[Federal Register Volume 65, Number 232 (Friday, December 1, 2000)]
[Notices]
[Pages 75331-75332]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30665]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43612; File No. SR-OCC-00-10]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change Relating to Adjustments to 
Options Contracts

November 22, 2000.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 3, 2000, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which items have been prepared 
primarily by OCC.\2\ 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).
    \2\ A copy of OCC's proposed rule change is available at the 
Commission's Public Reference Section or through OCC.
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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 amend Article VI, Section 11(b) of 
OCC's By-Laws to explicitly provide that neither OCC nor OCC's 
securities committee will be liable for a failure to adjust outstanding 
options contracts when the securities committee does not learn or does 
not learn in a timely manner of an event for which it otherwise would 
have directed an adjustment.

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. OCFC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of these 
statements.\3\
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    \3\ 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 new language to be added to paragraph 
(b) of Article VI, Section 11 of OCC's By-Laws is to clarify that 
neither OCC nor OCC's securities committee will be liable for any 
failure to adjust outstanding option contracts or any delay in 
adjusting such contracts when the securities committee does not learn 
in a timely manner of an event for which it would otherwise have 
directed an adjustment. While OCC believes that this should be the 
result under the By-Laws in its present form, OCC believes it is 
advisable to cover this situation specifically.
    Normally, OCC is notified of the occurrence of a section 11(a) 
adjustment event \4\ by its internal stock watch department or by the 
exchanges, which use their research departments to monitor the 
underlying securities and the issuers of the underlying securities. 
OCC's economic research department regularly scans Bloomberg, Reuters, 
and Dow Jones newswires for announcements of adjustment events. When it 
learns of such an event, OCC contacts the options exchanges, the 
primary market for the underlying, and the issuer of the underlying to 
obtain more information about the event and to monitor the event. 
Likewise, the research departments at the various

[[Page 75332]]

options exchanges scan a variety of newswires and employ different news 
alert services to monitor for adjustment events. When the exchanges 
learn of an adjustment event, they alert OCC and contact the primary 
market for the underlying security to obtain more information about the 
event and to monitor the event.
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    \4\ Section 11(a) of Article VI of OCC's By-Laws states that 
whenever there is a dividend, stock split, reorganization, 
recapitalization, or similar event with respect to an underlying 
security or whenever there is a merger, consolidation, dissolution, 
or liquidation of the issuer of an underlying security, the number 
of option contracts, unit of trading, exercise price, and the 
underlying security of all outstanding options contracts open for 
trading in that underlying security may be adjusted.
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    Through these procedures, the likelihood that a potential 
adjustment event will escape notice is minimized. However, the 
possibility of such an occurrence can never be completely eliminated. 
Accordingly, OCC wishes to make clear that neither it nor its 
securities committee will have liability for any failure to act or 
delay in acting on events not known to the securities committee. The 
proposed rule change would also clarify that adjustment determinations 
are made in light of circumstances known at the time the determination 
is made. For example, if the securities committee does not learn of an 
event for which an adjustment would normally be made until after the 
ex-date, the fact that options trading and/or exercise activity has 
taken place in circumstances suggesting that there would be no 
adjustment could tip the balance of fairness against making an 
adjustment.
    The proposed rule change is consistent with the requirements of 
Section 17A of the Act and the rules and regulations thereunder 
applicable to OCC because it fosters cooperation and coordination with 
persons engaged 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.

(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 publishes its reasons for so 
finding or (ii) as to which the self-regulatory organization consents, 
the Commission will:
    (A) By order approve 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. Persons 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-00-10 and should be submitted by 
December 22, 2000.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-30665 Filed 11-30-00; 8:45 am]
BILLING CODE 8010-01-M