[Federal Register Volume 61, Number 30 (Tuesday, February 13, 1996)]
[Notices]
[Pages 5593-5594]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-3132]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36818; File No. SR-OCC-95-14]
Self-Regulatory Organization; The Options Clearing Corporation;
Order Approving Proposed Rule Change Relating to the Processing of Late
Exercise Requests for Eligible Option Contracts
February 7, 1996.
On September 15, 1995, The Options Clearing Corporation (``OCC'')
filed with the Securities and Exchange Commission (``Commission'') a
proposed rule change (File No. SR-OCC-95-14) pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ On
December 19, 1995, OCC filed an amendment to the proposed rule change
to clarify certain language in the proposal.\2\ Notice of the proposal
was published in the Federal Register on December 27, 1995.\3\ No
comment letters were received. For the reasons discussed below, the
Commission is granting approval of the proposed rule change.
\1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
\2\ Letter from Michael G. Vitek, OCC, to Jerry W. Carpenter,
Assistant Director, Division of Market Regulation, Commission
(December 19, 1995).
\3\ Securities Exchange Act Release No. 36607 (December 20,
1995), 60 FR 67007.
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I. Description of the Proposal
The proposed rule change amends OCC Rule 801(e) regarding late
exercises by changing the cut-off times for filing a late exercise
notice and by eliminating any references to trading volume. The
proposed rule change also modifies OCC Rule 801(a) to provide expressly
for the submission of exercise notices through electronic means.
OCC Rule 801(e) currently permits OCC clearing members to file,
revoke, or modify exercise notices after the 7:00 p.m. (all time
references are Central Time unless stated otherwise) deadline for the
purpose of correcting bona fide errors. Once a late instruction is
accepted, Rule 801(e) requires the clearing member submitting an
instruction to pay a late filing fee and explain in writing the error
that caused the late submission of the instruction. The filing fees for
late instructions are imposed using a graduated fee schedule with
variable cut-off times to reflect the fact that the earlier that a late
exercise notice is submitted the easier and less costly it is for OCC
to process the request.\4\
\4\ For a detailed description of OCC's procedures for
processing late option exercise notices on non-expiring option
contracts, and earlier amendments to the late exercise fee schedule
cut-off times, refer to Securities Exchange Act Release Nos. 29390
(July 1, 1991), 56 FR 31454 [File No. SR-OCC-90-3] (order approving
procedures for processing late exercise notices) and 33247 (November
24, 1993), 58 FR 63419 [SR-OCC-93-2] (order approving changes to
OCC's late exercise fee schedule cut-off times).
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OCC clearing members have requested that OCC provide them with data
from nightly processing earlier on the night of processing. Presently,
Rule 801(e) requires OCC to wait until 10:00 p.m. to begin critical
processing even if it has received all necessary data from exchanges
\5\ and clearing members
[[Page 5594]]
earlier in the night. Due to the many technical improvements
implemented by the exchanges in recent years, the exchanges now send
daily trading data to OCC much earlier. Thus, there are many nights
when OCC could begin critical processing by 9:00 p.m. To accommodate
the requests by clearing members for earlier data distribution, OCC has
decided to advance the late exercise cut-off times by one hour and to
eliminate the volume conditions affecting the cut-off times.
\5\ The term ``exchange'' is defined in Article I, Section E(4)
of OCC's by-laws as a national securities exchange or a national
securities association that has qualified for participation in OCC
pursuant to the provision of Article VII of OCC's by-laws.
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The volume conditions were initially incorporated into Rule 801(e)
to ensure that clearing members had adequate time to reconcile their
records with exchange trade comparison reports. Since that time, the
exchanges have continued to improve their systems and operations in the
trade matching process, particularly with respect to intraday trade
matching. These technological improvements have enabled the exchanges
to send daily trade data to OCC and its clearing members much earlier
in the day. Accordingly, OCC is eliminating any references to volume in
the revised Rule 801(e). OCC does not believe removing the volume
considerations will have any negative affect on its clearing members.
The proposed rule change also amends OCC's late exercise fee
schedule. The time at which a $500 fee will be imposed is being changed
from between 7:00 p.m. to 9:00 p.m. to between 7:00 p.m. to 8:00 p.m.
The late exercise cut-off time associated with a $2000 fee will be
changed from between 9:01 p.m. and the start of critical processing to
between 8:01 p.m. and the start of critical processing.
In addition to the changes described above, Rule 801(a) is being
revised to provide expressly for the submission of exercise
instructions through electronic means.
II. Discussion
Section 17A(b)(3)(F) \6\ of the Act requires that the rules of a
clearing agency be designed to facilitate the prompt and accurate
clearance and settlement of securities transactions. The Commission
believes OCC's proposed rule change is consistent with the requirements
of Section 17A(b)(3)(F) because the proposal advances the late exercise
cut-off times by one hour without regard to volume restrictions. This
should allow clearing members to obtain earlier data distribution from
OCC thus promoting the prompt and accurate clearance and settlement of
securities transactions.
\6\ 15 U.S.C. Sec. 78q-1(b)(3)(F) (1988).
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Because the exchanges' improvements to their intraday trade
matching processes enable them to send daily trade comparison reports
to clearing members much earlier in the day, the Commission believes
that clearing members should continue to have adequate time to
reconcile their records with exchange trade comparison reports and
should not be negatively effected by the removal of volume restrictions
or the earlier cut-off times for late exercise notices. These changes
also should enable OCC to begin its critical processing earlier in the
evening and, in turn, provide earlier distribution of data from nightly
processing to its clearing members thus facilitating the prompt and
accurate clearance and settlement of securities transactions consistent
with Section 17A of the Act.
III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
in particular 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-95-14) be, and hereby
is, approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\7\
\7\ 17 CFR 200.20-3(a)(12) (1995).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-3132 Filed 2-12-96; 8:45 am]
BILLING CODE 8010-01-M
