[Federal Register Volume 67, Number 213 (Monday, November 4, 2002)]
[Notices]
[Pages 67229-67230]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-27917]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46734; File No. SR-OCC-2002-18]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Granting Approval of a Proposed Rule Change Relating to Matched 
Trade Reporting

October 28, 2002.

I. Introduction

    On July 30, 2002, The Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') proposed 
rule change File No. SR-OCC-2002-18 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 August 23, 2002.\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. 46378 (August 19, 2002), 
67 FR 54688.
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II. Description

    The rule change modifies OCC's by-laws and rules to accommodate the 
transition to near real-time reporting of matched trade information by 
the options exchanges.\3\ In addition, OCC's rules are modified to 
reflect that OCC may make available to clearing members updated 
position and exercise information; however, such information is 
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 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 cumulative batch transmissions, 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 amending its by-
laws and rules so that it will accept and process matched trades 
reported by the exchanges on a near real-time basis. After receipt of a 
matched trade, OCC will process the matched 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 will instruct OCC to disregard a previously reported matched 
trade and will report new matched trade information to replace the 
original transaction. No replacement matched trade information will 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,

[[Page 67230]]

OCC is amending Article VI, section 7 of its By-Laws to reflect that, 
in accordance with such an instruction, the previously reported matched 
trade will be deemed null and void and will be given no effect under 
OCC's by-laws and rules. In addition, section 7 is amended to reflect 
that OCC will 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 of the By Laws and Rules 401 and 402 also 
are amended to eliminate references to the receipt of a report of 
matched trades. Instead, these provisions will reference the reporting 
of matching trade information by an exchange. Other by-law and rule 
provisions that describe the receipt of a report of matched trades are 
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, is amended to reflect that position information updated during 
a business day is provisional and informational in nature and that only 
clearing members' daily position reports can be relied upon as 
definitely reflecting their final positions. Daily position reports are 
made available to clearing members each morning and reflect matched 
trades reported the previous business day.
    Rule 801, which relates to exercises of options, also is amended to 
reflect that exercise information provided throughout a business day is 
provisional and informational only. Exercises accepted by OCC will be 
definitely reflected in delivery advices and exercise and assignment 
reports. Such advices or reports are also made available each morning 
and reflect exercises from the previous business day.

III. Discussion

    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.\7\ By moving 
towards accepting and processing matched trades and exercises on a near 
real-time basis, OCC will be able to make available to its clearing 
members information on their positions, exercises, and assignments in a 
more timely manner. As a result, OCC will be fulfilling its section 17A 
obligation to promote the prompt and accurate clearance and settlement 
of securities transactions and thereby meets the requirements of 
section 17A(b)(3)(F).
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    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. 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 section 17A of the Act and the 
rules and regulations thereunder applicable.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-OCC-2002-18) be, and hereby 
is, approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-27917 Filed 11-1-02; 8:45 am]
BILLING CODE 8010-01-P