[Federal Register Volume 64, Number 39 (Monday, March 1, 1999)]
[Notices]
[Pages 10051-10052]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-4962]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41089; File No. SR-OCC-98-14]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change Relating to Closing Prices in Expiration Processing

February 23, 1999.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 3, 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 of the proposal.
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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 revise OCC Rule 805 
with respect to closing prices in expiration processing.

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 10052]]

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

    OCC's clearing members have requested that expiring options be 
subject to exercise-by-exception (``ex-by-ex'') processing \3\ even if 
no trading takes place on the trading day before expiration. OCC's 
clearing members have advised OCC that it would be easiest for them 
operationally if OCC used the last sale price for the underlying 
security for the ex-by-ex process rather than remove the option from 
the process. Accordingly, under the proposed rule change OCC will use 
the last sale price for the underlying security to determine the 
closing price even if the price reflects sales that occurred prior to 
the last trading day before expiration.
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    \3\ OCC's ex-by-ex procedures presume that a clearing member 
desires to exercise all options that are in-the-money by a specified 
threshold. According to OCC, the ex-by-ex processing procedures have 
been developed solely as an administrative convenience for its 
clearing members (See Interpretation .02 to Rule 805).
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    In addition, the proposed rule change allows OCC to fix a closing 
price as it deems appropriate where there is no available last sale 
price (e.g., because the underlying security is not being traded), 
where the last sale price is stale (e.g., because there have been no 
transactions in the underlying security for a lengthy period), or under 
other similar circumstances. This will allow OCC to use the last 
reported sales price generally but also will allow OCC to obtain prices 
from other appropriate sources that provide a basis for determining the 
market value of the underlying security.
    The proposed rule change will also preserve OCC's ability to not 
fix a closing price in situations where it believes that it cannot 
derive a correct market price for the underlying security and to remove 
it from ex-by-ex processing. OCC has informed the Commission that if it 
fixes a closing price or determines to remove an underlying security 
from the ex-by-ex process, it will promptly notify its clearing members 
through an information memorandum or other communication medium so the 
clearing members can take appropriate action.
    Finally, revised Rule 805 will allow OCC to refer to such markets 
as it designates for use in the ex-by-ex process rather than only 
referring to the underlying security's primary market. OCC believes 
that the term primary market may in some cases (now or in the future) 
be unclear.
    OCC believes that the proposed rule change is consistent with the 
purposes and requirements of Section 17A of the Act \4\ and the rules 
and regulations thereunder in that it promotes the prompt and accurate 
clearance and settlement of equity and index options.
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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 would 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) 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 the proposed rule change is consistent with this 
obligation because it should increase the number of options that are 
subject to the efficiencies of ex-by-ex processing. As a result, the 
proposed rule change should facilitate the prompt and accurate 
clearance and settlement of options transactions by providing 
promptness and precision in the exercise of in-the-money options if no 
trading takes place in the underlying security on the day before 
expiration.
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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 publication of notice of 
the filing. Approving prior to the thirtieth day after publication of 
notice should immediately increase efficiency in processing expiring 
options that are in-the-money if no trading takes place in the 
underlying security on the trading day before expiration.

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, NW, Washington, DC 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, NW, 
Washington, DC 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-98-14 and should be submitted by March 
22, 1999.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\6\ that the proposed rule change (File No. SR-OCC-98-14) be and 
hereby is approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \6\ 15 U.S.C. 78s(b)(2).
    \7\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 99-4962 Filed 2-26-99; 8:45 am]
BILLING CODE 8010-01-M