[Federal Register Volume 63, Number 204 (Thursday, October 22, 1998)]
[Notices]
[Pages 56684-56685]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28320]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40563; File No. SR-OCC-98-05]
Self-Regulatory Organizations; The Options Clearing Corporation;
Order Granting Approval of a Proposed Rule Change Authorizing the
Designation of Sunday as a Business Day and Clarifying the Rules for
Margining Exercised and Assigned Positions in Currency Options
October 15, 1998.
On June 5, 1998, The Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change (File No. SR-OCC-98-05) pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ Notice of
the proposal was published in the Federal Register on August 11,
1998.\2\ For the reasons discussed below, the Commission is approving
the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 40295 (July 31, 1998) 63
FR 42655.
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I. Description
The rule change provides OCC with the flexibility to designate
Sunday as a business day for the purposes of determining the exercise
settlement date for foreign currency and cross-rate foreign currency
options. The rule change also clarifies the rule governing the
calculation of margin with respect to positions in cross-rate foreign
currency options following their exercise and assignment.
Currently, the Sunday following an expiration is deemed to be a
business day for the purposes of determining the exercise settlement
date for expiring foreign currency options.\3\ This designation permits
expiring foreign currency options to settle on the same day as the
foreign currency futures contracts traded on the International Monetary
Market (``IMM'') and to a lesser degree on the Philadelphia Board of
Trade (``PBOT''). IMM futures contracts expire on a quarterly basis,
and the coordination of exercise settlement dates among OCC-cleared
options, IMM-traded futures contracts, and PBOT-traded futures
contracts create hedging opportunities and settlement efficiencies for
OCC's membership.
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\3\ Securities Exchange Act Release No. 23781 (November 17,
1986) 51 FR 41556.
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While the use of Sunday as a business day aligned the exercise
settlement dates for the above-described contracts, it resulted in
certain operational issues for OCC. For example, non-expiring foreign
currency options that were exercised on the same date as expiring
foreign currency options were settled on a different exercise
settlement date than the expiring options. It is not always necessary
to use Sunday as a business day for determining the settlement date for
currency options. The opportunity to hedge with the IMM or PBOT futures
realistically only occurs four times a year. For twenty other
expirations, the benefits derived from using Sunday as a business day
are not fully achieved.
The rule change allows OCC to coordinate the date on which exercise
settlement occurs for expiring options exercised on Friday and non-
expiring options also exercised on Friday. The rule change provides
that if Sunday is used as a business day for determining the exercise
settlement date of exercised expiring options, it will also be used as
a business day for exercised non-expiring options. When Sunday is not
designated as a business day, DVP processing will occur on Monday. OCC
will notify the membership in advance of when Sunday would be used as a
business day for determining an exercise settlement date.\4\
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\4\ Changes are made to Rules 602, 1602, 1604, 1605, 1606, 2102,
2104, 2105 and 2106 (either in the text or in the Interpretations
and Policies thereto) to conform them to the proposed changes for
the reasons stated above. The complete text of the proposed changes
to the Rules is included in OCC's filing, which is available for
inspection and copying at the Commission's public reference room and
through OCC.
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In addition, two amendments are made to Rule 602(f) concerning the
calculation of margin on currency option contracts following their
exercise and assignment. The first change clarifies Rule 602(f)(2)(i)
to state that margin calculations are performed separately on positions
in foreign currency options and cross-rate foreign currency options and
that a clearing member's positions in cross-rate currency options which
generate a net margin credit can be used to offset the clearing
member's margin requirement arising from other positions. The second
amendment conforms Rule 602 to the changes relating to the designation
of Sunday as a business day.
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 that allowing OCC to designate Sunday as a business day will
increase settlement efficiency
[[Page 56685]]
and limit confusion regarding when exercise settlement is to occur. In
addition, the Commission believes that permitting an OCC clearing
member's net margin credit from exercised cross-rate currency options
to offset any other margin requirement also promotes the coordination
of settlement across markets. Therefore, the Commission believes that
OCC's rule change is consistent with its obligation under Section
17A(b)(3)(F) to promote 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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III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
in particular with 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-98-05) be and hereby is
approved.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\6\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-28320 Filed 10-21-98; 8:45 am]
BILLING CODE 8010-01-M