[Federal Register Volume 59, Number 201 (Wednesday, October 19, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-25882]
[[Page Unknown]]
[Federal Register: October 19, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34837; File No. SR-OCC-94-08]
Self-Regulatory Organizations; the Options Clearing Corporation;
Notice of Filing of a Proposed Rule Change Relating to Flexibly
Structured Index Options Denominated in a Foreign Currency
October 13, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on August 19, 1994, The
Options Clearing Corporation (``OCC'') 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
primarily by OCC. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The purpose of the proposed rule change is to enable OCC to issue,
clear, and settle new flexibly structured index options denominated in
a foreign currency to be traded at the Chicago Board Options Exchange
(``CBOE'').\2\
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\2\For a detailed description of the CBOE product, refer to
Securities Exchange Act Release No. 34203 (June 13, 1994), 59 FR
31658 [File No. SR-CBOE-93-33] (order approving a proposed rule
change relating to flexibly structured index options designated in
foreign currencies).
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, OCC 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. OCC 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
On September 23, 1993, the Commission approved a proposed rule
change filed by OCC which proposed to accommodate the clearance and
settlement of flexibly structured index options.\3\ Flexibly structured
index options exhibit virtually the same characteristics as regular
index options; therefore, OCC establishes long and short flexibly
structured index option positions in clearing member accounts in
precisely the same way it currently does for regular index options. OCC
incorporates flexibly structured index options in its premium
settlement, margin collection, exercise notice, exercise assignment,
and exercise/expiration statement processes without significant changes
to those processes. Premiums and exercise prices for the flexibly
structured index options that are currently being traded are
denominated in United States dollars. Parties to a transaction in such
an option may customize certain terms of the option including: the
expiration date, the exercise style, the exercise price, the cap
interval in the case of capped-style options, and the method to be used
for establishing the current index value for purposes of settling
expiration date exercises.
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\3\Securities Exchange Act Release No. 31912 (February 23,
1993), 58 FR 11879 [File No. SR-OCC-92-33] (order approving proposed
rule change relating to flexibly structured index options).
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The new flexibly structured index option product to be traded at
the CBOE is similar to the existing flexibly structured index option
product in that the underlying interest is an index and the parties to
a transaction may customize certain terms of the option. However, the
new product will have premiums and exercise prices denominated in
foreign currencies rather than in United States dollars.\4\
Accordingly, this new product is being called Flexibly Structured Index
Options Denominated in a Foreign Currency (``FX Index Options'').
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\4\Premium and exercise prices for these non-United States
dollars flexibly structured index options may be denominated in any
of the foreign currencies currently underlying foreign currency
options. Those currencies include: (1) Australian dollars, (2)
British pounds, (3) Canadian dollars, (4) European Economic
Community currency units, (5) French francs, (6) German Deutsche
marks, (7) Japanese yen and (8) Swiss francs.
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To accommodate the clearance and settlement of FX Index Options, a
new Article, Article XXIII, will be added to the OCC By-Laws. Because
FX Index Options are a type of index option, the OCC By-Laws governing
index options, Article XVII, will be incorporated into new Article
XXIII and will be made applicable to FX Index Options. In addition,
because FX Index Options will settle in a foreign currency, certain of
the OCC By-Laws governing Cross-Rate Foreign Currency Options in
Article XX also are being incorporated into new Article XXIII where
appropriate. For example, those By-Laws governing extraordinary events,
adjustments, and the payment of premiums will be incorporated into the
new article.
A Chapter XXIV will be added the OCC Rules to accommodate FX Index
Options. FX Index Options will be exercised pursuant to the rules
governing existing index options. Accordingly, the rules governing
exercise, assignment, allocation, and the exercise settlement date from
Chapter XVIII, which pertains to index options, will be incorporated
into new Chapter XXIV and will be made applicable to FX Index Options.
In addition, the settlement procedure for FX Index Options will be the
same as the procedure for existing index options. Exercised FX Index
Options will be settled through the payment of an exercise settlement
amount, which is the difference between the aggregate exercise price
and the aggregate current index value. Accordingly, the rules governing
exercise settlement and the exercise settlement date from Chapter XVIII
will be incorporated into new Chapter XXIV and will be made applicable
to FX Index Options. Because FX Index Options will settle in a foreign
currency, certain settlement obligations of a party to a FX Index
Option contract will be similar to the settlement obligations of a
party to a cross-rate foreign currency option contract. Therefore,
certain rules governing settlement obligations from Chapter XXI, which
pertains to cross-rate foreign currency options, will be incorporated
into new Chapter XXIV. Specifically, these include the obligation to
set up bank accounts and the consequence of failing to pay a foreign
currency. Finally, FX Index Options will be margined like cross-rate
foreign currency options in that the margin requirement will be
calculated in the applicable trading currency and then converted to
United States dollars. Consequently, the language of Rule 2111
governing margin requirements for cross-rate foreign currency options
will be incorporated into new Chapter XXIV.
Two additional changes to the OCC By-Laws and an additional change
to OCC's Rules also will be made. Specifically, the term ``FX index
option clearing member'' will be added to the definition of ``clearing
member'' in Article I, Section 1 of the By-Laws. In addition, the
reference to the term ``FLEX'' in the definition of clearing member
will be changed to ``flexibly structured option'' in order to make that
term more generic. Finally, OCC Rule 401 will be amended to require
that the currency in which the option is denominated, the expiration
date of the option contract as opposed to the month, and the cap price,
if any, be included in the Report of Matched Trades.
OCC believes the proposed rule change is consistent with the
purposes and requirements of Section 17A of the Act because it provides
for the prompt and accurate clearance and settlement of transactions in
flexibly structured index options denominated in a foreign currency and
because it provides for the safeguarding of related securities and
funds. The proposed rule change meets such requirements by establishing
a framework in which existing OCC systems, rules, and procedures are
extended to the processing of the new FX Index Options.
B. Self-Regulatory Organization's Statement on Burden on Competition
OCC does not believe that the proposed rule change will impose any
burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were not and are not intended to be solicited with
respect to the proposed rule change, and none have been received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within thirty-five days of the date of publication of this notice
in the Federal Register or within such longer period (i) as the
Commission may designate up to ninety days of such date if it finds
such longer period to be appropriate and publishes its reasons for so
finding or (ii) as to which the self-regulatory organization consents,
the Commission will:
(a) By order approve such proposed rule change or
(b) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street NW., Washington, DC 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, NW.,
Washington, DC 20549. Copies of such filing also will be available for
inspection and copying at the principal office of OCC. All submissions
should refer to File No. SR-OCC-94-08 and should be submitted by
November 4, 1994.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-25882 Filed 10-18-94; 8:45 am]
BILLING CODE 8010-01-M
