[Federal Register Volume 61, Number 251 (Monday, December 30, 1996)]
[Notices]
[Pages 68807-68808]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-33059]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38070; File No. SR-OCC-96-19]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of a Proposed Rule Change Relating to the Expiration
Time and Assignment Processing Procedures for Certain Flexibly
Structured Foreign Currency Options
December 20, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on December 17, 1996, The
Options Clearing Corporation (``OCC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change (File No.
SR-OCC-96-19) 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).
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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 change the expiration
time and assignment processing procedures for certain flexibly
structured foreign currency options.
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 that 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.\2\
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\2\ The Commission has modified the text of the summaries
submitted by OCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The proposed rule change will change the expiration time and
assignment processing procedures for certain flexibly structured
foreign currency options, including certain flexibly structured cross-
rate foreign currency options. Specifically, flexibly structured
foreign currency options and flexibly structured cross-rate foreign
currency option (collectively referred to as ``flexibly structured
FCOs'') listed for trading after January 14, 1997, and expiring on or
after April 1, 1997, will expire at 10:15 a.m. Eastern Time (``ET'')
instead of 11:59 p.m. ET. Furthermore, OCC propose that all flexibly
structured FCOs will be subject to pro rata assignment.
The Philadelphia Stock Exchange (``PHLX'') presently trades two
types of flexibly structured FCO contracts. They are (1) flexibly
structured FCOs for which market participants do not specify an
expiration date (``standard flex FCOs'') which expire on standard mid-
month and end-of-month expiration dates at 11:59 p.m. ET (expiration
time is consistent with standard foreign currency option); and (2)
custom dated flexibly structured FCOs (``custom dated flex FCOs'') for
which market participants specify the expiration date and which expire
at 10:15 a.m. ET on that expiration date. Exercise notices regarding
standard flex FCOs are subject to random assignment processing while
pro rata assignment processing is applied to exercise notices regarding
custom dated flex FCOs.
PHLX has requested that OCC modify its rules to provide that the
expiration time for both types of flexibly structured FCOs be 10:15
a.m. ET on their expiration date, and that exercises in respect thereof
be assigned pursuant to OCC's pro-rata procedures.\3\ PHLX also has
requested that this change be effective for any standard flex FCOs
listed for trading after January 14, 1997, with an expiration on or
after April 1, 1997. Accordingly, any standard flex FCO contract
established on or before January 14, 1997, will expire at 11:59 p.m. ET
and be subject to a random assignment process. Currently, there is open
interest in standard flex FCO contracts expiring mid-month and end-of-
month for the months of March, April, July, September, and October
1997.\4\ Since existing standard flex
[[Page 68808]]
FCOs will be exempt from the new proposed procedures, OCC may be
required to run two separate processing cycles, one in the morning and
one in the evening. OCC has represented to the Commission that running
two separate processing cycles will not adversely affect OCC.
Additionally, OCC believes that the change in assignment processing is
merely a change in OCC's procedures and does not affect the
methodologies of either the random or pro rata assignment process.
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\3\ The Commission has already approved a proposed rule change
by PHLX regarding the expiration time and assignment procedures for
flexibly structured FCOs. Securities Exchange Act Release No. 37718
(September 24, 1996), 61 FR 51479 [File No. SR-PHLX-96-13] (order
approving a proposed rule change concerning the trading hours and
expiration times for customized foreign currency options).
\4\ Notwithstanding the above, PHLX has indicated that it may
ask holders of existing series to direct OCC to adjust the
expiration time so that such contracts will expire at 10:15 a.m. ET
with pro rata assignment. If the holders and the writers direct OCC
to make these adjustments, OCC will act accordingly provided that
OCC receives the proper authorizations from all parties involved.
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OCC is proposing to amend certain definitions in its by-laws to
accommodate PHLX's request.\5\ The proposed changes to Section 1 of
Articles I, XV, and XX of the by-laws should more accurately define the
distinction between standard foreign currency options and flexibly
structured foreign currency options with respect to expiration dates
and times and should clarify that, but for flexibly structured FCOs
established on or before January 14, 1997, all flexibly structured
FCOs, whether standard flex FCOs or custom dated flex FCOs, will expire
at 10:15 a.m. on the expiration date and be subject to a pro rata
assignment process. In addition, Section 1.E(4)(iii) is being added to
Articles XV and XX of OCC's by-laws as a transitional rule to govern
the expiration time and assignment process to be used for existing
standard flex FCO contracts and to exempt such standard flex FCO
contracts from the proposed rule change. OCC believes that these
proposed changes will create uniformity in the expiration time and
assignment processing procedure for all flexibly structured FCOs.
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\5\ The specific changes to OCC's by-laws are set forth in OCC's
proposed rule change, which is unavailable for review through OCC
and the Commission's Public Reference Room.
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OCC believes the proposed rule change is consistent with the
requirements of Section 17A of the Act \6\ because it is designed to
promote the prompt and accurate clearance and settlement of securities
transactions.
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\6\ 15 U.S.C. 78q-1(b)(3)(F).
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(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 OCC 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 Room, 450 Fifth Street NW., Washington,
DC 20549. Copies of such filing will also be available for inspection
and copying at the principal office of OCC. All submissions should
refer to the file number SR-OCC-96-19 and should be submitted by
January 21, 1997.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-33059 Filed 12-27-96; 8:45 am]
BILLING CODE 8010-01-M
