Federal Register / Vol. 61, No. 204 / Monday, October 21, 1996 / Notices 54693

Federal Register / Vol. 61, No. 204 / Monday, October 21, 1996 / Notices 54693 19(b)(2) of the Act to approve (`Àct''),1 and Rule 19b±4 2 thereunder, prices at four strike price intervals Amendment No. 1 to the proposed rule notice is hereby given that on October above and four strike price intervals change on an accelerated basis. 9, 1996, the Chicago Board Options below the current value of the Index. Interested persons are invited to Exchange, Incorporated (``CBOE'' or Subsequently, as the value of the Index submit written data, views, and `Èxchange'') filed with the Securities moves up or down, the Exchange may arguments concerning Amendment No. and Exchange Commission list additional series of options (up until 1 to the rule proposal. Persons making (``Commission'') the proposed rule the fifth day prior to expiration), such written submissions should file six change as described in Items I and II that under ordinary circumstances there copies thereof with the Secretary, below, which Items have been prepared may be available for trading series of Securities and Exchange Commission, by the self-regulatory organization. The OEX options with a given expiration 450 Fifth Street, N.W., Washington, D.C. Commission is publishing this notice to date having strike prices at up to five 20549. Copies of the submission, all solicit comments on the proposed rule strike price intervals above and up to subsequent amendments, all written change from interested persons and to five strike intervals below the current statements with respect to the proposed grant accelerated approval of the value of the Index. In unusual market rule change that are filed with the proposed rule change. conditions (such as at times of Commission, and all written I. Self-Regulatory Organization's heightened volatility) additional series communications relating to the Statement of the Terms of Substance of may be added at up to six strike price proposed rule change between the the Proposed Rule Change intervals above and six strike price Commission and any person, other than intervals below the current value of the those that may be withheld from the The Exchange proposes to amend Index. Of course, series of options public in accordance with the Rule 24.9, Interpretation and Policy .01 previously opened continue to be provisions of 5 U.S.C. 552, will be regarding the listing of additional series available, so that there may be more available for inspection and copying at of index options on the Standard & than the stated number of series traded the Commission's Public Reference Poor's 100 (``S&P 100'' or `ÒEX'') Index at strike price intervals opposite to the Section, 450 Fifth Street, N.W., options in order to take into account the direction in which the index value has Washington, D.C. 20549. Copies of such signficantly increased levels of the S&P moved. filing also will be available for 100 since the listing procedures were For example, if a new expiration inspection and copying at the principal implemented. The text of the proposed month is introduced in an OEX option office of the CBOE. All submissions rule change is available at the Office of at a time when the current value of the should refer to File No. SR±CBOE±96± the Secretary, CBOE and at the S&P 100 Index is 598, so long as the 35 and should be submitted by Commission. strike price interval for OEX options November 12, 1996. II. Self-Regulatory Organization's remains at 5 points, series of OEX IV. Conclusion Statement of the Purpose of, and options will be available at 580, 585, Statutory Basis for, the Proposed Rule 590 and 595 (four intervals below the For the foregoing reasons, the Change current Index value) and at 600, 605, Commission finds that the CBOE's 610, and 615 (four intervals above the proposal to amend its firm facilitation In its filing with the Commission, the self-regulatory organization included current Index value). If the value of the exemption is consistent with the Index then moves to 608, under normal requirements of the Act and the rules statements concerning the purpose of and basis for the proposed rule change, conditions the Exchange would be able and regulations thereunder. to add series with strike prices of 620, It is therefore ordered, pursuant to and discussed any comments it received 625 and 630, which, together with the Section 19(b)(2) of the Act,21 that the on the proposed rule change. The text 610s and the 615s, provide five series proposed rule change (SR±CBOE±96± of these statements may be examined at above the current level of the Index. In 35), as amended, is approved. the places specified in Item IV below. For the Commission, by the Division of The self-regulatory organization has unusual market conditions, the Market Regulation, pursuant to delegated prepared summaries, set forth in Exchange could add sixth series with a authority.22 Sections A, B, and C below, of the most strike price of 635. In this example, Margaret H. McFarland, significant aspects of such statements. there would continue to be traded six Deputy Secretary. series with strike prices below the A. Self-Regulatory Organization's [FR Doc. 96±26856 Filed 10±18±96; 8:45 am] current level of the Index (that is, the Statement of the Purpose of, and 580, 585, 590, 595, 600 and 605 series). BILLING CODE 8010±01±M Statutory Basis for, the Proposed Rule When the current methodology for Change adding series of OEX options was [Release No. 34±37815; File No. SR±CBOE± 1. Purpose. The purpose of the adopted in 1992, the S&P Index was at 96±61] proposed rule change is to amend the 380. This meant that five intervals (25 1 Self-Regulatory Organizations; Notice procedures for listing additional series points) constituted over 6 ¤2% of the of Filing and Order Granting of index options on the S&P 100 Index value of the index, and six intervals (30 (OEX ) in order to take into account points) constituted almost 8% of the Accelerated Approval of Proposed 3 Rule Change by the Chicago Board the significantly increased levels of the index value. Since that time, the value Options Exchange, Incorporated S&P 100 Index since these procedures of the S&P 100 Index has increased Relating to the Opening of New Series were first put in place. Under existing considerably, to the point where it has of OEX Index Options Interpretation and Policy .01 under recently exceeded 670. At this level, five Exchange Rule 24.9, when the Exchange strike price intervals constitutes less October 11, 1996. introduces trading in a new expiration Pursuant to Section 19(b)(1) of the month for a class of OEX options, it may 3 This was consistent with the prior methodology Securities Exchange Act of 1934 initially list series of options with strike for adding new series of OEX options, which permitted up to four strike price intervals and was adopted at a time when the value of the index was 21 15 U.S.C. 78s(b)(2) (1988). 1 15 U.S.C. § 78s(b)(1). 265, thus allowing OEX options to be added up to 22 17 CFR 200.30±3(a)(12). 2 17 CFR 240.19b±4. 71¤2% away from the market. 54694 Federal Register / Vol. 61, No. 204 / Monday, October 21, 1996 / Notices than 33¤4%, and six intervals less than money OEX calls as a hedge against a market under normal circumstances, 41¤2%, of the value of the Index. diversified stock portfolio. In some and up to 13 series in unusual Application of the current rule, cases, these strategies require that the circumstances. together with a sustained bull market, calls written must be at least 5% out-of- The number of additional series that has led to an absence of OEX call series the-money. Obviously, if the furthest will result from this proposed rule that are more than nominally out-of-the- out-of-the-money OEX call is only 4% change, which affects OEX options only, money, since even under unusual out-of-the-money, this strategy cannot will not be significant. For this reason, market conditions, which the Exchange be pursued. CBOE does not believe that the has determined now exist, an OEX call (3) Lower-priced OEX series proposed change raises any capacity can be only a little over 4% out-of-the- unavailable for retail customers. The issues. In any event, with prior notice money when first opened for trading, as Exchange has long noticed that OEX CBOE would continue to have the contrasted with approximately 8% out- order flow from retail customers is ability to delist series that become of-the-money at times when the level of concentrated in options priced below inactive if the market were to move the Index was lower. And, so long as the $5, and that when the number of away from exercise price levels at which Index continues to move in a generally available lower priced options the series were previously opened. upward direction, out-of-the-money increases, so does retail order flow. Indeed, CBOE has recently acted to calls become less out-of-the-money with Under current index levels in light of delist over 400 inactive series on this the passage of time. The adverse the existing restrictions under basis. consequences of this trend is Interpretation and Policy 24.9.01, there 2. Statutory basis. By responding to exemplified in at least three ways: (1) are a few low price OEX call options the current historically high values of the number of OEX calls eligible for available with any significant time the S&P 100 Index in a manner that will trading through the Exchange's remaining before expiration, such that at increase the availability to investors of automatic execution system (RAES) is times there are no OEX calls available lower priced OEX options, the proposed limited; (2) institutional customers, at less than $6 premiums having more rule change is consistent with the which often apply specific parameters than two months remaining until provisions of Section 6 of the Act, and to conservative options strategies that expiration.

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