[Federal Register Volume 60, Number 169 (Thursday, August 31, 1995)]
[Notices]
[Pages 45507-45509]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21577]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36149; File No. SR-OCC-95-10]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change Relating to the Enhancement of
Saturday Expiration Date Processing Procedures
August 23, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on July 11, 1995, The Options
Clearing Corporation (``OCC'') 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 primarily by
OCC. The Commission is publishing this notice to solicit comments from
interested persons.
\1\ 15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change will allow OCC to replace its present
preliminary and final processing cycles for Saturday expiration options
with a single real-time processing procedure.
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. The self-regulatory organization has prepared summaries,
set forth in sections (A), (B), and (C) below, of the most significant
aspects of such statements.\2\
\2\ The Commission has modified the language in these sections.
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(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 enhance its Saturday
expiration processing cycles by instituting a single real-time
procedure for the updating of expiring positions of its clearing
members. OCC's current Saturday expiration processing procedure for
index and equity options does not provide real-time updates to clearing
members on their expiring positions. Accordingly, two processing
cycles, a preliminary and a final cycle, are necessary to reflect the
results of post-trade activity (e.g., reconciliation of unmatched
trades) affecting expiring positions and to give clearing members the
opportunity to edit their preliminary exercise instructions in response
to updated reports from OCC.
OCC previously has implemented an expiration processing system for
options expiring on business days \3\ that provides real-time updates
to clearing members on their expiring positions thus eliminating the
need for a preliminary and final processing cycle. OCC proposes to
employ this same real-time system for its Saturday expirations
[[Page 45508]]
in order to reduce Saturday expiration processing to one cycle.
\3\ Some examples of such options include flexibly structured
options, Quarterly-Index Expiration Options or QIXs, and foreign
currency option contracts.
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To accomplish the proposed enhancement to Saturday expiration
processing, certain changes to OCC's by-laws and rules are necessary.
Generally, the proposed changes will eliminate references to
preliminary and final processing cycles and reports. The proposed
changes also will amend OCC's by-laws and rules to reflect that the
expiration exercise procedure is carried out utilizing an on-line
transmission of instructions and reports to and from clearing members
instead of physical delivery of hard copy reports. Additionally,
article VI, section 18 of the by-laws, which provides for emergency
situations, will be revised (i) to make it clear that expiration
processing cannot be extended beyond the normal expiration time except
where the following day is not a business day and (ii) to provide for
emergency automatic exercises not only when OCC is unable to issue
Expiration Exercise Reports but also when it is unable to receive
exercise instructions properly submitted by clearing members.
Article I, Section 1 of OCC's by-laws will be amended to add a new
defined term, ``Expiration Exercise Report,'' which will refer to the
on-line exercise reports (including intraday updates) that OCC will
make available to its clearing members. Technical and conforming
changes will be made to Interpretations and Policies .02 under article
VI, section 1.
A number of changes are proposed to be made to Article VI, Section
18. First, the proposed rule change will allow exercise processing to
continue into the day after the expiration date only when that day is
not a business day. This limitation is not new. It was imposed when
options expiring on business days were first introduced.\4\ The purpose
was to avoid the abuses that might result from allowing post-expiration
exercise instructions to be given at times when U.S. markets were open.
It was deleted as part of a number of related rule changes in 1993.\5\
OCC has now concluded that it should not have been deleted and proposes
to restore the rule. Section (a) also will be amended to require a
clearing member to submit exercise instructions to OCC within such
times as OCC shall prescribe. Currently, a clearing member must respond
within two hours of receiving a report.
\4\ Securities Exchange Act Release No. 23004 (March 19, 1986),
51 FR 9563 [File No. SR-OCC-85-18] (order approving amendments to
OCC by-laws and rules to accommodate the issuance, clearance, and
settlement of European-style Treasury bill options).
\5\ Securities Exchange Act Release No. 33158 (November 4,
1993), 58 FR 60229 [File No. SR-OCC-93-8] (order approving
amendments to OCC by-laws and rules to accommodate the clearance and
settlement of Quarterly-Index Expiration Options to be traded on the
New York Stock Exchange).
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Section (b) of article VI, section 18 provides a ``backstop''
automatic exercise procedure in cases where OCC is unable to produce
the reports required for expiration exercise processing within
applicable deadlines. The proposed rule change will provide for
automatic exercise not only in those cases but also in cases where OCC
is unable to receive properly submitted exercise instructions within
applicable deadlines. Cases of the latter type are currently covered by
section (c), which is not well adapted to an on-line environment.\6\
OCC believes that an inability to receive exercise instructions should
be treated in the same way as an inability to issue exercise reports
and therefore proposes to delete section (c) and correspondingly expand
the coverage of sections (a) (providing time frames for any delays) and
(b) (providing for automatic exercise).
\6\ Section (c) of Article VI, Section 18 currently provides
that if a preliminary or final exercise report is made available by
OCC to a clearing member and if OCC cannot keep any of its offices
open until the time prescribed for the return of such report, OCC
will reopen its offices to receive such report which shall then be
deemed to have been filed on a timely basis.
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Rule 805, which specifies the exercise processing procedures for
Saturday expirations, will be revised to provide expressly for on-line
processing and to cover weekday as well as Saturday expirations. The
rule will be amended to eliminate references to preliminary and final
exercise reports. Instead, OCC will make on-line exercise settlement
reports available to clearing members utilizing OCC's on-line C/MACS
system.\7\ The expiration exercise report will list all of the clearing
member's expiring positions. Once the expiration exercise report is
made available, clearing members can submit exercise instructions in
response to such report on separate C/MACS report screens. The response
screens will be updated on a real-time basis.
\7\ OCC will specify in its Operations Manual the deadline for
making expiration exercise reports available to clearing members.
Initially, OCC proposes to specify as the deadline 7:00 a.m. Central
Time on the expiration date, which is the current deadline for
issuing preliminary exercise reports.
Paragraph (b) of rule 805 will be amended to reflect a change in
the deadline for submitting exercise instructions. Currently, responses
to the preliminary exercise report must be submitted by 9 a.m. central
time and responses to the final report must be submitted by 4 p.m.
central time. Under the proposed system, clearing members will be
required to submit exercise instructions in response to the expiration
exercise report before such time as OCC shall specify.\8\
\8\ OCC will specify this deadline in its Operations Manual.
Initially, the deadline will be 1:00 p.m. central time. This new
cut-off time will allow OCC to begin its critical expiration
processing earlier and should reduce the amount of time clearing
members will be required to maintain staff on expiration Saturdays.
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Paragraphs (c) and (d) of rule 805 will be deleted because a final
report will no longer be distributed. Paragraphs (e) through (h) and
(j) through (l) of rule 805 and the interpretations thereto will be
amended to eliminate references to preliminary and final reports and to
clarify that exercise instructions must be submitted using the on-line
system rather than by hard copy reports. In addition, OCC is proposing
to further amend paragraph (h) to allow OCC to prescribe alternative
exercise procedures if unusual or unforeseen conditions prevent OCC
from making expiration exercise reports available on a timely basis or
prevent clearing members from submitting timely on-line responses. As
is presently the case, however, OCC will not extend the deadline for
submitting exercise instructions beyond the expiration time except
pursuant to Article VI, Section 8 of OCC's by-laws.
Paragraph (i) of rule 805 will be eliminated because the on-line
system will not permit clearing members to submit untimely exercise
instructions. Instead, clearing members desiring to submit late
exercise instructions will have to tender written exercise notices
pursuant to paragraph (c) of rule 805. Rule 805 also will be relettered
to reflect the deletion of paragraphs.
Rule 805 will be deleted because there will no longer be a need for
separate exercise processing procedures for options that expire on
weekdays. The procedures prescribed by rule 805 will apply to all
expiring options, regardless of expiration date. Finally, rules 801,
802, 1304, 1404, 1504, 1603, 1702, 1804, 2103, 2302, and 2403 will be
amended to reflect the relettering of the paragraphs of rule 805 and
the elimination of rule 806.
OCC believes the proposed rule change is consistent with the
requirements of section 17A of the Act \9\ and the rules and
regulations thereunder because the proposal will
[[Page 45509]]
enhance exercise processing for expiring options positions.
\9\ 15 U.S.C. 78q-1 (1988).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
OCC believes that no burden will be placed on competition as a
result of the proposed rule change.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received from Members, Participants or Others
No written comments have been solicited or received. OCC will
notify the Commission of any written comments received by OCC.
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 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 submission
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.
Copies of the submissions, 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 Room, 450 Fifth Street, NW., Washington,
DC 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 number SR-OCC-95-10 and should be submitted by
September 21, 1995.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\10\
\10\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-21577 Filed 8-30-95; 8:45 am]
BILLING CODE 8010-01-M
