[Federal Register Volume 61, Number 213 (Friday, November 1, 1996)]
[Notices]
[Pages 56596-56597]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27999]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37872; File No. SR-OCC-96-08]
Self-Regulatory Organizations; The Options Clearing Corporation;
Order Approving a Proposed Rule Change Regarding the Exercise of
Certain Foreign Currency Options
October 25, 1996.
On July 18, 1996 The Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission'') a proposed
rule change (File No. SR-OCC-96-08) pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ to permit the exercise of
certain foreign currency options on the business day immediately
preceding the expiration date of such options. Notice of the proposal
was published in the Federal Register on September 12, 1996.\2\ No
comment letters were received. For the reasons discussed below, the
Commission is approving the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
\2\ Securities Exchange Act Release No. 37655 (September 6,
1996), 61 FR 48193.
---------------------------------------------------------------------------
I. Description of the Proposal
Under the rule change, OCC will permit the exercise of American-
style \3\ foreign currency and cross-rate foreign currency options
(collectively, ``currency options'') on the business day immediately
preceding their expiration date. OCC Rule 801(c) formerly prohibited
the exercise of option contracts on the business day immediately
preceding their expiration unless such options were American-style
flexibly structured options.
---------------------------------------------------------------------------
\3\ An ``American'' or ``American style'' option contract is an
option contract that may be exercised at any time from its
commencement time until its expiration. In contrast, a ``European
style'' option contract is an option contract that may only be
exercised on its expiration.
---------------------------------------------------------------------------
At the time this exercise restriction was incorporated into OCC's
rules, all option contracts expired on Saturday. The restriction
ensured that there was adequate time for all unmatched transactions to
be resolved and for OCC to receive and process exercise notices for the
preliminary and final exercise by exception processing cycles that were
then in effect. Since the implementation of the exercise restriction in
Rule 801(c), OCC has adopted Friday night as the expiration date for
all standardized
[[Page 56597]]
currency options \4\ and has replaced its preliminary and final
processing procedure with a single processing procedure for currency
options. Furthermore, OCC clearing members have requested that OCC lift
the restriction with respect to currency options because their non-U.S.
customers have expressed a desire to be allowed to submit exercises on
Thursday due to time zone differences with the United States.
---------------------------------------------------------------------------
\4\ For a completion description of the conversion of the
expiration date for all standardized currency options from Saturday
to Friday, refer to Securities Exchange Act Release Nos. 32458 (June
11, 1993), [File No. SR-OCC-93-09] (notice of filing and order
granting accelerated approval on a temporary basis of a proposed
rule change that changed the expiration day for American-style
foreign currency options from Saturday to Friday) and 38800 (July
14, 1993), [File No. SR-OCC-93-15] (order granting permanent
approval on an accelerated basis of a proposed rule change that
changed the expiration day for American-style foreign currency
options and cross-rate foreign currency options from Saturday to
Friday).
---------------------------------------------------------------------------
II. Discussion
Section 17A(b)(3)(F) of the Act \5\ requires that the rules of a
clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions. The Commission
believes the proposed rule change is consistent with OCC's obligations
under the Act because the extra time to process transactions previously
afforded by Rule 801(c) (i.e., exercise restrictions) is no longer
necessary for currency options because of OCC's single cycle expiration
processing procedures and because currency options expire on Friday
instead of Saturday. Therefore, by permitting the currency options to
be exercised on Thursday by U.S. and non-U.S. customers of OCC
participants and by removing an unnecessary OCC clearance and
settlement procedure, the prompt and accurate clearance and settlement
of securities transactions should be enhanced.
---------------------------------------------------------------------------
\5\ 15 U.S.C. Sec. 78q-1(b)(3)(F) (1988).
---------------------------------------------------------------------------
III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act and the
rules and regulations thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-OCC-96-08) be, and hereby
is, approved.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\6\
---------------------------------------------------------------------------
\6\ 17 CFR 200.30-3(a)(12) (1996).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-27999 Filed 10-31-96; 8:45 am]
BILLING CODE 8010-01-M
