[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]


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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.
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    \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 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.
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    \2\15 U.S.C. 78q-1 (1988).
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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\
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    \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