[Federal Register Volume 66, Number 156 (Monday, August 13, 2001)]
[Notices]
[Pages 42580-42581]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-20234]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44652; File No. SR-OCC-00-04]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving a Proposed Rule Change Relating to the Definition of 
Marking Price and Closing Price

August 3, 2001.
    On May 2, 2000, the Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change (File No. SR-OCC-00-04) 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 January 9, 2001.\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. 43782 (Dec. 29, 2000), 
66 FR 1712.
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I. Description

    Under the rule change, OCC will conform the definition of ``marking 
price'' in OCC Rule 601 to the definition of ``closing price'' in OCC 
Rule 805. Rule 601 specifies the procedure for margining short 
positions in equity options. Under this procedure, open short positions 
are margined based on prices or quotes for the option itself. Assigned 
short positions, however, are margined based on the difference between 
the strike price of the option and the ``marking price'' of the 
underlying stock. Unlike the definition of ``closing price'' in Rule 
805(j), the definition of ``marking price'' in Rule 601(b)(6) still 
refers to the closing price of an underlying stock on its ``primary 
market.''
    OCC believes that the definition of ``marking price'' in Rule 
601(b)(6) and the definition of ``closing price'' in Rule 805(j) should 
not be materially different. According to OCC, the two prices are 
normally determined in the same manner and therefore should be defined 
in the same way. Therefore, OCC proposes that the Rule 601 definition 
of ``marking price'' conform to Rule 805 because the same concerns that 
led OCC to replace the term ``primary market'' in Rule 805 apply 
equally in the context of Rule 601.
    The rule change also revises both definitions to clarify that OCC 
will normally determine underlying stock prices based on the last 
reported sale price during regular business hours. Specifically, Rule 
805(j) and 601(b)(6) will be amended to refer to the last reported sale 
price ``during regular trading hours (as determined by the Corporation 
[OCC]). * * *'' \3\
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    \3\ Before February 1999, Rule 805(j) defined ``closing price'' 
to mean the closing price of an underlying stock ``on its primary 
market.'' In recognition of the increasing fragmentation of the 
equity markets, the rule was amended in February 1999 to refer 
instead to the last reported sale price ``on such national 
securities exchange or other domestic securities market as [OCC] 
shall determine.'' Securities Exchange Act Release No. 41089 (Feb. 
23, 1999), 64 FR 10051 (Mar. 1, 1999).
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II. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder and particularly with the requirements of Section 
17A(b)(3)(F) \4\ of the Act. Section 17A(b)(3)(F) 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. The 
Commission finds that OCC's rule change meets these conditions because 
it is designed to provide OCC's members greater administrative and 
operational convenience and clarity. By conforming the definitions of 
``marking price'' and ``closing price,'' OCC will be able to apply its 
procedural rules for clearing and settling expiring options in a more 
consistent manner. The same concerns that led OCC to replace the term 
``primary market'' in Rule 805 in 1999 are equally valid in the context 
of Rule 601. Similarly, OCC is clarifying its rule by specifying in 
both Rules 601 and 805 that the last sale price is based on trading 
during regular trading hours. Thus, the rule change should reduce 
potential confusion among OCC's clearing members and therefore should 
promote the prompt and accurate clearance and settlement of securities 
transactions.
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    \4\ 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 with the requirements of

[[Page 42581]]

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-00-04) 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).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-20234 Filed 8-10-01; 8:45 am]
BILLING CODE 8010-01-M