[Federal Register Volume 68, Number 247 (Wednesday, December 24, 2003)]
[Notices]
[Pages 74689-74690]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-31647]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48908; File No. SR-OCC-2003-05]


Self-Regulatory Organizations; the Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to the Assignment of S&P 100 Index Options

December 11, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 21, 2003, 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 changes the assignment methodology for S&P 
100 (``OEX'') index options from random to pro rata.

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

    At present, OCC uses a random assignment procedure for most classes 
of options.\3\ Pro rata assignment was approved by the Commission for 
flexibly structured foreign currency options \4\ and at present is used 
only for those options.
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    \3\ This process was discussed in detail in Securities Exchange 
Act Release No. 46735 (October 28, 2002), 67 FR 67434 (November 5, 
2002) (File No. SR-OCC-2002-19).
    \4\ Securities Exchange Act Release No. 38165 (January 14, 
1997), 62 FR 3070 (January 21, 1997) (File No. SR-OCC-96-19).
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    The Chicago Board Options Exchange (``CBOE'') has asked OCC to 
change to a pro rata assignment methodology for exercises of OEX 
options. CBOE believes that assigning OEX option exercises on a pro 
rata basis will permit more effective hedging by market participants. 
When exercises are assigned on a random basis, a holder of a short 
position in a series in which less than 100% of the open interest is 
exercised cannot accurately predict whether and to what extent his 
position will be assigned even after he knows the percentage of open 
interest exercised. Under the pro rata assignment methodology, OCC 
assigns exercises in a series of options to each clearing member 
account in approximately the same proportion that the number of short 
positions of that series carried in the account bears to the total 
number of short options of that series. As a result, once the 
percentage of open interest exercised is known, clearing members and 
market makers can predict whether and to what extent their positions 
will be assigned and take appropriate market action if desired.\5\
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    \5\ OCC assigns exercises directly to clearing members and 
market makers. Positions carried in combined market maker accounts 
are carried net and identified by acronyms that make it possible for 
OCC to assign exercises to short positions of individual market 
makers on a pro rata basis.
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    OCC's procedures for assigning exercise notices are not set out in 
OCC's rules but are treated as a stated policy, practice, or 
interpretation with respect to OCC Rule 803, which generally addresses 
assignments to clearing members.\6\ This proposed rule change will not 
effect a substantive change in either of the assignment procedures. It 
would merely change the assignment procedure for OEX exercises from 
random to pro rata.
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    \6\ Upon request to OCC, investors may obtain a description of 
OCC's assignment procedures and the options classes to which they 
apply.
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    OCC believes that the proposed rule change is consistent with 
section 17A of the Act because it promotes the prompt and accurate 
clearance and settlement of securities transactions and fosters 
cooperation and coordination with persons engaged in the clearing and 
settlement of securities transactions.

(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.

[[Page 74690]]

(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

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A)(i) of the Act \7\ and Rule 19b-4(f)(1) \8\ thereunder 
because it constitutes a stated policy, practice or interpretation with 
respect to the meaning, enforcement or administration of an existing 
rule. At any time within 60 days of the filing of the proposed rule 
change, the Commission could have summarily abrogated such rule change 
if it appeared to the Commission that such action was necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \7\ 15 U.S.C. 78s(b)(3)(A)(i).
    \8\ 17 CFR 240.19b-4(f)(1).
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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. 
Comments may also be submitted electronically at the following e-mail 
address: [email protected]. All comment letters should refer to 
File No. SR-OCC-2003-05. This file number should be included on the 
subject line if e-mail is used. To help the Commission process and 
review your comments more efficiently, comments should be sent in 
hardcopy or by e-mail but not by both methods. 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-2003-5 and should be submitted by January 14, 2004.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-31647 Filed 12-23-03; 8:45 am]
BILLING CODE 8010-01-P