[Federal Register Volume 63, Number 34 (Friday, February 20, 1998)]
[Notices]
[Pages 8732-8733]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4341]
[[Page 8732]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39662; File No. SR-OCC-97-15]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Relating to Contrary Exercise
Intentions
February 13, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on September 16, 1997, 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 from interested persons on the proposed rule change.
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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 proposed rule change will require all OCC members to adhere to
exchange rules regarding contrary exercise intentions.
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.\2\
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\2\ The Commission has modified the text of the summaries
prepared by OCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory basis for, the Proposed Rule Change
Pursuant to a request made by OCC's participant exchanges, OCC
proposes to adopt a rule to require clearing members to comply with the
uniform exchange rules relating to contrary exercise advices. Under
OCC's by-laws, an ``exchange'' is defined as ``a national securities
exchange or a national securities association which has qualified for
participation in the Corporation pursuant to the provisions of Article
VII of the by-laws.'' \3\
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\3\ OCC's by-laws, Article 1, Section 1.
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The rules of all OCC participant exchanges require exchange members
to advise their exchange if the member has determined to act contrary
to OCC's exercise-by-exception (``ex-by-ex'') processing procedures for
listed equity options. \4\ The exchanges require that ``contrary
exercise advices'' be submitted by 4:30 p.m. Central Standard Time on
the business day before expiration Saturday. OCC clearing members are
permitted to submit such advices using OCC's clearing member on-line
interface system, C/MACS. OCC understands that the exchanges use
contrary exercise advice information as part of their surveillance
programs to assess whether the decision to act contrary to OCC's ex-by-
ex processing procedures was made on news released after the uniform
cutoff time.
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\4\ OCC's ex-by-ex processing procedures have been developed
solely for the administrative convenience of OCC's clearing members.
Ex-by-ex procedures presume that a clearing member desires to
exercise all options that are in-the-money by a specified threshold.
Accordingly, all options subject to ex-by-ex processing are
identified as being in-the-money, at-the-money, or out-of-the-money
in a report provided to clearing members. That report reflects that
the clearing member instructs OCC to exercise all options that are
in-the-money by the stated threshold amount. However, the clearing
member is able to issue contrary instructions directing OCC to act
otherwise.
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Because not all OCC clearing members are members of a participant
exchange and therefore are not subject to the rules of any participant
exchange, OCC's participant exchanges have asked OCC to adopt a rule
that would require those clearing members to submit contrary exercise
advices in accordance with the procedures specified in the exchange
rules. Participant exchanges believe that requiring these clearing
members to submit contrary advice information will ensure that there is
a ``level playing field'' among OCC's clearing members with respect to
the exercise of expiring options and will enhance the exchanges' market
surveillance programs by creating a mechanism for identifying
additional instances in which participants in their markets may have
unjustly benefitted by acting on late breaking news.
Accordingly, OCC proposes to adopt a rule requiring all clearing
members to follow the exchanges procedures relating to contrary
exercise advices to ensure uniform application. The proposed rule will
also provide that failure to follow the exchanges procedures could
subject a clearing member to discipline by the exchanges listing the
option which was exercised or was not exercised in contravention of the
provisions of OCC's Rule 805. OCC believes that each exchange is the
appropriate organization to determine whether its rule relating to
contrary exercise advices has been violated and what disciplinary
sanctions, if any, should be imposed as a result thereof.
The proposed rule change is consistent with Section 17A of the Act
\5\ and the rules and regulations thereunder because it furthers the
public interest and protection of investors by imposing a requirement
that will foster the maintenance of fair competition among OCC's
clearing members.
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\5\ 15 U.S.C. 78q-1.
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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 that is not necessary or appropriate in
furtherance of the purposes of the Act.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
No comments on the proposed rule change were solicited or 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 periods (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 the 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, including whether the proposed rule
change is consistent with the Act. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the
[[Page 8733]]
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. Sec. 552, will be available for inspection and copying in
the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 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-97-15 and should be
submitted by March 13, 1998.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-4341 Filed 2-19-98; 8:45 am]
BILLING CODE 8010-01-M
