[Federal Register Volume 63, Number 141 (Thursday, July 23, 1998)]
[Notices]
[Pages 39621-39622]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19570]


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SECURITIES AND EXCHANGE COMMISSION

(Release No. 34-40212; File No. SR-OCC-98-02)


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change Clarifying Rules Regarding the Unavailability of Current 
Index Values

July 15, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on February 20, 1998, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I and II below, which items have been prepared 
primarily by OCC. The Commission is publishing this notice and order to 
solicit comments on the proposed rule change from interested persons 
and to grant accelerated approval.
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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 clarify the 
application of OCC's by-laws relating to the unavailability or 
inaccuracy of current index values where there is an early closing of 
the primary market for the securities underlying an index option valued 
at the close.

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),

[[Page 39622]]

and (C) below, of the most significant aspects of such statements.\2\
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    \2\ The Commission has modified parts of these statements.
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A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    OCC's current by-laws relating to the unavailability or inaccuracy 
of current index values for stock index options and for flexibly 
structured index options denominated in foreign currencies (``FX flex 
index options'') were instituted as a result of a 1994 incident when a 
delayed National Association of Securities Dealers Automated Quote 
System opening made it unclear when or if OCC would be able to obtain 
current index values for options valued at the opening.\3\ OCC is now 
authorized to delay exercise settlements until either (i) the required 
current index value becomes available or (ii) OCC fixes an exercise 
settlement amount, which may be based on the closing index value for 
the preceding trading day.
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    \3\ Securities Exchange Act Release No. 37315 (June 17, 1996), 
61 FR 32471 (ordering approving proposed rule change.)
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    These provisions were intended to apply where the required index 
value, whether opening or closing, was unavailable to OCC either 
because the market did not open on the relevant date or because the 
reporting authority had problems calculating or disseminating the 
required value. However, these provisions can be misinterpreted as 
authorizing OCC to fix an exercise settlement amount for index options 
valued at the close when the market closes early. OCC interprets the 
current language of the by-laws as referring to the actual close of 
trading, not the scheduled close. There is no reliable basis for 
estimating what the current index value would have been if the market 
had remained open until the normal closing time. Even when OCC has no 
alternative but to fix an exercise settlement amount, the by-laws 
expressly authorize it to base that amount on the reported index level 
at the close of trading on the last preceding trading day for which a 
closing index level was reported.
    OCC believes that it is inappropriate for OCC to fix an exercise 
settlement amount if normal trading takes place with opening and 
closing current index values for a given day so long as it is possible 
to obtain the required value from the designated reporting authority. 
The proposed rule change eliminates any implications that the 
provisions give OCC the authority to fix an exercise settlement amount 
in such circumstances.
    OCC believes that the proposed rule change is consistent with 
Section 17A of the Act and the rules and regulations promulgated 
thereunder because it will facilitate the prompt and accurate 
settlement of transactions in index options and in FX flex index 
options.\4\
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    \4\ 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.

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

    Written comments relating to the proposed rule change have not been 
solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Section 17A(b)(3)(F) \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 that 
OCC's proposed rule change is consistent with OCC's obligations under 
Section 17A(b)(3)(F) because the proposal will clarify the application 
of OCC's by-laws relating to the unavailability or inaccuracy of 
current index values where there is an early closing of the primary 
market for the securities underlying an index option valued at the 
close. The Commission believes that this clarification should add more 
certainty to the settlement of index options. Therefore, this proposed 
rule change should facilitate the prompt and accurate clearance and 
settlement of securities transactions.
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    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing because accelerated approval will allow OCC to clarify 
its by-laws relating to exercise settlement procedures in an expedient 
fashion.

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 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 will also be available 
for inspection and copying at the principal office of OCC. All 
submissions should refer to the File No. SR-OCC-98-02 and should be 
submitted by August 24, 1998.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-OCC-98-02) be and hereby is 
approved on an accelerated basis.

    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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Jonathan G. Katz,
Secretary.
[FR Doc. 98-19570 Filed 7-22-98; 8:45 am]
BILLING CODE 8010-01-M