[Federal Register Volume 60, Number 69 (Tuesday, April 11, 1995)]
[Notices]
[Pages 18435-18436]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-8869]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35566; File No. SR-OCC-95-03]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of a Proposed Rule Change Relating to OCC's Exercise-
by-Exception Procedures Applicable to Expiring Index Options

April 5, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on February 16, 1995, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change (File No. 
SR-OCC-95-03) 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.

    \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 purpose of the proposed rule change is to reduce the threshold 
used to determine the in-the-money amount of index options (other than 
flexibly structured index options) carried in clearing members' 
customers' accounts in connection with OCC's exercise-by-exception 
processing procedures.\2\

    \2\Conforming changes have been proposed to OCC Rules 1804(a) 
and (b).
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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 that 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.

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

    The purpose of the proposed rule change is to modify the exercise 
threshold for index option contracts, including Quarterly Index 
Expiration option contracts, carried in a clearing member's customer 
account in connection with OCC's exercise-by-exception (``ex-by-ex'') 
processing procedures.\3\ The exercise threshold used for flexibly 
structured index options is not effected by the proposed change.

    \3\Ex-by-ex processing presumes that a clearing member would 
desire to exercise all options that are in-the-money by a specified 
threshold. Accordingly, all options subject to ex-by-ex processing 
are identified as being in-the-money, at-the-money, or out-of-the-
money in a report provided to the clearing member through C/MACS or 
by hard copy. Such report reflects that the clearing member 
instructs OCC to exercise all options that are in-the-money by the 
threshold amount. However, the clearing member can issue contrary 
instructions to OCC.
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    Two thresholds are currently specified in OCC's Rules; the first 
threshold is for index options carried in clearing members' customers' 
accounts, and the second threshold is for index options carried in all 
other clearing member accounts. The current threshold for customer 
positions is $25.00 per index option contract and the threshold for all 
other positions is $1.00 per index option contract. OCC proposes to 
reduce the threshold for customer positions to $1.00 per index option 
contract. Any position in-the-money by that amount or more would be 
exercised unless the clearing member submitted a timely, contrary 
instruction to OCC. The proposed change to the threshold for ex-by-ex 
processing will not affect clearing members' obligations to their 
customers or correspondent brokers, which are determined by contract 
and by generally applicable principles of law.
    The proposed change has been discussed with representatives from 
OCC's participant exchanges and clearing membership who have concurred 
in its implementation. Clearing member representatives have advised OCC 
that the change would reduce the risks associated with the expiration 
of index options as well as their operational costs. Accordingly, OCC 
believes that the proposed change would provide cost savings to its 
clearing membership without affecting the risk of processing expiring 
options.
    OCC believes the proposed rule change is consistent with the 
requirements of the Act, specifically Section 17A of the Act, and the 
rules and regulations thereunder because the rule proposal will 
facilitate the prompt and accurate clearance and settlement of index 
options transactions.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    OCC does not believe that the proposed rule change will impact or 
impose a burden on competition.

(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 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., 
[[Page 18436]] 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-95-03 and should 
be submitted by May 2, 1995.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\4\

    \4\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-8869 Filed 4-10-95; 8:45 am]
BILLING CODE 8010-01-M