01-9843. Self-Regulatory Organizations; The Options Clearing Corporation; Order Granting Approval of a Proposed Rule Change Relating to Price Used in Calculating Premium Margin

April 16, 2001.

On October 26, 1999, The Options Clearing Corporation (“OCC”) filed with the Securities and Exchange Commission (“Commission”) a proposed rule change (File No. SR-OCC-99-14) pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”).^[1] Notice of the proposal was published in the Federal Register on July 17, 2000.^[2] No comment letters were received. For the reasons discussed below, the Commission is granting approval of the proposed rule change.

I. Description

OCC proposes to amend Rule 601 (relating to margining of equity options) and Rule 602 (relating to margining of non-equity options) to set marking prices ^[3] at the last sale price, adjusted to the highest bid if the last sale price is below the highest bid or adjusted to the lowest offer if the last sale price is above the lowest offer. The purpose of the proposed rule change is twofold. First, OCC believes that the proposed change results in a more accurate assessment of risk and therefore a more appropriate margin requirement. Second, OCC believes that the proposed rule change will provide consistency with the marking practices of clearing members, the majority of whom are believed to use the method currently proposed.

II. Discussion

Section 17A(b)(3)(F) ^[4] of the Act requires that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions and to assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible. For the reasons set forth below, the Commission believes that OCC's proposed rule change is consistent with OCC's obligations under the Act.

The proposed amendments to Rule 601 and Rule 602 to set marking prices at the last sale price, adjusted to the highest bid if the last sale price is below the highest bid or adjusted to the lowest offer if the last sale price is above the lowest offer should result in a more accurate assessment of risk and a more appropriate margin requirement thus further assuring the safeguarding of securities and funds within OCC's control. In addition the proposed rule change should provide consistency with the marking practices of clearing members, the majority of whom are believed to use the method currently proposed. This should further promote more prompt and accurate clearance and settlement of securities transactions for OCC and its members.

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-99-14) be and hereby is approved.

For the Commission by the Division of Market Regulation, pursuant to delegated authority.^[5]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  Securities Exchange Act Release No. 43023 (July 11, 2000), 65 FR 44088.

3.  OCC Rule 601(b)(6) defines marking price when used on any business day with respect to the security underlying any stock option, BOUND or stock loan or borrow position, as the closing price for such underlying security on the primary market for such underlying security during the preceding trading day or, if such underlying security was not traded in the primary market, the highest reported asked quotation for such underlying security at or about the close of trading on such day.

4.  15 U.S.C. 78q-1(b)(3)(F).

5.  17 CFR 200.30-3(a)(12).