAP option series. If,

however, prior to the scheduled

decrease or at the time of the subsequent

six-month review, the index qualifies

again for broadbased treatment, the

position limit will not be reduced.14

Index Option Trading

The Exchange proposes to base

trading in options on the Index on onetenth of the value of the Index as

expressed in U.S. dollars; these are

known as full-value options. The

Exchange also may provide for the

listing of full-value LEAPS and reducedvalue LEAPS on the Index. For reducedvalue LEAPS, the underlying value

would be computed at one-tenth of the

value of the full-value options. The

current and closing index value of any

such reduced-value LEAP will, after

such initial computation, be rounded to

the nearest one-hundredth. The

Exchange will list expiration months for

Index options and Index LEAPS in

accordance with CBOE Rule 24.9.

The trading hours on the Bolsa are the

same as those on the New York Stock

Exchange—8:30 a.m. to 3:00 p.m.

Chicago time. The trading hours for

options on the Index will be from 8:30

a.m. to 3:15 p.m. Chicago time.15 The

Bolsa calculates the value of the IPC

based upon the prices of the component

securities as traded or quoted on the

Bolsa and disseminates this value to

vendors of financial information. CBOE

or its designee will disseminate the

reduced IPC value (i.e., 1⁄10th of IPC

value) through the Options Price

Reporting Authority (‘‘OPRA’’) every 15

seconds throughout the trading day.

Exercise and Settlement

IPC options will be p.m.-settled and

expire on the Saturday following the

third Friday of the expiration month.

Thus, trading in the expiring contract

month will normally cease on Friday at

3:15 p.m. (Chicago time) unless a

holiday occurs. The exercise settlement

value of Index options at expiration will

be based upon the closing prices of

component stocks on the regular Friday

trading sessions in Mexico, ordinarily at

3:00 p.m. Mexico time. If a stock does

not trade during this period or if it fails

to open for trading, the last available

price of the stock will be used in the

calculation of the Index. When

expirations are moved in accordance

with Exchange holidays, such as when

the CBOE is closed on the Friday before

expiration, the last trading day for

expiring options will be Thursday and

the exercise settlement value of Index

options at expiration will be determined

at the close of the regular Thursday

trading sessions in Mexico even if the
24984 Federal Register / Vol. 61, No. 97 / Friday, May 17, 1996 / Notices

16Telephone conversation between Eileen Smith,

CBOE, and Steve Youhn, SEC, on February 28,

1996.

17See Amendments No. 2 and 3.

18See Letter from Joe Corrigan, OPRA, to Eileen

Smith, CBOE, dated February 21, 1996.

19 15 U.S.C. 78f(b)(5) (1988 & Supp. V 1993).

20Pursuant to Section 6(b)(5) of the Act, the

Commission must predicate approval of rule

changes pertaining to 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.

21The reduced value IPC, which is calculated by

dividing the full-value Index to be traded on CBOE

by ten, is essentially identical to the IPC.

22As CBOE notes, while some of the stocks in the

Index have relatively low trading volume, they

account for only a small percentage of the Index

weighting.

23 In the event the aggregate capitalization of the

Index falls below $25 billion, CBOE will re-classify

the Index as narrow-based, as discussed above.

24A foreign index capitalization that is smaller

than that of the IPC would raise questions regarding

whether that particular index warranted broadbased index options treatment.

Mexican markets are open on Friday. If

the Mexican markets are closed on the

Friday before expiration and CBOE is

open for trading, the last trading day for

expiring options will be Thursday.

Surveillance Agreements

The Exchange expects to apply its

index option surveillance procedures of

IPC options. In addition, the Exchange

is aware of a Memorandum of

Understanding (‘‘MOU’’) between the

Commission and the Comision Nacional

Bancaria y de Valores (‘‘CNBV’’), which

has oversight responsibility for the

Mexican securities and derivatives

markets. This MOU will enable the

Commission to obtain information

concerning the trading of the

component stocks of the IPC. The

Exchange also will make every effort to

enter into an effective surveillance

agreement with the Bolsa.

Position Limits

The Exchange is proposing to

establish position limits for the Index

options equal to 50,000 contracts on the

same side of the market, with no more

than 30,000 contracts in the series with

the nearest expiration date. CBOE

represents that these limits are roughly

equivalent, in dollar terms, to the limits

applicable to options on other indices.

Ten reduced-value options will equal

one full-value contract for such

purposes. Furthermore, the hedge

exemption rule applicable to broadbased index options, commentary .01 to

CBOE Rule 24.4, will apply to IPC Index

options.16 As discussed above, if the

Index is re-classified as narrow-based,

CBOE will reduce the position limits to

the highest position limit tier then in

effect for narrow-based index options.17

Exchange Rules Applicable

Except as modified herein, the Rules

in Chapter XXIV will be applicable to

IPC options. CBOE has the necessary

systems capacity to support new series

that would result from the introduction

of IPC options and has also been

informed that OPRA has the capacity to

support such new series.18

II. 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).19 The

commission finds that the trading of

options based on the IPC, including

long-term options based on either the

full or a reduced value of the Index, will

serve to protect investors, promote the

public interest, and help to remove

impediments to a free and open

securities market by providing investors

with a means to hedge exposure to

market risk associated with the Mexican

equity market and provide a risk

management instrument for positions in

the Mexican securities market.20 The

trading of options on the Index will

permit investors to participate in the

price movements of the Mexican equity

securities underlying the Index. As a

result, the trading of options on the

Index will allow investors holding some

or all of the underlying components to

hedge the risks associated with those

positions and should reflect accurately

the overall movement of the Mexican

equity market.

The trading of Index options and

Index LEAPS, however, raises several

issues related to index design and

structure, customer protection, and

surveillance. The Commission believes,

for the reasons discussed below, that

CBOE has adequately addressed these

issues.

A. Index Design and Structure

The Commission finds that it is

appropriate and consistent with the Act

to apply the Exchange rules applicable

to broad-based index options to IPC

Index options.21 First, the Index consists

of 35 of the largest and most liquid

stocks (issued by 28 issuers) on the

Bolsa.22 Second, stocks in the Index are

among the most highly capitalized

stocks on the Bolsa. For example, on

February 2, 1996, the market

capitalization of the individual stocks in

the Index ranged from a high of

US$11.95 billion to a low of US$36

million, with a mean value of US$1.55

billion. Third, the total capitalization of

the Index on the same date was US$54.3

billion.23 Although this capitalization

amount is not large in relation to other

broad-based indexes previously

approved for options trading, it is

nonetheless a substantial capitalization

for a foreign market and represents

approximately half of the total

capitalization of the Bolsa.24 Fourth, the

Index includes stocks of companies

from eighteen separate industries. Fifth,

the Commission recently approved the

CBOE Mexico 30 Index (‘‘Mexico 30

Index’’), which is a broad-based,

modified capitalization weighted index

comprised of thirty Mexican stocks. The

Commission notes that the IPC and

Mexico 30 Index are substantially

similar. Accordingly, the Commission is

satisfied that the Index adequately

represents the Mexican equity market.

Furthermore, the Commission

believes that the general broad

diversification of the Index component

stocks, as well as their high

capitalizations and trading activity,

minimize the potential for manipulation

of the Index. First, as discussed above,

the Index represents a broad crosssection of highly-capitalized Mexican

stocks, with no single industry group or

stock dominating the Index. Second, the

overwhelming majority of stocks that

comprise the Index are relatively

actively traded. Third, the Commission

believes that the Bolsa’s index selection

and maintenance criteria should serve

to ensure that the Index continues to

represent stocks with the highest

capitalizations and trading volumes on

the Bolsa. In addition, the Exchange has

proposed position and exercise limits

for the Index options that are consistent

with other broad-based index options.

Because CBOE is not responsible for

Index maintenance, however, the

Commission recognizes that certain

events beyond CBOE’s control may

result in the Index changing in a manner

such that it is no longer broad-based. In

this regard, CBOE has adopted

maintenance criteria which, if breached,

will result in the re-classification of the

Index as narrow-based. If this occurs,

CBOE will decrease position limits and

increase margin requirements to levels

consistent with other narrow-based

index options. The Commission believes

these criteria are adequate and should

serve to prevent a narrow-based index

from trading pursuant to more favorable

broad-based index option rules.
Federal Register / Vol. 61, No. 97 / Friday, May 17, 1996 / Notices 24985

25As discussed above, CBOE has represented that

it and OPRA have the necessary systems capacity

to support those new series of options that would

result from the introduction of Index options and

Index LEAPS. See Memorandum from Joe Corrigan,

Executive Director, OPRA, to Eileen Smith, CBOE,

dated February 21, 1996.

26The Commission believes that a comprehensive

surveillance sharing agreement should provide the

parties thereto with the ability to obtain information

necessary to detect and deter market manipulation

and other trading abuses. Consequently, the

Commission generally requires that such

agreements require that the parties provide each

other, upon request, with information about market

trading activity, clearing activity, and the identity

of the purchasers and sellers of securities

underlying the derivative product. See, e.g.,

Securities Exchange Act Release No. 31529 (Nov.

27, 1992), 57 FR 574248.

27The CBOE has committed to make every effort

to enter into a comprehensive surveillance sharing

agreement with the Bolsa.

28The CNBV is the successor to the Comision

Nacional de Valores of Mexico, which was merged

with the Mexican Banking Commission in April

1995 to form the CNBV. See National Banking and

Securities Commission Act, Mexico, dated April 24,

1995.

29This information could include transaction,

clearing, and customer identity information

necessary to conduct an investigation.

30See, e.g., Securities Exchange Act Release No.

36070 (Aug. 9, 1995), 60 FR 42205 (Aug. 15, 1995)

(Order Approving Proposed Rule Changes Relating

to the Listing and Trading of Warrants on the

Deutscher Aktienindex).

Under CBOE’s maintenance criteria,

no single stock may account for more

than 35% of the Index weight and no

three components may excess 60% of

the total Index weight. In addition, the

number of Index components may not

fall below 20 and the total capitalization

of the Index may not fall below US$25

billion. If any of these events occur, the

Index will be re-classified as narrowbased. The Commission believes that

these standards will ensure that if the

Index becomes dominated by one or a

few components, or if it fails to be

broadly representative of the Mexican

equity market, it will cease to trade

pursuant to broad-based index option

rules.

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 and Index LEAPS, can

commence on a national securities

exchange. The Commission notes that

the trading of standardized exchangetraded 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 LEAPS will be

subject to the same regulatory regime as

the other standardized options currently

traded on the CBOE, the Commission

believes that adequate safeguards are in

place to ensure the protection of

investors in Index options and Index

LEAPS.25

C. Surveillance

In evaluating derivative instruments,

the Commission, consistent with the

protection of investors, considers the

degree to which the derivative

instrument is susceptible to

manipulation. The ability to obtain

information necessary to detect and

deter market manipulation and other

trading abuses is a critical factor in the

Commission’s evaluation. It is for this

reason that it is important for the SEC

to determine that there is an adequate

mechanism in place to provide for the

exchange of information between the

market trading the derivative product

and the market on which the securities

underlying the derivative product are

traded. Such mechanisms enable

officials to surveil trading in both the

derivative product and the underlying

securities.26 For foreign stock index

derivative products, such mechanisms

are especially important for the relevant

foreign and domestic exchanges to

facilitate the collection of necessary

regulatory, surveillance and other

information.

With respect to the CBOE proposal,

CBOE and the Bolsa do not have a

written surveillance sharing agreement

that covers the trading of IPC options at

the time.27 Moreover, it is the

Commission’s understanding that the

Bolsa currently is not able to provide

the requisite information for a

comprehensive surveillance sharing

instrument. Thus it would be

impossible for the CBOE to secure a

comprehensive agreement. In such

cases, the Commission has relied in the

past on surveillance sharing

arrangements between the relevant

regulators. In regard to the IPC, the

Commission notes that the Bolsa is

under the regulatory oversight of the

CNBV, which has responsibility for both

the Mexican securities and derivatives

markets. The Commission and the

CNBV have concluded a Memorandum

of Understanding, dated October 18,

1990, that provides a framework for

mutual assistance in investigatory and

regulatory issues.28 Based on the

relationship between the SEC and CNBV

and the terms of the MOU, the

Commission understands that both it

and the CNBV could acquire

information from and provide

information to the other similar to that

which would be required in a

comprehensive surveillance sharing

agreement between exchanges.29

Moreover, the agencies could make a

request for information under the MOU

on behalf of an SRO that needed the

information for regulatory purposes.

Thus, should the CBOE need

information on Mexican trading in the

Index component securities to

investigate incidents involving trading

of Index options, the SEC could request

such information from the CNBV under

the MOU. While this arrangement

certainly would be enhanced by the

existence of direct exchange to exchange

surveillance sharing agreements, it is

nonetheless consistent with other

instances where the Commission has

explored alternatives when the relevant

foreign exchange was unwilling or

unable to enter into a comprehensive

surveillance sharing agreement.30

Accordingly, the Commission believes

the MOU provides sufficient basis for

the exchange of necessary surveillance

information. The Commission continues

to believe strongly, however, that the

Bolsa and the CBOE should continue to

work together to consummate a formal

surveillance sharing agreement to cover

IPC Index options as soon as

practicable.

The Commission finds good cause for

approving the Amendments to the

proposed rule change prior to the

thirtieth day after the date of

publication of notice thereof in the

Federal Register. The Amendments

outline CBOE’s maintenance criteria

with respect to the IPC and the

procedures for reducing position limits,

if necessary. As discussed above,

although CBOE is not responsible for

maintenance of the IPC, it has adopted

criteria which, if breached, will result in

the re-classification of the index to

narrow-based. Because CBOE does not

have the ability to maintain the Index in

order to ensure that it remains broadbased, the Commission believes the

adoption of these standards are

reasonable to address the trading issues

presented by a significant change in the

character and composition of the Index.

In addition, the Commission believes

that the standards are sufficient to

ensure that if the IPC does not continue

to be representative of the Mexican

equity market, or if the Index becomes

dominated by one or a small number of

stocks, it will cease to be classified as

broad-based for U.S. index options
24986 Federal Register / Vol. 61, No. 97 / Friday, May 17, 1996 / Notices

31 15 U.S.C. 78s(b)(2) (1988).

32 17 CFR § 200.30–3(a)(12) (1994).

trading purposes. If reclassified as

narrow-based, Amendment No. 3

establishes procedures for reducing

position limits which, the Commission

notes, are consistent with existing

procedures for reducing narrow-based

index option position limits.

Accordingly, the Commission believes

there is good cause, consistent with

Sections 6(b)(5) and 19(b)(2) of the Act,

to approve the Amendments on an

accelerated basis.

III. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning the Amendments.

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

above-mentioned self-regulatory

organization. All submissions should

refer to the file number in the caption

above and should be submitted by June

7, 1996.

It therefore is ordered, pursuant to

Section 19(b)(2) of the Act,31 that the

proposed rule change (SR–CBOE–96–

09) is approved, as amended.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.32

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–12385 Filed 5–16–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37201; File No. SR–CBOE–

96–24]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Board Options Exchange,

Inc. Relating to as of Add Submissions

May 10, 1996.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on April 15, 1996, 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 terminate its

fee program for members who, for more

than a prescribed percentage of

transactions, submit trade information

pursuant to CBOE Rule 6.51 after the

date on which the trade is executed.

(These post-trade date submissions are

commonly referred to as ‘‘as of adds.’’)

In conjunction with the foregoing, the

Exchange also proposes to revise the

structure of its as of add summary fine

program. 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,

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

CBOE Rule 6.51 requires, among other

things, that (i) a participant in each

transaction to be designated by the

Exchange shall immediately report the

transaction to the Exchange and (ii) each

business day, each Clearing Member

shall file with the Exchange trade

information covering each Exchange

transaction made by it or on its behalf

during the business day.

On October 1, 1993, the Exchange

instituted an as of add fee program to

collect fees from members who, for

more than a prescribed percentage of

transactions, submit trade information

pursuant to Rule 6.51 after the date on

which the trade is executed. This

program is set forth in CBOE Rule 2.26

and currently functions in the following

manner. Each individual member is

assessed a $10.00 fee for each as of add

submitted by the member during a given

month that is in excess of 2.4% of the

member’s trade submissions during that

month. Similarly, each Clearing Member

is assessed a $3.00 fee for each as of add

submitted by the Clearing Member

during a given month that is in excess

of 1.2% of the Clearing Member’s trade

submissions during that month. In

addition, the total fee under the program

that may be assessed against a member

in a given month are capped at $500 for

individual members and at $1,000 for

Clearing Members.

The reason the Exchange

implemented the as of add fee program

was to allocate the costs borne by the

Exchange in processing as of add

submissions to those members most

responsible for generating those costs

and thereby to encourage the

submission of information with respect

to a trade on the date the trade is

executed by creating an economic

incentive to submit the information on

that day. During the first year of the

program, the percentage of as of add

submissions declined by 10% even

though the Exchange experienced a 37%

increase in trading volume. Based on

past experience, the Exchange estimates

that had the program not been in effect

during that time period, the percentage

of as of add submissions would have

doubled. Since November, 1994,

however, the percentage of as of add

submissions has remained relatively

constant. Therefore, although the

program has clearly been effective in

reducing the percentage of as of add

submissions, it no longer appears to be

causing a reduction in the rate of those

submissions.

Accordingly, the Exchange is

proposing to terminate the as of add fee

program and to seek further reductions

in the percentage of as of add

submissions by revising the structure of

the Exchange’s as of add summary fine

program.

The Exchange instituted its as of add

summary fine program on February 1,

1995. The program is a part of the

Exchange’s minor rule violation plan

and is set forth in CBOE Rule