[Federal Register Volume 67, Number 164 (Friday, August 23, 2002)]
[Notices]
[Pages 54688-54689]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-21518]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46378; File No. SR-OCC-2002-18]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of a Proposed Rule Change Relating to Matched Trade 
Reporting

August 19, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 30, 2002, 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. The Commission is publishing this notice to solicit comments on 
the proposed rule change from interested persons.
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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 amend OCC's by-laws and rules 
relating to exchanges' reports of matched trades to OCC and to OCC 
providing positions and exercise information to clearing members.

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 such 
statements.\2\
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    \2\ The Commission has modified parts of these statements
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The proposed rule change would modify OCC's by-laws and rules to 
accommodate the transition to near real-time reporting of matching 
trade information by the options exchanges.\3\ In addition, OCC's rules 
would be modified to reflect that OCC may make available to clearing 
members updated position and exercise information; however, such 
information would be provisional until final processing.
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    \3\ While the language of this filing reflects OCC's current 
business of clearing and settling exchange traded options, the 
filing and the change to OCC's by-laws and rules extend to matching 
trade information from national securities exchanges, national 
securities associations, futures merchants, security futures 
markets, and international markets for which OCC clears and settles 
transactions.
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    Each option exchange currently compares the trade information 
submitted by purchasing and selling members with respect to each 
transaction effected on that exchange. A compared transaction reflects 
that the parties to the trade have agreed on the terms of the trade. 
After the completion of its comparison processing, an exchange 
transmits to OCC a cumulative report of all matched trades effected or 
reconciled on that exchange on that particular trading day.\4\ A 
compared or ``matched'' trade reported to OCC also contains additional 
information required by OCC, including, for example, the identity of 
the purchasing and selling clearing members, the accounts in which each 
side of the transaction was effected, the exercise prices, the 
expiration date, and the number of options contracts.\5\ Each night, 
OCC processes the cumulative report of matched trades submitted by each 
option exchange, as well as exercise notices submitted by clearing 
members and accepted by OCC, and updates the clearing members' 
positions for the next trading day.
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    \4\ While OCC receives periodic matched trade transmissions for 
each option exchange during a business day, it currently uses the 
cumulative matched trade transmission made by each exchange for 
position processing and does not use intraday transmissions for 
position processing. OCC anticipates that the option exchanges will 
gradually transition to reporting of matched trades on a near real-
time basis. Until all exchanges have transitioned to near real-time 
matched trade reporting during the business day, OCC's systems will 
accept and process a cumulative batch transmission, intermittent 
batch transmissions, and near real-time matched trade reporting.
    \5\ See Article VI, Section 7 of OCC's by-laws and OCC Rule 401 
for a description of the information required by OCC.
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    In connection with systems modification, OCC is proposing to amend 
its by-laws and rules so that it would accept and process matched 
trades reported by the exchanges on a near real-time basis. After 
receipt of a matched trade, OCC would process the matching trade 
information and make available updated position information for 
clearing member review throughout the trading day. However, a matched 
trade reported by a particular exchange might not always be complete or 
accurate for a variety of reasons. A clearing member may need to modify 
or append additional information after the matched trade has been sent 
to OCC. For example, a clearing member may need to reflect that a 
transaction was either to open or close a position. In such cases, the 
reporting exchange would instruct OCC to disregard a previously 
reported matched trade and would report new matching trade information 
to replace the original transaction. No replacement matching trade 
information would be reported by an exchange if the previously reported 
matched trade was to be disregarded altogether. Because an exchange may 
instruct OCC to disregard a previously submitted matched trade, OCC 
proposes to amend Article VI, Section 7 of its by-laws to reflect that, 
in accordance with such an instruction, the matched trade would be 
deemed null and void and given no effect under the by-laws and rules. 
In addition, Section 7 would be amended to reflect that OCC would not 
be liable to any writer, holder, buyer, or seller in acting on an 
exchange's instruction to disregard a previously submitted trade. 
Article VII, Section 7 and Rules 401 and 402 also would be amended to 
eliminate references to the receipt of a report of matched trades. 
Instead, these provisions would reference the reporting of matching 
trade information by an exchange. Other by-law and rule provisions that 
describe the receipt of a

[[Page 54689]]

report of matched trades would be similarly revised.\6\
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    \6\ In addition, the term settlement time, as defined in Section 
1.S. of Articles XV, XX, and XXIII is being modified to reflect 
OCC's receipt of matching trade information as opposed to a matched 
trade report.
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    Rule 501, which governs position reporting by OCC to its clearing 
members, would be amended to reflect that position information updated 
during a business day would only be provisional and informational in 
nature and that only clearing members' daily position reports could be 
relied upon as definitely reflecting their final positions. Daily 
position reports are made available to clearing members the business 
day after the trade date.
    Rule 801, which relates to exercises of options, also would be 
amended to reflect that exercise information provided throughout a 
business day would be provisional and informational only. Exercises 
accepted by OCC would be definitely reflected in delivery advices and 
exercise and assignment reports. Such advices or reports are made 
available the following business day.
    OCC requests that the Commission approve this rule change by 
October 31, 2002, so that the changes are effective when OCC implements 
the supporting system changes. These system changes are scheduled for 
implementation in early November 2002.
    OCC believes that the proposed rule change is consistent with 
section 17A of the Act because it facilitates the prompt and accurate 
clearance and settlement of cleared contracts.

(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 the 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 will also be available for 
inspection and copying at the principal office of OCC. All submissions 
should refer to the File No. SR-OCC-2002-18 and should be submitted by 
September 13, 2002.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-21518 Filed 8-22-02; 8:45 am]
BILLING CODE 8010-01-P