[Federal Register Volume 60, Number 248 (Wednesday, December 27, 1995)]
[Notices]
[Pages 67006-67007]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31308]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36607; File No. SR-OCC-95-14]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of a Proposed Rule Change Relating to the Processing
of Late Exercise Requests for Eligible Option Contracts
December 20, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on September 15, 1995, The
Options Clearing Corporation (``OCC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change (File No.
SR-OCC-95-14) as described in Items I, II and III below, which Items
have been prepared primarily by OCC. On December 19, 1995, OCC filed an
amendment to the proposed rule change to clarify certain language in
the proposal.\2\ 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).
\2\ Letter from Michael G. Vitek, OCC, to Jerry W. Carpenter,
Assistant Director, Division of Market Regulation, Commission
(December 19, 1995).
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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 amend OCC Rule 801(e)
pertaining to late exercise of option contracts by changing the cut-off
times for filing a late exercise notice and by eliminating any
references to trading volume. In addition, the proposed rule change
would revise OCC Rule 801(a) to provide expressly for the submission of
exercise instructions through electronic means.
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), and (C) below, of the most significant aspects of such
statements.\3\
\3\ The Commission has modified the text of the summaries
prepared by OCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The primary purpose of the proposed rule change is to amend OCC
Rule 801(e) regarding late exercises by changing the cut-off times for
filing a late exercise notice and by eliminating any references to
trading volume. the proposed rule change also seeks to modify OCC Rule
801(a) to provide expressly for the submission of exercise notices
through electronic means.
OCC Rule 801(e) currently permits OCC clearing members to file,
revoke, or modify exercise notices after the 7:00 P.M. (all time
references are Central Time unless stated otherwise) deadline for the
purpose of correcting bona fide errors. Once a late instruction is
accepted, Rule 801(e) requires the clearing member submitting an
instruction to pay a late filing fee and explain in writing the error
that cause the late submission of the instruction. The filing fees for
late instructions are imposed on a graduated fee schedule with variable
cut-off times. The earlier that a late exercise notice is submitted the
easier and less costly it is for OCC to process the request.\4\
\4\ For a detailed description of OCC's procedures for
processing late option exercise notices on non-expiring option
contracts and amendments to the late exercise fee schedule cut-off
times, refer to Securities Exchange Act Release Nos. 29390 (July 1,
1991), 56 FR 31454 [File No. SR-OCC-90-3] (order approving
procedures for processing late exercise notices) and 33247 (November
24, 1993), 58 FR 63419 [SR-OCC-93-2] (order approving changes to
OCC's late exercise feel schedule cut-off times).
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OCC clearing members have requested that OCC provide them with data
from nightly processing earlier on the night of process. Presently,
Rule 801(e) requires OCC to wait until 10:00 P.M. to begin critical
processing even if it has received all necessary data from exchanges
\5\ and clearing members earlier in the night. Due to the many
technical improvements implemented by the exchanges in recent years,
the exchanges now send daily trading data to OCC much earlier. Thus,
there are
[[Page 67007]]
many nights when OCC could begin critical processing by 9:00 P.M. To
accommodate the requests by clearing members for earlier data
distribution, OCC has decided to advance the late exercise cut-off
times by one hour and to eliminate the volume conditions affecting the
cut-off times.
\5\ The term ``exchange'' is defined in Article I, Section E(4)
of OCC's by-laws as a national securities exchange or a national
securities association that has qualified for participation in OCC
pursuant to the provision of Article VII of OCC's by-laws.
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The volume conditions were initially incorporated into Rule 801(e)
to ensure that clearing members had adequate time to reconcile their
records with exchange trade comparison reports. Since that time, the
exchanges have continued to improve their systems and operations in the
trade matching process, particularly with respect to intraday trade
matching. These technological improvements have enabled the exchanges
to send daily trade data to OCC and its clearing members much earlier
in the day. Accordingly, OCC proposes to eliminate any references to
volume in the revised Rule 801(e). OCC does not believe removing the
volume considerations will have any negative affect on its clearing
members.
The proposed rule change also amends OCC's late exercise fee
schedule cut-off times. The time at which a $500 fee will be imposed is
being changed from between 7:00 P.M. to 9:00 P.M. to between 7:00 P.M.
to 8:00 P.M. The late exercise cut-off time associated with a $2000 fee
will be changed from between 9:01 P.M. and the start of critical
processing to between 8:01 P.M. and the start of critical processing.
In addition to the changes described above, Rule 801 is being
revised to provide expressly for the submission of exercise
instructions through electronic means.
OCC believes the proposed rule change is consistent with the
purposes and requirements of Section 17A of the Act because it
facilitates the prompt and accurate clearance and settlement of
securities transactions and assures the safeguarding of securities and
funds in OCC's custody or control or for which it is responsible.
(B) Self-Regulatory Organization's Statement on Burden on Competition
OCC does not believe that the proposed rule change would impose any
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 relating to the proposed rule change 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 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. Sec. 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-95-14 and should be
submitted by January 17, 1996.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\6\
\6\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-31308 Filed 12-26-95; 8:45 am]
BILLING CODE 8010-01-M