[Federal Register Volume 69, Number 18 (Wednesday, January 28, 2004)]
[Notices]
[Page 4198]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-1756]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49103; File No. SR-ODD-2004-01]


Self-Regulatory Organizations; the Options Clearing Corporation; 
Order Granting Approval of Proposed Supplement To Amend the Options 
Disclosure Document Description Regarding Options Exercise Assignments 
and How To Exercise Options

January 20, 2004.
    On January 7, 2004, the Options Clearing Corporation (``OCC'') 
submitted to the Securities and Exchange Commission (``Commission''), 
pursuant to Rule 9b-1 under the Securities Exchange Act of 1934 
(``Exchange Act''),\1\ five definitive copies of a supplement to its 
options disclosure document (``ODD'') that amends the ODD's description 
of assignment methods for assigning options exercises and the 
description of how to exercise options (``Supplement'').\2\ The 
proposed Supplement supercedes and replaces the November 1995 
Supplement to the ODD, and amends the ``Assignment'' and ``How to 
Exercise'' sections in Chapter VIII of the ODD.
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    \1\ 17 CFR 240.9b-1.
    \2\ See letter from Jean M. Cawley, First Vice President and 
Deputy General Counsel, OCC, to Sharon Lawson, Senior Special 
Counsel, Division of Market Regulation, Commission, dated January 6, 
2004 (``OCC letter''). See note 4, infra.
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    The ODD currently contains general disclosures on the 
characteristics and risks of trading standardized options. Recently, 
OCC amended its rules to change the methodology for assigning exercises 
to a clearing member's customers' account for S&P 100 (OEX) index 
options from random to pro rata.\3\ The proposed Supplement 
accommodates this change by amending the ODD's description of assigning 
options exercises.\4\
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    \3\ See Securities Exchange Act Release No. 48909 (December 11, 
2003), 68 FR 74689 (December 24, 2003) (File No. SR-OCC-2003-05). 
According to OCC, to date the only other options classes where pro 
rata exercise is permitted under OCC rules is for foreign currency 
flex options.
    \4\ See OCC Letter, supra note 2.
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    Specifically, the proposed Supplement provides a more general 
description of options assignment methodologies that refers investors 
to OCC for more specific assignment information.\5\ In addition, the 
Supplement is being modified to provide a more general discussion of 
assignment exercise procedures of member firms to their customers by 
providing certain non-exclusive examples.\6\ The new revisions will 
state that, in cases where less than all the open interest is 
exercised, both OCC assignment procedures and broker assignment 
procedures may affect the likelihood that a customer's position will be 
assigned and the potential size of such assignment.
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    \5\ The Commission notes that changes to OCC's rules to 
accommodate new options assignment methods would still have to be 
submitted to the Commission under Section 19(b) of the Exchange Act. 
15 U.S.C. 78s(b). Further, OCC must continue to ensure that the ODD 
is in compliance with the requirements of Exchange Act Rule 9b-
1(b)(2)(i), 17 CFR 240.9b-1(b)(2)(i), including when future changes 
to options exercise procedures are made.
    \6\ The Commission notes that any changes to the rules of the 
options exchanges concerning member firm assignment procedures would 
need to be submitted to the Commission under Section 19(b) of the 
Exchange Act. 15 U.S.C. 78s(b). See also note 5, supra.
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    Finally, the proposed Supplement also amends the description of how 
to exercise options. Specifically, the proposed Supplement amends the 
ODD by stating that investors should be aware of their brokerage firm's 
policies regarding such firm's cut-off time for accepting exercise 
instructions.
    The Commission has reviewed the proposed Supplement and finds that 
it complies with Rule 9b-1 under the Exchange Act.\7\ The proposed 
Supplement is intended to be read in conjunction with the more general 
ODD, which, as described above, discusses the characteristics and risks 
of options generally.
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    \7\ 17 CFR 240.9b-1.
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    Rule 9b-1(b)(2)(i) under the Exchange Act \8\ provides that an 
options market must file five copies of an amendment or supplement to 
the ODD with the Commission at least 30 days prior to the date 
definitive copies are furnished to customers, unless the Commission 
determines otherwise, having due regard to the adequacy of information 
disclosed and the public interest and protection of investors.\9\ In 
addition, five definitive copies shall be filed with the Commission not 
later than the date the amendment or supplement, or the amended options 
disclosure document, is furnished to customers. The Commission has 
reviewed the proposed Supplement, and finds it consistent with the 
protection of investors and in the public interest to allow the 
distribution of this document as of the date of this order.
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    \8\ 17 CFR 240.9b-1(b)(2)(i).
    \9\ This provision is intended to permit the Commission either 
to accelerate or extend the time period in which definitive copies 
of a disclosure document may be distributed to the public.
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    It is therefore ordered, pursuant to Rule 9b-1 under the Exchange 
Act,\10\ that the proposed Supplement (SR-ODD-2004-01), which amends 
the ODD's description of assignment methods, the risks of such 
assignments, and the description of how to exercise options, is 
approved. The Commission has also determined that definitive copies can 
be furnished to customers as of the date of this order.
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    \10\ 17 CFR 240.9b-1.
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(39).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-1756 Filed 1-27-04; 8:45 am]
BILLING CODE 8010-01-P