[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: 94-12748]
[[Page Unknown]]
[Federal Register: May 25, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Self-Regulatory Organizations; Delta Government Options Corp.;
Notice of Filing of Proposed Rule Change Modifying Exercise Settlement
Date and Buy-In Procedures
[Release No. 34-34083; File No. SR-DGOC-93-04]
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on December 27, 1993, Delta
Government Options Corp. (``DGOC'') 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
substantially by DGOC. On February 16, 1994, and on March 4, 1994, DGOC
submitted substantive amendments to the filing. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
---------------------------------------------------------------------------
\1\15 U.S.C. 78s(b)(1) (1988).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposal will amend Delta's exercise settlement procedures.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, DGOC 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. DGOC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Under current practice, the exercise settlement date, depending on
certain factors, occurs from two to five business days following the
expiration date or the date on which an exercise notice is tendered.
Under the proposed amendments to section 1004 of DGOC's procedures, the
exercise settlement date for an option contract on a Treasury bond or a
Treasury note will be (1) the next business day following the date on
which an exercise notice is purposely assigned for those contracts
exercised on a day preceding the expiration date and (2) the next
business day following the expiration date for those contracts
exercised on the expiration date. For an option contract on a Treasury
bill, the exercise settlement date will be the next business day after
an exercise notice is properly tendered. The purpose of the proposal is
to respond to participants who have requested that DGOC's settlement
procedures more closely follow the practices already established in the
over-the-counter (``OTC'') marketplace for the settlement of purchases
and sales of Treasury securities and for the settlement of exercised
options on such securities.
By shortening DGOC's settlement period to conform to the industry
standard, DGOC will reduce the amount of time such settlement
obligations remain outstanding which in turn will reduce credit
exposure to DGOC as well as in the overall cash market clearing system
for the settlement of Government securities. Using the same settlement
period for the settlement of exercised options and for the settlement
of securities in the cash market will ensure a consistent approach
among clearing entities and will serve as a platform for additional
coordination among clearing entities clearing identical or
complimentary securities. In addition to reducing credit risk in the
clearance system, a shortening of the settlement cycle will further
reduce risk by enabling DGOC to uncover potential problems earlier and
will allow DGOC to make expedited determinations of whether failures by
participants to deliver securities are due to processing problems,
market effect, or credit related difficulties.
Because DGOC's current settlement period of two to five business
days is longer than the settlement period for similar OTC products
cleared outside of DGOC, DGOC-issued options carry a price adjustment
for the additional financing costs. As a result, the price of DGOC-
issued options does not match exactly those of similar OTC-traded
options. Implementation of DGOC's revised settlement procedures will
make the relative values of DGOC-issued options comparable to those of
OTC-traded options and will eliminate participants' need to make the
additional calculations necessary to correlate the price of DGOC-issued
options with the price of OTC-traded options. Therefore, this proposal
should provide participants greater ease in trading and exercising
options issued by DGOC and will allow for the automated clearance and
settlement of securities transactions that otherwise would be cleared
through decentralized and labor intensive processes.
In connection with the modifications to the exercise settlement
date, DGOC is proposing to amend section 1005 of its Procedures to
provide that DGOC will allocate exercise settlement obligations prior
to 8 a.m. on the business day prior to the exercise settlement date.
Currently, DGOC allocates exercise settlement obligations on the second
business day prior to the exercise settlement date.
DGOC also is proposing to amend section 1102 of its procedures to
clarify its buy-in process applicable when a participant fails to make
a required delivery of Treasury securities to DGOC. First, upon the
request of the participant failing to deliver and with good cause
shown, DGOC will be authorized to defer the execution of a buy-in.
Currently, DGOC can defer the execution of a buy-in for no more than
twenty-four hours. Second, the time for the delivery of a notice of
buy-in from DGOC to the participant which failed to deliver will be
specifically set forth is thirty calendar days after the failure to
deliver.
Delta believes the proposed rule change is consistent with
requirements of the Act, particularly section 17A of the Act,\2\ and
the rules and regulations thereunder applicable to DGOC. This is
because the proposed rule change will permit more utilization of the
DGOC system by those participants who prefer to trade in options for
hedging purposes or for speculation.
---------------------------------------------------------------------------
\2\15 U.S.C. 78q-1 (1988).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
DGOC does not believe that the proposed rule change will impose a
burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
DGOC has neither solicited nor received any comments.
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 period (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. 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 DGOC. All submissions
should refer to the file number SR-DGOC-93-04 and should be submitted
by June 15, 1994.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\3\
---------------------------------------------------------------------------
\3\17 CFR 200.30-3(a)(12) (1993).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-12748 Filed 5-24-94; 8:45 am]
BILLING CODE 8010-01-M
