[Federal Register Volume 59, Number 100 (Wednesday, May 25, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12744]
[[Page Unknown]]
[Federal Register: May 25, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34081; File No. SR-DGOC-93-03]
Self-Regulatory Organizations; Delta Government Options Corp.;
Order Approving a Proposed Rule Change Relating to the Time for
Exercises of Options and for the Assignments of Exercise Notices
May 18, 1994.
On December 27, 1993, pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act''),\1\ Delta Government Options
Corp. (``DGOC'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change that modifies certain
procedures for exercises of options. On February 14, 1994, DGOC filed
with the Commission an amendment to the proposed rule change. On April
5, 1994, the Commission published notice of the proposed rule change in
the Federal Register to solicit comment from interested persons.\2\ No
comments were received. This order approves the proposal.
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\Securities Exchange Act Release No. 33825 (March 25, 1994),
59 FR 15955.
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I. Description
The proposed rule change modifies the time for tender of exercise
notices by DGOC participants maintaining long positions; the procedure
DGOC uses to assign exercise notices to participants maintaining short
positions; and the time by which exercise notices will be assigned.
Section 1001 (Exercise Procedures) of DGOC's Procedures establishes the
time by which a participant must tender to DGOC's clearing bank an
option exercise notice. The cutoff time is revised from 5:00 p.m. to 4
p.m. or such earlier time as may be announced by the Public Securities
Association as the recommended closing time for trading in the
government securities markets on the business day the participant
wishes to exercise an option contract.\3\
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\3\DGOC inquired of all its participants that maintain long
positions with DGOC whether they perceived any special burden
associated with the one hour reduction in the time available for
exercise. If any participant had wished to maintain the 5 p.m.
exercise notice tendering time on any outstanding option, DGOC would
have deferred implementation of the proposed rule change until one
day following the expiration of all such outstanding options subject
to the 5 p.m. time. No participant wanted to defer implementation of
the proposed rule change. Telephone conversation between Kathryn
Natale, Attorney, Morgan, Lewis & Bockius and Christine Sibille,
Attorney, Division of Market Regulation, Commission (May 13, 1994).
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DGOC's Procedures section 1002 (Assignment of Exercise Notices)
described the manner in which exercise notices are assigned to
participants. Prior to this amendment, when less than all exercisable
options in a class of options (i.e., all puts and calls covering the
same issue of Treasury securities) were exercised, exercise notices
were assigned randomly to participants that maintained short positions
in that class of options. As amended, exercise notices are assigned to
each participant maintaining a short position in the same class of
options on a pro rata basis. DGOC determines the number of exercise
notices allocated to a participant by dividing the number of options
subject to exercise maintained by such participant by the number of all
options in the same class. This number is multiplied by the total
number of exercise notices received by DGOC for the class of options.
Finally, the proposal change the time by which exercise notices
will be assigned under DGOC's Procedures section 1002. Previously,
exercise notices were assigned at or before 8 a.m. on the business day
following the business day that DGOC's clearing bank accepted them.
With this amendment, exercise notices are to be assigned at or before
5:00 p.m. on the same business day that DGOC's clearing bank accepts
them.
II. Discussion
Section 17A(b)(3)(F) of the Act provides that the rules of a
clearing agency must protect investors and the public interest and must
remove impediments to and must perfect the mechanism of a national
system for the prompt and accurate clearance and settlement of
securities transactions.\4\ By requiring that all option exercise
notices be tendered prior to 4 p.m., DGOC will have the ability to
assign option exercises earlier and give notice of the assignments
earlier. By receiving notification of their allocated option exercises
earlier, participants can manage more precisely their financial
exposure by having the ability to engage in other trading on that
business day. This capacity should allow participants to manage their
risks more effectively, thus furthering the goal of protecting
investors.
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\4\15 U.S.C. 78q-1(b)(3)(F) (1998).
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In addition, the Commission believes that the new method of
allocation of option exercises is consistent with the Act. By assigning
option exercises according to a precise formula based on a pro rata
allocation instead of a random allocation, participants will be
provided some basis for determining the likelihood that they will be
assigned a certain number of option exercises. The procedure also will
assign the option exercises on a fairer basis.
III. Conclusion
For the reasons stated above, the Commission finds that the
proposed rule change is consistent with section 17A of the Act.
It is therefore Ordered, Pursuant to section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-DGOC-93-03) be, and hereby
is, approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-12744 Filed 5-24-94; 8:45 am]
BILLING CODE 8010-01-M
