[Federal Register Volume 63, Number 34 (Friday, February 20, 1998)]
[Notices]
[Pages 8732-8733]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4341]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39662; File No. SR-OCC-97-15]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Relating to Contrary Exercise 
Intentions

February 13, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on September 16, 1997, The 
Options Clearing Corporation (``OCC'') 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 
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 proposed rule change will require all OCC members to adhere to 
exchange rules regarding contrary exercise intentions.

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

    Pursuant to a request made by OCC's participant exchanges, OCC 
proposes to adopt a rule to require clearing members to comply with the 
uniform exchange rules relating to contrary exercise advices. Under 
OCC's by-laws, an ``exchange'' is defined as ``a national securities 
exchange or a national securities association which has qualified for 
participation in the Corporation pursuant to the provisions of Article 
VII of the by-laws.'' \3\
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    \3\ OCC's by-laws, Article 1, Section 1.
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    The rules of all OCC participant exchanges require exchange members 
to advise their exchange if the member has determined to act contrary 
to OCC's exercise-by-exception (``ex-by-ex'') processing procedures for 
listed equity options. \4\ The exchanges require that ``contrary 
exercise advices'' be submitted by 4:30 p.m. Central Standard Time on 
the business day before expiration Saturday. OCC clearing members are 
permitted to submit such advices using OCC's clearing member on-line 
interface system, C/MACS. OCC understands that the exchanges use 
contrary exercise advice information as part of their surveillance 
programs to assess whether the decision to act contrary to OCC's ex-by-
ex processing procedures was made on news released after the uniform 
cutoff time.
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    \4\ OCC's ex-by-ex processing procedures have been developed 
solely for the administrative convenience of OCC's clearing members. 
Ex-by-ex procedures presume that a clearing member desires 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 clearing members. That report reflects that 
the clearing member instructs OCC to exercise all options that are 
in-the-money by the stated threshold amount. However, the clearing 
member is able to issue contrary instructions directing OCC to act 
otherwise.
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    Because not all OCC clearing members are members of a participant 
exchange and therefore are not subject to the rules of any participant 
exchange, OCC's participant exchanges have asked OCC to adopt a rule 
that would require those clearing members to submit contrary exercise 
advices in accordance with the procedures specified in the exchange 
rules. Participant exchanges believe that requiring these clearing 
members to submit contrary advice information will ensure that there is 
a ``level playing field'' among OCC's clearing members with respect to 
the exercise of expiring options and will enhance the exchanges' market 
surveillance programs by creating a mechanism for identifying 
additional instances in which participants in their markets may have 
unjustly benefitted by acting on late breaking news.
    Accordingly, OCC proposes to adopt a rule requiring all clearing 
members to follow the exchanges procedures relating to contrary 
exercise advices to ensure uniform application. The proposed rule will 
also provide that failure to follow the exchanges procedures could 
subject a clearing member to discipline by the exchanges listing the 
option which was exercised or was not exercised in contravention of the 
provisions of OCC's Rule 805. OCC believes that each exchange is the 
appropriate organization to determine whether its rule relating to 
contrary exercise advices has been violated and what disciplinary 
sanctions, if any, should be imposed as a result thereof.
    The proposed rule change is consistent with Section 17A of the Act 
\5\ and the rules and regulations thereunder because it furthers the 
public interest and protection of investors by imposing a requirement 
that will foster the maintenance of fair competition among OCC's 
clearing members.
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    \5\ 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 will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    No comments on the proposed rule change were solicited or 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 
in the Federal Register or within such longer periods (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, including whether the proposed rule 
change is consistent with the Act. 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

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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 also will be available 
for inspection and copying at the principal office of OCC. All 
submissions should refer to File No. SR-OCC-97-15 and should be 
submitted by March 13, 1998.

    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).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-4341 Filed 2-19-98; 8:45 am]
BILLING CODE 8010-01-M