[Federal Register Volume 69, Number 20 (Friday, January 30, 2004)]
[Notices]
[Pages 4552-4554]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-1953]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49126; File No. SR-OCC-2003-07]


Self-Regulatory Organizations; the Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to the Clearance and Settlement of Foreign Currency Futures

January 26, 2004.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 4, 2003, the 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') and on November 17, 2003, amended 
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 accommodates the introduction of foreign 
currency futures as proposed to be traded by the Philadelphia Board of 
Trade (``PBOT'') and cleared by OCC.

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 amendments provide for the clearance and settlement of 
cash-settled futures of foreign currency. The same basic rules and 
procedures currently applicable to other cash-settled futures contracts 
will be applicable to cash-settled foreign currency futures.
    The by-laws and rules of PBOT provide for listing physically-
settled foreign currency futures, which were historically cleared 
through The Intermarket Clearing Corporation (``IMM''), a subsidiary of 
OCC. PBOT now proposes to list cash-settled foreign currency futures 
for trading through its facilities, and OCC proposes to provide 
clearing and settlement services for these new contracts directly 
rather than through ICC. OCC would perform this function in its 
capacity as a derivatives clearing organization (``DCO'') registered as 
such under the Commodity Exchange Act.
    OCC's existing rules already provide for the clearance of cash-
settled futures. They do not, however, specifically contemplate cash-
settled futures for which a foreign currency is the underlying 
interest. The purpose of the present rule change is to amend the rules 
as necessary to provide for

[[Page 4553]]

clearance and settlement of this additional type of future.
    The proposed cash-settled foreign currency futures will be cleared 
and settled in a manner similar to other cash-settled futures. Daily 
variation margin and final settlement prices for cash-settled foreign 
currency futures will be calculated by marking to the futures price as 
reported to OCC by PBOT. PBOT has informed OCC that, in the event that 
there is no recent price in the futures market or the futures price is 
otherwise deemed inappropriate for use, PBOT has the authority under 
its rules to use alternative means to determine a price for the 
underlying foreign currency. OCC has similar authority under its own 
rules.\3\ Cash-settled foreign currency futures will be settled at 
maturity through a final variation payment made in U.S. dollars and not 
through delivery of the underlying currency.
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    \3\ Article XII, section 5 of OCC's By-Laws and Chapter XIII, 
Rule 1301(d) of OCC's Rules.
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    The proposed changes include amendments and additions to the 
definitions in Article I of the By-Laws and to the rules governing 
Futures in Article XII of the By-Laws and Chapter XIII of the Rules. 
The following is brief description of the significant amendments and 
additions. Certain nonsubstantive changes intended to conform or make 
corrections to existing by-laws and rules are self-explanatory and not 
discussed below.
    OCC proposes to add a definition of cash-settled foreign currency 
future in Article I of the By-Laws. The definitions of final settlement 
price and final variation payment have been included in order to 
correct the alphabetization.
    Article XII sets out the basic provisions for futures and futures 
options. Section 3(a) contains a general expression of OCC's authority 
to make adjustments to the terms of futures and futures options to 
reflect relevant events affecting underlying interests. A sentence has 
been added to this section 3(a) which directs the reader to new section 
4A for specific information about circumstances under which adjustments 
to cash-settled foreign currency futures might be made and about the 
process for making such determinations. New section 4A, including 
Interpretation .01 thereto, has been adapted from the adjustment 
provision for cash-settled foreign currency options in Article XXII, 
section 3 of the By-Laws. Section 6 of Article XII of the By-Laws is 
being amended to make clear that final settlement prices for futures 
contracts may be based upon prices or quotations in other markets for 
the relevant underlying interest, such as the cash or spot markets.
    By-Laws in Article XXII apply only to cash-settled foreign currency 
options. Because of the potential for confusion and as guidance to the 
reader, a cross-reference has been added to the Introduction of this 
Article noting that rules governing cash-settled foreign currency 
futures appear in Article XII of the By-Laws and Chapter XIII of the 
Rules.
    Chapter X of the Rules governs clearing fund contributions, and 
Rule 1001 governs the amount of contributions. Rule 1001 contains 
special provisions applicable to a clearing member who is an affiliate 
of a previously admitted clearing member and that becomes a clearing 
member solely for the purpose of clearing transactions in certain 
designated futures and futures options. The proposed amendment broadens 
the categories of contracts subject to the special provisions to 
include all commodity futures and options on commodity futures. A 
clearing member that qualifies for this special treatment is deemed to 
be in compliance with its minimum contribution requirement if the 
entity contributes the amount calculated with respect to it under the 
basic clearing fund formula, notwithstanding that such amount is less 
than the $150,000 minimum, so long as its previously admitted affiliate 
is in compliance with the $150,000 minimum.
    OCC believes that the proposed rule change is consistent with the 
purposes and requirements of section 17A of the Act because it 
facilitates the establishment of linked or coordinated facilities for 
clearance and settlement of transactions in foreign currency options 
and cash-settled foreign currency futures and provides for the 
efficient clearance and settlement of the latter by adapting existing 
OCC rules previously approved as effective in promoting the prompt and 
accurate clearance and settlement of other types of futures 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

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A)(iii) of the Act \4\ and Rule 19b-4(f)(4) \5\ thereunder 
because it effects a change in an existing service of OCC that (i) does 
not adversely affect the safeguarding of securities or funds in the 
custody or control of OCC or for which it is responsible and (ii) does 
not significantly affect the respective rights or obligations of OCC or 
persons using the service. 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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    \4\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \5\ 17 CFR 240.19b-4(f)(4).
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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-2003-07. 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 and on OCC's Web site at http://www.optionsclearing.com. All

[[Page 4554]]

submissions should refer to the File No. SR-OCC-2003-07 and should be 
submitted by February 20, 2004.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-1953 Filed 1-29-04; 8:45 am]
BILLING CODE 8010-01-P