[Federal Register Volume 69, Number 74 (Friday, April 16, 2004)]
[Notices]
[Pages 20656-20657]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-8620]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49554; File No. SR-OCC-2004-05]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Modifying the Definition of ``Premium'' With Respect to Foreign 
Currency and Cross-Rate Currency Options

April 12, 2004.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(''Act''),\1\ notice is hereby given that on March 19, 2004, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change 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 parties.
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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 purpose of the proposed rule change is to amend OCC's By-Laws 
and Rules to modify the definition of ``premium'' with respect to 
foreign currency and cross-rate currency options.

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

Background
    OCC's By-Laws and Rules currently define ``premium'' for foreign 
currency options and cross-rate foreign currency options with reference 
to units of the relevant trading currency. ``Trading currency'' is 
defined in Article I of OCC's By-Laws as ``the currency in which 
premium and/or exercise prices are denominated for a class of foreign 
currency options or cross-rate foreign currency options.'' Normally, 
premium and exercise prices are expressed in the same currency. 
However, the Philadelphia Stock Exchange (``Phlx''), which trades both 
foreign currency options and cross-rate foreign currency options, 
permits premiums to be quoted both in units of the trading currency and 
as a percentage of the underlying currency.\3\
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    \3\ For example, the premium of a USD/EUR contract could be 
expressed in U.S. cents per euro (a quote of 1.05 = $.0105 x 62,500 
(the standard EUR contract size) = $656.25), or as a percentage of 
euro (a quote of 2.05 = EUR.0205 x 62,500 = EUR 1281.25). When 
premiums are quoted as a percentage of the underlying currency, 
premiums are also paid in the underlying currency. In that case, for 
purposes of premium quotation and settlement only, the ``trading 
currency'' is the same as the underlying currency (EUR in the above 
example). Nevertheless, the exercise price for such options would 
continue to be stated in terms of a trading currency other than the 
underlying currency (USD, in the example).
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    Presently, the method of quoting premiums as a percentage of the 
underlying currency occurs only with ``flexibly structured options'' as 
defined in Article I of the By-Laws (``flex options''). Nevertheless, 
OCC wishes to amend the relevant definitions of ``premium'' in order to 
make clear that quotation of premiums as a percentage of an underlying 
foreign currency will be permitted with foreign currency options and 
cross-rate options in addition to flex options.
Proposed Rule Changes
    As noted above, ``Trading Currency'' is presently defined to mean 
``the currency in which premiums and/or exercise prices are denominated 
for a class of foreign currency options or cross-rate foreign currency 
options.'' OCC proposes to expand the meaning of the term where, as 
described above, the premium is quoted in the underlying currency and 
the exercise price is quoted in a different currency. Generally, the 
context in which the term ``Trading Currency'' is used will dictate 
whether it is a reference to the premium currency or the currency in 
which the exercise price is denominated (the ``exercise currency''). 
Where the context is unclear, OCC is proposing to insert parenthetical 
language to expressly state which reference is intended. For this 
purpose, changes are proposed in the introduction to Article XV of the 
By-Laws and Chapter XVI of the Rules and to the definitions of ``Class 
of Options'' and ``Settlement Time'' in both Article XV and Article XX 
of the By-Laws.
    OCC proposes to amend the definitions of ``Premium'' in Article XV, 
``Foreign Currency Options'' and Article XX, ``Cross-Rate Foreign 
Currency Options'' by adding a new sentence to each to make clear that 
such premiums may be quoted as a percentage of the relevant underlying 
currency to the extent permitted under SEC rules. The definitions have 
also been amended to expressly provide that premiums quoted in units of 
a trading currency may be quoted in any of (a) fractions, (b) decimals, 
or (c) multiples of units of the relevant trading currency. Further, 
OCC proposes to correct an inconsistency between the current Article XX 
definition of ``premium,'' which

[[Page 20657]]

specifically mentions multiples and fractions of the unit of trading 
currency and the current Article XV definition of ``premium'' which is 
silent on the point.

(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 upon filing pursuant 
to section 19(b)(3)(A)(iii) of the Act \4\ and Rule 19b-4(f)(4) \5\ 
thereunder because the proposed rule effects a change in an existing 
service of OCC that does not adversely affect the safeguarding of 
securities or funds in the custody or control of OCC or for which OCC 
is responsible and 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 such rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is 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 240.10b-(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-2004-05. 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 
either 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-
0609. Copies of such filing also will be available for inspection and 
copying at the principal office of OCC and on OCC's Web site at http://www.optionsclearing.com. All submissions should refer to File No. SR-
OCC-2004-05 and should be submitted by May 7, 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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-8620 Filed 4-15-04; 8:45 am]
BILLING CODE 8010-01-P