[Federal Register Volume 61, Number 213 (Friday, November 1, 1996)]
[Notices]
[Pages 56596-56597]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27999]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37872; File No. SR-OCC-96-08]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving a Proposed Rule Change Regarding the Exercise of 
Certain Foreign Currency Options

October 25, 1996.
    On July 18, 1996 The Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change (File No. SR-OCC-96-08) pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ to permit the exercise of 
certain foreign currency options on the business day immediately 
preceding the expiration date of such options. Notice of the proposal 
was published in the Federal Register on September 12, 1996.\2\ No 
comment letters were received. For the reasons discussed below, the 
Commission is approving the proposed rule change.
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    \1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
    \2\ Securities Exchange Act Release No. 37655 (September 6, 
1996), 61 FR 48193.
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I. Description of the Proposal

    Under the rule change, OCC will permit the exercise of American-
style \3\ foreign currency and cross-rate foreign currency options 
(collectively, ``currency options'') on the business day immediately 
preceding their expiration date. OCC Rule 801(c) formerly prohibited 
the exercise of option contracts on the business day immediately 
preceding their expiration unless such options were American-style 
flexibly structured options.
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    \3\ An ``American'' or ``American style'' option contract is an 
option contract that may be exercised at any time from its 
commencement time until its expiration. In contrast, a ``European 
style'' option contract is an option contract that may only be 
exercised on its expiration.
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    At the time this exercise restriction was incorporated into OCC's 
rules, all option contracts expired on Saturday. The restriction 
ensured that there was adequate time for all unmatched transactions to 
be resolved and for OCC to receive and process exercise notices for the 
preliminary and final exercise by exception processing cycles that were 
then in effect. Since the implementation of the exercise restriction in 
Rule 801(c), OCC has adopted Friday night as the expiration date for 
all standardized

[[Page 56597]]

currency options \4\ and has replaced its preliminary and final 
processing procedure with a single processing procedure for currency 
options. Furthermore, OCC clearing members have requested that OCC lift 
the restriction with respect to currency options because their non-U.S. 
customers have expressed a desire to be allowed to submit exercises on 
Thursday due to time zone differences with the United States.
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    \4\ For a completion description of the conversion of the 
expiration date for all standardized currency options from Saturday 
to Friday, refer to Securities Exchange Act Release Nos. 32458 (June 
11, 1993), [File No. SR-OCC-93-09] (notice of filing and order 
granting accelerated approval on a temporary basis of a proposed 
rule change that changed the expiration day for American-style 
foreign currency options from Saturday to Friday) and 38800 (July 
14, 1993), [File No. SR-OCC-93-15] (order granting permanent 
approval on an accelerated basis of a proposed rule change that 
changed the expiration day for American-style foreign currency 
options and cross-rate foreign currency options from Saturday to 
Friday).
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II. Discussion
    Section 17A(b)(3)(F) of the Act \5\ requires that the rules of a 
clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities transactions. The Commission 
believes the proposed rule change is consistent with OCC's obligations 
under the Act because the extra time to process transactions previously 
afforded by Rule 801(c) (i.e., exercise restrictions) is no longer 
necessary for currency options because of OCC's single cycle expiration 
processing procedures and because currency options expire on Friday 
instead of Saturday. Therefore, by permitting the currency options to 
be exercised on Thursday by U.S. and non-U.S. customers of OCC 
participants and by removing an unnecessary OCC clearance and 
settlement procedure, the prompt and accurate clearance and settlement 
of securities transactions should be enhanced.
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    \5\ 15 U.S.C. Sec. 78q-1(b)(3)(F) (1988).
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III. Conclusion
    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act and the 
rules and regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-OCC-96-08) be, and hereby 
is, approved.
    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12) (1996).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-27999 Filed 10-31-96; 8:45 am]
BILLING CODE 8010-01-M