[Federal Register Volume 59, Number 97 (Friday, May 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12300]


[[Page Unknown]]

[Federal Register: May 20, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34064; File No. SR-OCC-94-04]

 

Self-Regulatory Organizations; the Options Clearing Corporation; 
Notice of Filing of a Proposed Rule Change Relating to Flexibly 
Structured Options

May 13, 1994.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on April 25, 1994, 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 on the proposed rule change from interested persons.
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    \1\15 U.S.C. 78s (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 issue, clear, and settle 
``flexibly structured options'' on foreign currencies. The rule change 
also proposes technical amendments to OCC's By-Laws and Rules to 
replace the term ``FLEX options'' with ``flexibly structured options.''

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. 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.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    Generally, the purpose of the proposed rule change is to enable OCC 
to clear and settle flexibly structured options on foreign currencies. 
Specifically, the purpose of the proposed rule change is to enable OCC 
to accommodate within the framework of its existing By-Laws and Rules 
the clearance and settlement of customized strike options as proposed 
for trading on the Philadelphia Stock Exchange (``PHLX'').\2\
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    \2\For a description of the PHLX proposed rule change, refer to 
Securities Exchange Act Release No. 33959 (April 25, 1994), 59 FR 
22698, [File No. SR-PHLX-9411] (notice of filing of proposed rule 
change).
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    Customized strike options are a type of flexibly structured options 
where the underlying security is a foreign currency whereas the 
underlying security for the current flexibly structured option product 
is an index group. With the current flexibly structured index option 
products, certain items, such as the exercise price, exercise style, 
and expiration date, of the option can be customized by the parties 
within specified limits established by the listing exchange. With 
PHLX's customized strike option, parties will be able to establish the 
exercise price for each new series of customized strike options.
    Because customized strike options are foreign currency options with 
flexibly structured exercise prices, they can be treated and processed 
like the current foreign currency option product, and only a few 
changes to OCC's By-Laws and Rules are necessary to accommodate them. 
Accordingly, a definition of flexibly structured options is being added 
to section 1 (``Definitions'') of Article XV (``Foreign Currency 
Options'') of OCC's By-Laws which will encompass customized strike 
options.\3\
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    \3\With respect to foreign currency options, the term ``flexibly 
structured option'' is defined in Article XV, Section 1, F(2) of 
OCC's By-Laws as a foreign currency option having an expiration 
date, an exercise price, and an exercise style that are reported to 
OCC by an exchange. No similar term is being added to Article XX of 
OCC's By-Laws (``Cross-Rate Foreign Currency Options'') at this 
time. In order for OCC to clear and settle flexibly structured 
cross-rate foreign currency options, OCC must submit for Commission 
approval a proposed rule change under Section 19(b)(2) of the Act.
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    The term ``FLEX option'' in Section 1 (``Definitions'') of Article 
XVII (``Index Options'') is being changed to ``flexibly structured 
option'' in order to make that term more generic. For the same reasons, 
all references to FLEX options in OCC's By-Laws and Rules are being 
changed to flexibly structured options. In addition, the definition of 
the term flexibly structured option in Section 1 of Article XVII is 
being modified to clarify that such definition is applicable only to 
flexibly structured index options. As stated above, a separate 
definition of flexibly structured options applicable to foreign 
currency options is being added to Section 1 of Article XV.
    OCC Rule 602(b) also is being amended to broaden the definition of 
the term ``premium margin'' with respect to flexibly structured 
options. The current definition is applicable only to flexibly 
structured indexed options whereas the proposed definition will 
encompass flexibly structured index options, customized strike options, 
and other types of flexibly structured options as such options are 
approved for trading on the various exchanges and for clearance and 
settlement at OCC.
    OCC believes that the proposed rule change is consistent with the 
purposes and requirements of Section 17A of the Securities Exchange Act 
of 1934 because it will facilitate the prompt and accurate clearance 
and settlement of transactions in customized strike options and the 
safeguarding of related securities and funds. The proposed rule change 
provides a framework in which the existing OCC systems, rules, and 
procedures can be extended to the processing of flexibly structured 
foreign currency options.

B. Self-Regulatory Organization's Statement on the 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 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 
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 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 NW., 
Washington, DC 20549. Copies of such filing will also be available for 
inspection and copying at the principal office of the above-referenced 
self-regulatory organization.
    All submissions should refer to File No. SR-OCC-94-04 and should be 
submitted by June 10, 1994.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-12300 Filed 5-19-94; 8:45 am]
BILLING CODE 8010-01-M