[Federal Register Volume 64, Number 39 (Monday, March 1, 1999)]
[Notices]
[Pages 10051-10052]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-4962]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41089; File No. SR-OCC-98-14]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Order Granting Accelerated Approval of a Proposed
Rule Change Relating to Closing Prices in Expiration Processing
February 23, 1999.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on November 3, 1998, The
Options Clearing Corporation (``OCC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change as
described in Items I and II below, which items have been prepared
primarily by OCC. The Commission is publishing this notice and order to
solicit comments on the proposed rule change from interested persons
and to grant accelerated approval of the proposal.
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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 revise OCC Rule 805
with respect to closing prices in expiration processing.
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),
[[Page 10052]]
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
OCC's clearing members have requested that expiring options be
subject to exercise-by-exception (``ex-by-ex'') processing \3\ even if
no trading takes place on the trading day before expiration. OCC's
clearing members have advised OCC that it would be easiest for them
operationally if OCC used the last sale price for the underlying
security for the ex-by-ex process rather than remove the option from
the process. Accordingly, under the proposed rule change OCC will use
the last sale price for the underlying security to determine the
closing price even if the price reflects sales that occurred prior to
the last trading day before expiration.
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\3\ OCC's ex-by-ex procedures presume that a clearing member
desires to exercise all options that are in-the-money by a specified
threshold. According to OCC, the ex-by-ex processing procedures have
been developed solely as an administrative convenience for its
clearing members (See Interpretation .02 to Rule 805).
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In addition, the proposed rule change allows OCC to fix a closing
price as it deems appropriate where there is no available last sale
price (e.g., because the underlying security is not being traded),
where the last sale price is stale (e.g., because there have been no
transactions in the underlying security for a lengthy period), or under
other similar circumstances. This will allow OCC to use the last
reported sales price generally but also will allow OCC to obtain prices
from other appropriate sources that provide a basis for determining the
market value of the underlying security.
The proposed rule change will also preserve OCC's ability to not
fix a closing price in situations where it believes that it cannot
derive a correct market price for the underlying security and to remove
it from ex-by-ex processing. OCC has informed the Commission that if it
fixes a closing price or determines to remove an underlying security
from the ex-by-ex process, it will promptly notify its clearing members
through an information memorandum or other communication medium so the
clearing members can take appropriate action.
Finally, revised Rule 805 will allow OCC to refer to such markets
as it designates for use in the ex-by-ex process rather than only
referring to the underlying security's primary market. OCC believes
that the term primary market may in some cases (now or in the future)
be unclear.
OCC believes that the proposed rule change is consistent with the
purposes and requirements of Section 17A of the Act \4\ and the rules
and regulations thereunder in that it promotes the prompt and accurate
clearance and settlement of equity and index options.
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\4\ 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 would 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
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 that the proposed rule change is consistent with this
obligation because it should increase the number of options that are
subject to the efficiencies of ex-by-ex processing. As a result, the
proposed rule change should facilitate the prompt and accurate
clearance and settlement of options transactions by providing
promptness and precision in the exercise of in-the-money options if no
trading takes place in the underlying security on the day before
expiration.
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\5\ 15 U.S.C. 78q-1(b)(3)(F).
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The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the publication of notice of
the filing. Approving prior to the thirtieth day after publication of
notice should immediately increase efficiency in processing expiring
options that are in-the-money if no trading takes place in the
underlying security on the trading day before expiration.
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, 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-98-14 and should be submitted by March
22, 1999.
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\6\ that the proposed rule change (File No. SR-OCC-98-14) be and
hereby is approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\6\ 15 U.S.C. 78s(b)(2).
\7\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 99-4962 Filed 2-26-99; 8:45 am]
BILLING CODE 8010-01-M
