[Federal Register Volume 63, Number 242 (Thursday, December 17, 1998)]
[Notices]
[Pages 69703-69704]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33362]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40779; File No. SR-OCC-98-13]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change Clarifying Adjustment and Settlement Procedures for 
Currency Related Options Relating to the Euro

December 10, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 28, 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 OCC's 
adjustment and settlement procedures for currency related options in 
anticipation of the European Union conversion to the euro, which is 
scheduled to be effective January 1, 1999.

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 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

    On January 1, 1999, the European Union is scheduled to introduce 
the euro which will replace the national currencies of the eleven 
countries which currently qualify for inclusion in European Monetary 
Union. On January 1, 1999, these eleven countries will begin to use the 
euro along with their existing currencies (``legacy currencies''). At 
that point, the legacy currencies will become units of the euro and 
will continue to constitute legal tender in their respective countries 
of origin until 2002. In 2002, the legacy currencies will cease to be 
units of the euro, and the euro will be the sole medium of exchange of 
the participating member states.
    The legacy currencies include four that are trading currencies or 
underlying currencies in the Philadelphia Stock Exchange's (``PHLX'') 
currency options market. They are the French franc, German mark, 
Italian lira, and Spanish peseta. On January 1, 1999, the European 
currency unit (``ECU'') will be converted on a one-to-one basis into 
the euro, and the current PHLX ECU option contract will be adjusted to 
call for delivery of euros.
    PHLX has advised OCC that effective January 1, 1999, it will also 
begin to trade currency options with the euro as the underlying or 
trading currency. PHLX also has indicated that it will permit 
additional contracts with legacy currencies as the underlying or 
trading currency to be listed for a limited period after January 1, 
1999. Current open interest in legacy currency contracts will extend to 
July 1999.
    OCC will continue to identify all existing legacy contracts in 
reports and in settlement instructions. OCC will continue to effect its 
settlements in legacy currency but will allow members to elect to 
delivery either legacy currency or the euro equivalent to meet 
settlement obligations. Each legacy currency will have a fixed 
conversion to the euro. Because OCC will continue to deliver legacy 
currency, members that wish to receive euros will be required to notify 
their agent banks to convert legacy currency into euros. Banks will be 
required to convert legacy currency into euros, and vice versa, at no 
cost to members.
    OCC's by-laws currently provide for adjustments of the terms of 
outstanding options if the country of origin of the trading currency or 
the underlying currency (i) issues a new currency intended to replace 
its existing currency

[[Page 69704]]

or (ii) alters the exchange rate or exchange characteristics of its 
currency. Euros, however, will not be issued by the countries of origin 
of the currencies that they replace.
    The proposed rule change clarifies that when a trading currency or 
an underlying currency is replaced, affected options may be adjusted 
whether or not the replacement currency is issued by the country of 
origin of the replaced currency. Similarly, the rule change clarifies 
that when a currency's exchange rate or exchange characteristics are 
officially altered, affected options may be adjusted whether or not the 
alteration is made by the currency's country of origin.
    The proposed rule change also amends OCC's by-laws and rules 
applicable to the settlement of currency related options to accommodate 
the introduction of the euro. As described above, OCC will continue to 
use legacy currencies during the euro transition period. The proposed 
rule change authorizes members to deliver euros in lieu of the legacy 
currencies during the transition period specified by the European Union 
provided that the euros are delivered to the OCC agency bank that would 
have received the specified legacy currency. OCC's agent banks will 
determine if the amount of euros delivered is equivalent (based on the 
official conversion rate) to the amount of legacy currency called for 
in OCC's settlement instruction. OCC will not permit members to net 
obligations to deliver euros under any new euro-denominated contracts 
against obligations to receive legacy currencies or vice versa as such 
netting would be inconsistent with OCC's credit arrangements.
    OCC's rules currently provide that Belgium is the country of origin 
for delivery of ECUs unless OCC specifies otherwise. The proposed rule 
change similarly specifies Germany as the country of origin for 
delivery of the euros unless OCC otherwise directs. OCC is also 
authorized to elect to receive euros through a multi-currency account 
outside the specified country of origin.
    OCC believes that the proposed rule change is consistent with the 
requirements of Section 17A because it clarifies OCC's authority to 
adjust outstanding foreign currency options in the event that the 
European Union converts to the euro and to prescribe the procedures for 
settlement in euros.\3\
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    \3\ 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 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

    Section 17A(b)(3)(F) \4\ 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 rule change is consistent with OCC's obligations under Section 
17A(b)(3)(F) because it clarifies the adjustment and settlement 
procedures applicable to currency-related options in anticipation of 
the European Union's scheduled conversion to the euro. This 
clarification of procedures should help increase the number of 
transactions which settle promptly and on a timely basis during the 
euro transition period.
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
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    OCC has requested that the Commission find good cause for approving 
the proposed rule change prior to the thirtieth day after the date of 
publication of notice of the filing. Because the European Union is 
scheduled to introduce the euro on January 1, 1999, 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.

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-98-13 and should be 
submitted by January 7, 1999.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-OCC-98-13) be and hereby is 
approved on an accelerated basis.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-33362 Filed 12-16-98; 8:45 am]
BILLING CODE 8010-01-M