[Federal Register Volume 65, Number 63 (Friday, March 31, 2000)]
[Notices]
[Pages 17328-17329]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-7978]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42575; File No. SR-OCC-00-01]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change Relating to Exercise 
Settlement Values for Expiring Index Options

March 24, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on January 19, 2000, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') and on March 14, 2000, amended the 
proposed rule change as described in Items I, II, and III below, which 
items have been prepared primarily by OCC. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested parties.
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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 proposed rule change would allow OCC to conform the method used 
to establish settlement values for expiring stock index options with 
the method used to value futures on the underlying index when the 
primary market(s) for one or more component securities of an index is 
closed on the last trading day before expiration.

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 these 
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

    The purpose of the proposed rule change is to add new subparagraph 
(3) to Article XVII, Section 4(a) of OCC's By-Laws. The new 
subparagraph would permit OCC to conform the exercise settlement value 
for expiring options on a security index to the final settlement value 
used for related index futures and options on index futures when the 
primary market(s) for one or more component securities of the index is 
closed on the last trading day before expiration. The present default 
method for setting the exercise settlement amount for the underlying 
index, as specified in the current version of Article XVII, Section 
4(a)(2) and disclosed in the current Options Disclosure Document, is to 
use the reported level of the stocks in the underlying index at the 
close of trading on the last preceding day for which a closing index 
level was reported.
    However, this is not the valuation method that would be used under 
the same circumstances by the Chicago Mercantile Exchange (``CME''), 
which would determine the settlement value of the index by using the 
opening values for index stocks affected by the closing as reported 
when the primary market for such stocks reopens. For example, under CME 
rule 4003, ``[i]f the New York Stock Exchange (NYSE) does not open on 
the day scheduled for the determination of the Final Settlement Price 
[of S&P 500 index futures], then the NYSE-stock component of the Final 
Settlement Price shall be based on the next opening prices of NYSE 
stocks.'' The use of different dates and hence potentially different 
index values for fixing the final settlement values for index options 
and futures on the same index creates uncertainty and risk for 
investors who use trading strategies involving index options and index 
futures based on the expectation that their settlement values will have 
a predictable relationship. Therefore, OCC is proposing that if the 
primary market(s) for one or more component securities of an index did 
not open for trading on the last trading day before expiration of a 
series of options on such index, an adjustment panel acting pursuant to 
Article XVII may fix the exercise settlement amount for such options 
using the opening prices of the affected security or securities when 
the primary market reopens.
    OCC is also amending Article XVII to make clear that (1) OCC has 
the discretion to determine which market is a security's primary market 
and (2) when OCC fixes a settlement price based on an index level at 
the close of trading, the price will be fixed based on the index level 
at the close of regular trading hours, as determined by OCC.
    OCC believes that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to OCC, and in particular with Section 17A of the Act \3\ 
because it fosters cooperation and coordination with persons engage in 
the clearance and settlement of securities transactions, removes 
impediments to and perfects the mechanism of a national system for the 
prompt and accurate clearance and settlement of securities 
transactions, and, in general, protects investors and the public 
interest.
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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 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

    Within thirty-five days of the date of publication of this notice 
in the Federal Register or within such longer period (i) as the 
Commission may designate up to ninety days of such date if it finds 
such longer period to be appropriate and

[[Page 17329]]

publishes its reasons for so finding or (ii) as to which the self-
regulatory organization consents, the Commission will:
    (A) By order approved such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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. Perosns making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 
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-00-01 and should be 
submitted by April 21, 2000.
    For the Commission by the Division of Market Regulation, pursuant 
to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-7978 Filed 3-30-00; 8:45 am]
BILLING CODE 8010-01-M