[Federal Register Volume 62, Number 110 (Monday, June 9, 1997)]
[Notices]
[Pages 31468-31470]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14901]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38706; File No. SR-OCC-97-02]
Self-Regulatory Organizations; the Options Clearing Corporation;
Notice of Filing of Proposed Rule Change Regarding the Issuance,
Clearance, and Settlement of Options on Unit Investment Trust Interests
and Investment Company Shares That Hold Portfolios or Baskets of Common
Stock
June 2, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\, notice is hereby given that on February 21, 1997, The
Options Clearing Corporation (``OCC'') filed with the Securities and
Exchange Commission (``Commission'') and on February 21, 1997, and on
May 14, 1997, amended 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 purpose of the proposed rule change is to amend OCC's rules and
by-laws to permit OCC to issue, clear, and settle options on publicly
traded units of beneficial interest of unit investment trusts (``trust
units'') and on publicly treated shares of open-end management
investment companies that hold portfolios or baskets of common stock
(``fund shares'').
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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[[Page 31469]]
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Under the proposed rule change, OCC will amend its existing by-laws
and rules to accommodate the issuance, clearance, and settlement of
options on publicly traded trust units and fund shares that have been
proposed for trading by the American Stock Exchange (``Amex'').\3\ The
Amex currently trades trust units known as Portfolio Depository Receipt
(``SPDR's'') based on two Standard & Poor's (``S&P'') indexes. SPDRs
are trust units that represent beneficial ownership in the SPDR trust.
The SPDR trust was established to accumulate and hold a portfolio of
common stocks that is intended to track the price performance and
dividend yield of a particular S&P index. The two S&P indexes on which
such SPDRs are based are the S&P 500 index and the S&P MidCap 400
index. SPDRs trade similarly to shares of common stock. They are
cleared and settled at the National Securities Clearing Corporation
(``NSCC'') and are held in book-entry form at The Depository Trust
Company (``DTC'').
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\3\ Securities Exchange Act Release No. 38303 (February 19,
1997), 62 FR 8467 [File No. SR-Amex-96-44].
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The Amex also trades fund shares which are issued by an open-end
management investment company consisting of seventeen separate series
known as World Equity Benchmark Shares (``WEBS'') based on seventeen
foreign equity market indexes.\4\ The investment objective of each
series is to provide results that correspond to the price and yield
performance of publicly traded securities in the aggregate in
particular markets as represented by a particular foreign equity index.
WEBS are common stock (albeit redeemable), are cleared by NSCC, and are
held in book-entry form at DTC.
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\4\ The initial series offered by this investment company are:
the Australia Index Series; the Austria Index Series; the Belgium
Index Series; the Canada Index Series; the France Index Series; the
Germany Index Series; the Hong Kong Index Series; the Italy Index
Series; the Japan Index Series; the Malaysia Index Series; the
Mexico (Free) Index Series; the Netherlands Index Series; the
Singapore (Free) Index Series; the Spain Index Series; the Sweden
Index Series; the Switzerland Index Series; and the United Kingdom
Index Series.
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The Amex has proposed trading options on exchange-traded trust
units and fund shares pursuant to the same rules and procedures that
are generally applicable to trading in options on equity securities
with only minor differences that affect their clearance and
settlement.\5\ These differences are that options on trust units and
fund shares would be listed as European-style options only and that
each option contract would cover 1000 trust units or fund shares as the
unit of trading.
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\5\ Supra note 3.
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OCC believes that options on trust units and fund shares can
readily be processed, settled, and margined like existing options on
equity securities. Exercise and assignment activity of options on trust
units and fund shares will settle through NSCC. As such, OCC proposes
to amend only a few by-laws and rules to accommodate Amex's proposal to
trade options on trust units and fund shares.
Under OCC's current by-laws, all equity option contracts have an
American-style expiration, except for flexibly structured equity
options which may have an American, European, or capped-style of
expiration. The general rights of a holder of a single call equity
option contract are set forth in Article VI, Section 9(a) of OCC's by-
laws, and the general rights of a holder of a single put equity option
contract are set forth in Article VI, Section 9(b) of OCC's by-laws.
Because options on trust units or fund shares will be deemed equity
option contracts under OCC's rules, OCC proposes to amend Section 9(a)
and (b) of Article VI to set forth the general rights of a holder of a
single European-style equity call option \6\ and a single European-
style equity put option,\7\ respectively, to accommodate both European
and American styles of expiration for options on trust units or fund
shares.
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\6\ A holder of a single European-style call option contract
will have the right on and only on the expiration date, expiring at
the expiration time on such date, to purchase from OCC at the
aggregate exercise price the number of units of the underlying
security represented by such option contract.
\7\ A holder of a single European-style put option contract will
have the right on and only on the expiration date, expiring at the
expiration time on such date, to sell to OCC at the aggregate
exercise price the number of units of the underlying security
represented by such option contract.
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Furthermore, OCC proposes to amend Section .01 of the
Interpretations and Policies relating to Section 9. In pertinent part,
Section .01 provides that subsections (a) and (b) of Section 9 apply
only to stock option contracts. The proposed amendment clarifies that
for purposes of Section .01 the term ``stock option contracts'' will
include option contracts on publicly traded interests in trust units,
fund shares, or shares in entities similar to investment companies that
hold portfolios or baskets of common stock.
OCC also proposes to add Interpretation and Policy .01 to Section
10 of Article VI of the by-laws to reflect that for series of options
in which the underlying security is trust units or fund shares the unit
of trading is the amount of the underlying security deliverable upon
the exercise of the option as specified by the exchange on which the
option is traded unless otherwise specified by OCC in accordance with
its by-laws and rules.
In addition, OCC proposes to add a new Rule 807 to its rules. New
Rule 807 will contain essentially the same provisions as found in
Section .08 of the Interpretations and Policies under Section 11 of
Article VI of the by-laws.\8\ Section .08 will set forth the general
rule that, when a flexibly structured option contract with a European-
style expiration has been adjusted to require upon exercise the
delivery of a fixed amount of cash, the expiration date with respect to
the option will be accelerated to fall on or shortly after the date on
which the conversion of the underlying security to a right to receive
cash occurs. The ability to accelerate an expiration date following an
adjustment calling for a fixed amount of cash was added specifically to
accommodate European-style, flexibly-structured equity options. Without
the ability to accelerate, the option position would have to be
maintained until it could be exercised at its regular expiration. For
the same reason, OCC proposes to make this applicable to all European-
style stock option contracts generally. In connection with the addition
of Rule 807, OCC also proposes to amend the term ``expiration date'' as
defined in Section 1 of Article I of OCC's by-laws to provide that the
expiration date of a stock option contract will be subject to the
accerlation provisions of the new rule.
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\8\ Section 11 sets forth the general rules pertaining to
adjustments on stock option contracts. OCC proposes to delete
Section .08 from the Interpretations and Policies and to move those
provisions to new Rule 807.
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OCC believes the proposed rule change is consistent with Section
17A of the Act \9\ and the rules and regulations thereunder because it
will provide for the prompt and accurate clearance and settlement of
options on trust units and fund shares by using OCC's systems,
procedures, and processes for clearing and settling options on equity
securities.
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\9\ 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.
[[Page 31470]]
(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
Within thirty-five days of the date of publication of this notice
is 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 OCC consents, the Commission will:
(A) by order approve such 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, 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 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, 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-97-02 and should be
submitted by June 30, 1997.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-14901 Filed 6-6-97; 8:45 am]
BILLING CODE 8010-01-M
