[Federal Register Volume 62, Number 110 (Monday, June 9, 1997)]
[Notices]
[Pages 31468-31470]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14901]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38706; File No. SR-OCC-97-02]


Self-Regulatory Organizations; the Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change Regarding the Issuance, 
Clearance, and Settlement of Options on Unit Investment Trust Interests 
and Investment Company Shares That Hold Portfolios or Baskets of Common 
Stock

June 2, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, notice is hereby given that on February 21, 1997, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') and on February 21, 1997, and on 
May 14, 1997, amended 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 from 
interested persons on the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
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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's rules and 
by-laws to permit OCC to issue, clear, and settle options on publicly 
traded units of beneficial interest of unit investment trusts (``trust 
units'') and on publicly treated shares of open-end management 
investment companies that hold portfolios or baskets of common stock 
(``fund shares'').

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.\2\
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    \2\ The Commission has modified the text of the summaries 
prepared by OCC.

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[[Page 31469]]

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

    Under the proposed rule change, OCC will amend its existing by-laws 
and rules to accommodate the issuance, clearance, and settlement of 
options on publicly traded trust units and fund shares that have been 
proposed for trading by the American Stock Exchange (``Amex'').\3\ The 
Amex currently trades trust units known as Portfolio Depository Receipt 
(``SPDR's'') based on two Standard & Poor's (``S&P'') indexes. SPDRs 
are trust units that represent beneficial ownership in the SPDR trust. 
The SPDR trust was established to accumulate and hold a portfolio of 
common stocks that is intended to track the price performance and 
dividend yield of a particular S&P index. The two S&P indexes on which 
such SPDRs are based are the S&P 500 index and the S&P MidCap 400 
index. SPDRs trade similarly to shares of common stock. They are 
cleared and settled at the National Securities Clearing Corporation 
(``NSCC'') and are held in book-entry form at The Depository Trust 
Company (``DTC'').
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    \3\ Securities Exchange Act Release No. 38303 (February 19, 
1997), 62 FR 8467 [File No. SR-Amex-96-44].
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    The Amex also trades fund shares which are issued by an open-end 
management investment company consisting of seventeen separate series 
known as World Equity Benchmark Shares (``WEBS'') based on seventeen 
foreign equity market indexes.\4\ The investment objective of each 
series is to provide results that correspond to the price and yield 
performance of publicly traded securities in the aggregate in 
particular markets as represented by a particular foreign equity index. 
WEBS are common stock (albeit redeemable), are cleared by NSCC, and are 
held in book-entry form at DTC.
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    \4\ The initial series offered by this investment company are: 
the Australia Index Series; the Austria Index Series; the Belgium 
Index Series; the Canada Index Series; the France Index Series; the 
Germany Index Series; the Hong Kong Index Series; the Italy Index 
Series; the Japan Index Series; the Malaysia Index Series; the 
Mexico (Free) Index Series; the Netherlands Index Series; the 
Singapore (Free) Index Series; the Spain Index Series; the Sweden 
Index Series; the Switzerland Index Series; and the United Kingdom 
Index Series.
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    The Amex has proposed trading options on exchange-traded trust 
units and fund shares pursuant to the same rules and procedures that 
are generally applicable to trading in options on equity securities 
with only minor differences that affect their clearance and 
settlement.\5\ These differences are that options on trust units and 
fund shares would be listed as European-style options only and that 
each option contract would cover 1000 trust units or fund shares as the 
unit of trading.
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    \5\ Supra note 3.
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    OCC believes that options on trust units and fund shares can 
readily be processed, settled, and margined like existing options on 
equity securities. Exercise and assignment activity of options on trust 
units and fund shares will settle through NSCC. As such, OCC proposes 
to amend only a few by-laws and rules to accommodate Amex's proposal to 
trade options on trust units and fund shares.
    Under OCC's current by-laws, all equity option contracts have an 
American-style expiration, except for flexibly structured equity 
options which may have an American, European, or capped-style of 
expiration. The general rights of a holder of a single call equity 
option contract are set forth in Article VI, Section 9(a) of OCC's by-
laws, and the general rights of a holder of a single put equity option 
contract are set forth in Article VI, Section 9(b) of OCC's by-laws. 
Because options on trust units or fund shares will be deemed equity 
option contracts under OCC's rules, OCC proposes to amend Section 9(a) 
and (b) of Article VI to set forth the general rights of a holder of a 
single European-style equity call option \6\ and a single European-
style equity put option,\7\ respectively, to accommodate both European 
and American styles of expiration for options on trust units or fund 
shares.
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    \6\ A holder of a single European-style call option contract 
will have the right on and only on the expiration date, expiring at 
the expiration time on such date, to purchase from OCC at the 
aggregate exercise price the number of units of the underlying 
security represented by such option contract.
    \7\ A holder of a single European-style put option contract will 
have the right on and only on the expiration date, expiring at the 
expiration time on such date, to sell to OCC at the aggregate 
exercise price the number of units of the underlying security 
represented by such option contract.
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    Furthermore, OCC proposes to amend Section .01 of the 
Interpretations and Policies relating to Section 9. In pertinent part, 
Section .01 provides that subsections (a) and (b) of Section 9 apply 
only to stock option contracts. The proposed amendment clarifies that 
for purposes of Section .01 the term ``stock option contracts'' will 
include option contracts on publicly traded interests in trust units, 
fund shares, or shares in entities similar to investment companies that 
hold portfolios or baskets of common stock.
    OCC also proposes to add Interpretation and Policy .01 to Section 
10 of Article VI of the by-laws to reflect that for series of options 
in which the underlying security is trust units or fund shares the unit 
of trading is the amount of the underlying security deliverable upon 
the exercise of the option as specified by the exchange on which the 
option is traded unless otherwise specified by OCC in accordance with 
its by-laws and rules.
    In addition, OCC proposes to add a new Rule 807 to its rules. New 
Rule 807 will contain essentially the same provisions as found in 
Section .08 of the Interpretations and Policies under Section 11 of 
Article VI of the by-laws.\8\ Section .08 will set forth the general 
rule that, when a flexibly structured option contract with a European-
style expiration has been adjusted to require upon exercise the 
delivery of a fixed amount of cash, the expiration date with respect to 
the option will be accelerated to fall on or shortly after the date on 
which the conversion of the underlying security to a right to receive 
cash occurs. The ability to accelerate an expiration date following an 
adjustment calling for a fixed amount of cash was added specifically to 
accommodate European-style, flexibly-structured equity options. Without 
the ability to accelerate, the option position would have to be 
maintained until it could be exercised at its regular expiration. For 
the same reason, OCC proposes to make this applicable to all European-
style stock option contracts generally. In connection with the addition 
of Rule 807, OCC also proposes to amend the term ``expiration date'' as 
defined in Section 1 of Article I of OCC's by-laws to provide that the 
expiration date of a stock option contract will be subject to the 
accerlation provisions of the new rule.
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    \8\ Section 11 sets forth the general rules pertaining to 
adjustments on stock option contracts. OCC proposes to delete 
Section .08 from the Interpretations and Policies and to move those 
provisions to new Rule 807.
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    OCC believes the proposed rule change is consistent with Section 
17A of the Act \9\ and the rules and regulations thereunder because it 
will provide for the prompt and accurate clearance and settlement of 
options on trust units and fund shares by using OCC's systems, 
procedures, and processes for clearing and settling options on equity 
securities.
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    \9\ 15 U.S.C. 78q-1.
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(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.

[[Page 31470]]

(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 
is 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, 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, N.W., 
Washington, D.C. 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of OCC. All 
submissions should refer to File No. SR-OCC-97-02 and should be 
submitted by June 30, 1997.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-14901 Filed 6-6-97; 8:45 am]
BILLING CODE 8010-01-M