[Federal Register Volume 63, Number 141 (Thursday, July 23, 1998)]
[Notices]
[Pages 39621-39622]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19570]
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SECURITIES AND EXCHANGE COMMISSION
(Release No. 34-40212; File No. SR-OCC-98-02)
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Order Granting Accelerated Approval of a Proposed
Rule Change Clarifying Rules Regarding the Unavailability of Current
Index Values
July 15, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on February 20, 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.
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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 clarify the
application of OCC's by-laws relating to the unavailability or
inaccuracy of current index values where there is an early closing of
the primary market for the securities underlying an index option valued
at the close.
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 39622]]
and (C) below, of the most significant aspects of such statements.\2\
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\2\ The Commission has modified parts of these statements.
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A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
OCC's current by-laws relating to the unavailability or inaccuracy
of current index values for stock index options and for flexibly
structured index options denominated in foreign currencies (``FX flex
index options'') were instituted as a result of a 1994 incident when a
delayed National Association of Securities Dealers Automated Quote
System opening made it unclear when or if OCC would be able to obtain
current index values for options valued at the opening.\3\ OCC is now
authorized to delay exercise settlements until either (i) the required
current index value becomes available or (ii) OCC fixes an exercise
settlement amount, which may be based on the closing index value for
the preceding trading day.
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\3\ Securities Exchange Act Release No. 37315 (June 17, 1996),
61 FR 32471 (ordering approving proposed rule change.)
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These provisions were intended to apply where the required index
value, whether opening or closing, was unavailable to OCC either
because the market did not open on the relevant date or because the
reporting authority had problems calculating or disseminating the
required value. However, these provisions can be misinterpreted as
authorizing OCC to fix an exercise settlement amount for index options
valued at the close when the market closes early. OCC interprets the
current language of the by-laws as referring to the actual close of
trading, not the scheduled close. There is no reliable basis for
estimating what the current index value would have been if the market
had remained open until the normal closing time. Even when OCC has no
alternative but to fix an exercise settlement amount, the by-laws
expressly authorize it to base that amount on the reported index level
at the close of trading on the last preceding trading day for which a
closing index level was reported.
OCC believes that it is inappropriate for OCC to fix an exercise
settlement amount if normal trading takes place with opening and
closing current index values for a given day so long as it is possible
to obtain the required value from the designated reporting authority.
The proposed rule change eliminates any implications that the
provisions give OCC the authority to fix an exercise settlement amount
in such circumstances.
OCC believes that the proposed rule change is consistent with
Section 17A of the Act and the rules and regulations promulgated
thereunder because it will facilitate the prompt and accurate
settlement of transactions in index options and in FX flex index
options.\4\
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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 will 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 relating to the proposed rule change have not been
solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Section 17A(b)(3)(F) \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
OCC's proposed rule change is consistent with OCC's obligations under
Section 17A(b)(3)(F) because the proposal will clarify the application
of OCC's by-laws relating to the unavailability or inaccuracy of
current index values where there is an early closing of the primary
market for the securities underlying an index option valued at the
close. The Commission believes that this clarification should add more
certainty to the settlement of index options. Therefore, this proposed
rule change should facilitate the prompt and accurate clearance and
settlement of securities transactions.
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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 date of publication of
notice of filing because accelerated approval will allow OCC to clarify
its by-laws relating to exercise settlement procedures in an expedient
fashion.
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, 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 will also be available
for inspection and copying at the principal office of OCC. All
submissions should refer to the File No. SR-OCC-98-02 and should be
submitted by August 24, 1998.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-OCC-98-02) be and hereby is
approved on an accelerated basis.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-19570 Filed 7-22-98; 8:45 am]
BILLING CODE 8010-01-M
