[Federal Register Volume 66, Number 77 (Friday, April 20, 2001)]
[Notices]
[Page 20342]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-9844]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44184; File No. SR-OCC-99-12]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Granting Approval of a Proposed Rule Change Relating to 
Adjustments to Index Options

April 16, 2001.
    On November 2, 1999, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change (File No. SR-OCC-99-12) 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 July 17, 2002.\2\ 
No comment letters were received. For the reasons discussed below, the 
Commission is granting approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 43022, (July 11, 2000), 
65 FR 44089.
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I. Description

    The rule change provides for the substitution of a successor index 
for an underlying index. Because substitution of a successor index for 
an underlying index may require changes to the terms of outstanding 
options, the rule change explicitly grants OCC the authority to make 
adjustments to such terms as necessary to reflect the substitution. 
While OCC believes such substitution and adjustment are already 
implicitly provided for under the provisions of OCC's By-Laws at 
Article XVII, Section 4 (``Unavailability or Inaccuracy of Current 
Index Value''), OCC seeks to clarify its authority through the rule 
change.
    New paragraph (d) of Article XVII, Section 3 provides that a 
successor index may be substituted for an underlying index in the event 
that the underlying index's publication is discontinued, when the 
underlying index is replaced with another index, or when an index's 
composition or method of calculation has so materially changed that it 
is deemed to be a different index. As in the case of other adjustments, 
the determination to substitute a successor index and the selection of 
the index will be made by an adjustment panel. The successor index is 
to be an index which is deemed to be reasonably comparable to the index 
for which it substitutes.
    Article XVII, Section 3, paragraph (c), which is applicable to 
adjustments to index options generally, is amended to provide for 
adjustments as necessary to accommodate a successor index. In addition 
paragraph (c) is amended to expand the rule in other respects to cover 
a broader range of potential changes in the calculation of index values 
and to give added flexibility to OCC in making appropriate adjustments 
to reflect such changes.
    These amendments grant OCC the authority to adjust outstanding 
options in the event that an exchange increases or decreases the index 
multiplier for any index option contract or in the event that any 
change in the method of calculation of an underlying index creates a 
discontinuity or change in the level of the index that does not reflect 
a change in the prices or values of the index's constituent securities. 
Such a change would occur, for example, if the value of an index were 
reset from 10,000 to 1,000, which would create a discontinuity that 
would affect all outstanding options.
    Changes to Article 1, Section 1 and to Article XVII, Section 1, 
both definitional sections, are designed to clarify and conform the 
terminology to usage as it has developed since the index options 
provisions were originally drafted.

II. Discussion

    Section 17A(b)(3)(F) \3\ of the Act requires that the rules of a 
clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities transactions and to assure the 
safeguarding of securities and funds which are in the custody or 
control of the clearing agency or for which it is responsible. For the 
reasons set forth below, the Commission believes that OCC's proposed 
rule change is consistent with OCC's obligations under the Act.
    The rule change allows OCC to substitute a successor index for an 
underlying index when the underlying index is no longer viable for use. 
The rule change also enables OCC to adjust outstanding options in the 
event that an exchange increases or decreases the index multiplier for 
any index option contract or in the event that any change in the method 
of calculation of an underlying index creates a discontinuity or change 
in the level of the index that does not reflect a change in the prices 
or values of the index's constituent securities. The rule change 
refines and amplifies existing OCC rules that have proven effective in 
promoting the prompt and accurate clearance and settlement of 
securities transactions and in safeguarding securities and funds. 
Therefore, the Commission finds that the rule change is consistent with 
OCC's obligation to promote the prompt and accurate clearance and 
settlement of securities transactions and to assure the safeguarding of 
securities and funds which are in the custody or control of the 
clearing agency or for which it is responsible.
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    \3\ 15 U.S.C. 78q-1(b)(3)(F).
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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 particular Section 17A of the Act and the rules and regulations 
thereunder.
    It is Therefore Ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-OCC-99-12) be and hereby is 
approved.

    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).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-9844 Filed 4-19-01; 8:45 am]
BILLING CODE 8010-01-M