[Federal Register Volume 69, Number 114 (Tuesday, June 15, 2004)]
[Notices]
[Pages 33438-33440]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-13414]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49834; File No. SR-OCC-2004-06]


Self-Regulatory Organizations; the Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Index Option Expiration Date Exercise Procedures

June 8, 2004.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on April 19, 2004, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule

[[Page 33439]]

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

    OCC is seeking to amend its Rule 1804, which governs expiration 
date exercise procedures for index 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

    The purpose of this rule change is to modify OCC's Rule 1804, which 
governs expiration date exercise procedures for index options, to 
enable OCC to clear and settle European-style options on various 
volatility indexes (``VIX Options'') proposed to be listed by the 
Chicago Board Options Exchange (``CBOE'') that will expire on 
Wednesdays rather than on Saturdays. OCC is also amending Rule 1804 to 
simplify its structure.
    CBOE's rule filing with respect to VIX Options provide that VIX 
Options will expire on Wednesdays.\3\ However, as currently drafted, 
OCC Rule 1804 contemplates that only quarterly index options (``QIX 
Options'') and flexibly structured index options (``Flex Options'') 
will expire on a business day. This proposed rule change would 
accommodate VIX Options by amending Rule 1804 to remove descriptions of 
the day of the week on which certain options expire and make clear that 
all index options other than Flex Options have the same expiration date 
exercise procedure regardless of their expiration date.
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    \3\ Securities Exchange Act Release No. 49563 (April 14, 2004), 
69 FR 21589 (File No. SR-CBOE-2003-40).
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    OCC Rule 1804(b) governs QIX Options ``expiring on a business 
day.'' Rule 1804(b) was adopted in April 1993.\4\ At that time, OCC ran 
both a preliminary and a final report for clearing members to use in 
exercise-by-exception (``ex-by-ex'') processing with respect to all 
options except for European-style treasury options that expired on a 
business day. Under OCC Rule 806, clearing members received only one 
expiration exercise report for European-style treasury options with 
business day expirations because OCC was not able to process both a 
preliminary and a final expiration exercise report on a business day. 
Because QIX Options also expire on a business day, Rule 1804(b) was 
adopted to state that QIX Options would be settled pursuant to the 
single expiration exercise report procedures set forth in OCC Rule 806, 
as modified by Rule 1804(b).
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    \4\ Securities Exchange Act Release No. 32244 (April 29, 1993), 
58 FR 27005 (File No. SR-CBOE-92-27).
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    In 1995, OCC revised its expiration date exercise procedures to do 
away with the preliminary and final expiration exercise reports and 
instead to provide only one expiration exercise report for all expiring 
options.\5\ As part of that change, OCC eliminated Rule 806, as it was 
no longer necessary to provide separately for a single expiration 
report for certain options expiring on a business day because all 
options were to have a single expiration exercise report. With the move 
from two expiration exercise reports to one, Rule 1804(b) became the 
same in substance to Rule 1804(a).
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    \5\ Securities Exchange Act Release No. 36385 (October 24, 
1995), 60 FR 54557 (File No. SR-OCC-95-10).
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    The changes OCC now proposes to Rule 1804 would eliminate the 
redundancies in that rule and eliminate references to Saturday versus 
business day expirations. Current Rule 1804(a) is eliminated as 
redundant because revised Rules 1804(b) and (c) clearly establish the 
ex-by-ex thresholds for index options. It is unnecessary to retain the 
definition of the term ``closing price'' in Rule 1804(a)(2) with 
respect to index options because revised Rule 1804(a)(1) relies instead 
on the term ``exercise settlement amount.'' Exercise settlement amount 
is defined in Article XVII of OCC's By-Laws. Furthermore, the 
procedures that may be followed by OCC in the event of the 
unavailability of an index value are being eliminated from current Rule 
1804(a)(2) because they are set forth in more detail in Article XVII, 
Section 4 of the By-Laws, which is cross-referenced in new 
Interpretation and Policy .02. Existing Rule 1804(c), which provides 
for ``true'' automatic exercise (i.e., no exception procedure) for Flex 
Options is retained without substantive modification. Finally, 
simplifying and conforming changes are being made in Rule 801 and the 
Interpretations and Policies to Rule 1804.
    The proposed changes to OCC's By-Laws and Rules are consistent with 
the purposes and requirements of section 17A of the Act \6\ and the 
rules and regulations thereunder applicable to OCC because they are 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions, to foster cooperation and coordination with 
persons engaged in the clearance and settlement of securities 
transactions, to remove impediments and to perfect the mechanisms of a 
national system for the prompt and accurate clearance and settlement of 
securities transactions, and, in general, to protect investors and the 
public interest.
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    \6\ 15 U.S.C. 78q-1.
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(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 \7\ and Rule 19b-4(f)(4)\8\ 
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. OCC currently uses 
the same expiration date procedures for options that expire on business 
days and on Saturdays. This proposed rule change merely clarifies this 
point, eliminates certain redundancies in Rule 1804, and removes 
language stating that only QIX

[[Page 33440]]

Options and FLEX Options expire on a business day. The proposed rule 
change does not substantively affect the manner in which OCC safeguards 
funds or securities or the rights and obligations of its clearing 
members. At any time within sixty 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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    \7\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \8\ 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. Comments may be submitted by any of 
the following methods:
    Electronic comments:
     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml) or
     Send an e-mail to [email protected]. Please include 
File Number SR-OCC-2004-06 on the subject line.
    Paper comments:
     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-OCC-2004-06. 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, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 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 comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-OCC-2004-06 and should be 
submitted on or before July 6, 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).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-13414 Filed 6-14-04; 8:45 am]
BILLING CODE 8010-01-P