[Federal Register Volume 64, Number 107 (Friday, June 4, 1999)]
[Notices]
[Pages 30091-30092]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14114]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41455; File No. SR-OCC-98-10]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving a Proposed Rule Change Regarding Supplementary Exercise 
Notices

May 26, 1999.
    On September 10, 1998, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change (File No. SR-OCC-98-10) 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 March 2, 1999.\2\ 
No comment letters were received. 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. 41088 (February 22, 
1999), 64 FR 10172.
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I. Description

    Rule 805 governs the submission of expiration date exercise 
instructions. The rule states that if a clearing member tenders an 
exercise notice in response to an expiration exercise report after 
OCC's submission deadline (``supplemental exercise notice''), the 
tender is in violation of OCC's procedures. Rule 805 further provides 
that the clearing member shall be subject to disciplinary procedures 
unless the exercise notice was tendered for the account of a customer 
and the clearing member was prevented from submitting timely exercise 
instructions due to one of the circumstances specified in the rule.
    Supplementary exercise notices require special processing that is 
manual labor intensive. As a result of OCC's ongoing review of the 
effectiveness of its rules and procedures relating to expiration date 
exercise processing, OCC is amending its expiration date exercise 
procedures to impose filing fees for expiration date exercise notices 
that are tendered after OCC's prescribed deadlines. The rule change 
modifies Rule 805 so that OCC's treatment of supplementary exercise 
notices is more in line with its treatment under Rule 801 of late 
exercise notices that are submitted on other dates.
    Rule 801 imposes a graduated schedule of filing fees for any 
request to file, revoke, or modify an exercise notice after the 
applicable deadline. Rule 801 fees increase at specified times 
depending on when the filing is made in relation to OCC's nightly 
processing cycle.
    The rule change institutes a similar schedule of fees in rule 805 
for the submission of supplementary exercise notices. These fees also 
increase depending n when the request was made in relation to the 
expiration processing cycle. Under the rule change, OCC will impose a 
filing fee of $2,000 per clearing member for any supplementary exercise 
notice tendered after OCC's filing deadline, but before the start of 
OCC's critical expiration processing. OCC will charge a filing fee of 
$10,000 per line item per clearing member for any supplementary 
exercise notice tendered after the start of critical expiration 
processing. OCC's board of directors is authorized to remit any filing 
fee, in whole or in part, if it finds that the circumstances that 
caused the member to submit the supplementary exercise notice were 
beyond the clearing member's or its customer's control or that 
remission would be equitable under the circumstances. The rule change 
further modifies rule 805 so that the unexcused tender of a 
supplementary exercise notice may be deemed (as opposed to the current 
language of shall be deemed) a violation of OCC's procedures and so 
that the required institution of disciplinary action is permissive (as 
opposed to being mandatory). These changes also conform rule 805 to 
rule 801.
    Finally, the rule change amends rule 805 to add a provision that 
requires that the tender of supplementary exercise notices be in 
accordance with the procedures prescribed by OCC from time to time. 
Under the rule change, failure to follow the procedures prescribed by 
OCC will result in the supplemental exercise notice being deemed null 
and void. This requirement is intended to ensure that among other 
things supplemental exercise notices are received by the appropriate 
OCC personnel who can act on them in a timely fashion in order to 
prevent undue delays in providing assignment information to clearing 
members.

II. Discussion

    Section 17A(b)(3)(D) of the Act \3\ requires that the rules of a 
clearing agency provide for the equitable allocation of reasonable 
dues, fees, and other charges among its participants. The Commission 
believes that the rule change is consistent with OCC's obligations 
under Section 17A(b)(3)(D) because supplementary exercise notices 
require special manual labor processing. The Commission believes that 
the fees imposed by the proposed rule change are reflective of the 
effort required by OCC to process the supplentary exercise notices and 
that it is appropriate to allocate the expense of processing 
supplementary notices to the clearing member that submits such exercise 
notices.
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    \3\ 15 U.S.C. 78q-1(b)(3)(D).
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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

[[Page 30092]]

particular with Section 17A of the Act \4\ and the rules and 
regulations thereunder.
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    \4\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-OCC-98-10) be and hereby is 
approved.

    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. 99-14114 Filed 6-3-99; 8:45 am]
BILLING CODE 8010-01-M