[Federal Register Volume 69, Number 118 (Monday, June 21, 2004)]
[Notices]
[Pages 34409-34410]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-13968]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49859]


Order Temporarily Exempting Standardized Options and Security 
Futures From Rule 12d2-2 Under the Securities Exchange Act of 1934

June 15, 2004.

I. Background

    Section 12(a) of the Securities Exchange Act of 1934 (``Exchange 
Act'') makes it unlawful for any member, broker, or dealer to affect 
any transaction in any security (other than an exempted security) on a 
national securities exchange unless a registration is effective as to 
such security on that exchange in accordance with the provisions of the 
Exchange Act and the rules thereunder.\1\ Section 12(d) of the Exchange 
Act provides that a security registered with a national securities 
exchange may be withdrawn or stricken from listing and registration on 
an exchange in accordance with the rules of the exchange, and upon such 
terms as the Commission may deem necessary, upon application by the 
issuer of the security or by the exchange to the Commission.
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    \1\ 15 U.S.C. 78l(a).
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    Section 12(a) of the Exchange Act does not apply to security 
futures products.\2\ In addition, the Commission exempted by rule 
security futures products from section 12(g) of the Exchange Act if 
traded on a national securities exchange and cleared by a clearing 
agency that is registered as a clearing agency under section 17A of the 
Exchange Act or exempt from registration under section 17A(b)(7).\3\ 
There is no similar exemption, however, for security futures products 
from section 12(d) of the Exchange Act. In addition, the Commission, by 
rule, exempted standardized options \4\ from the provisions of section 
12(a) of the Exchange Act,\5\ but was silent as to whether standardized 
options are exempt from section 12(d). Moreover, the options exchanges 
have continued to file applications under Rule 12d2-2 to delist options 
since the Commission exempted them from the provisions of section 12(a) 
of the Exchange Act and the Commission has issued orders approving such 
delistings.
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    \2\ 15 U.S.C. 78c(a)(56).
    \3\ See Securities Exchange Act Release No. 47082 (Dec. 23, 
2002), 68 FR 188 (Jan. 2, 2003).
    \4\ 17 CFR 240.9b-1.
    \5\ See supra note 3.
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    The Commission, however, does not believe that the requirements of 
Rule 12d2-2 provide investors in options with any protections and has 
never applied the requirements of this rule to security futures 
products. For this reason, as part of its proposal issued today to 
streamline the procedures for delisting and deregistration of 
securities under section 12(d) of the Exchange Act,\6\ the Commission 
is proposing to amend Rule 12d2-2 to exempt standardized options that 
are issued by a clearing agency and traded on a national securities 
exchange, and to exempt security futures products that are traded on a 
national securities exchange, from section 12(d) of the Exchange Act 
and, thus, also the requirements of Rule 12d2-2.
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    \6\ See Securities Exchange Act Release No. 49858 (June 15, 
2004).
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II. Temporary Exemption for Standardized Options and Security Futures

    Section 36 of the Exchange Act gives the Commission the authority 
to exempt any person, security or transaction from any Exchange Act 
provision by rule, regulation, or order, to the extent that the 
exemption is necessary or appropriate in the public interest and 
consistent with the protection of investors.\7\ The Commission believes 
it is consistent with the protection of investors and appropriate in 
the public interest to temporarily exempt certain standardized options 
and security futures products from Rule 12d2-2 under the Exchange 
Act.\8\
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    \7\ 15 U.S.C. 78mm.
    \8\ The temporary exemption would be in effect until October 31, 
2004.
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    The temporary exemption for standardized options and security 
futures products from Rule 12d2-2 will provide clarity to market 
participants while the proposal, as noted above, to permanently exempt 
standardized options and security futures products traded on a national 
securities exchange from section 12(d) of the Exchange Act, is pending. 
The Commission believes there is little practical benefit to requiring 
the delisting of standardized options and security futures to comply 
with Rule 12d2-2. Standardized options and security futures products 
are derivatives, and thus holders of such products have no ownership 
interest in the underlying security or index, unless the option is 
physically settled and the holder chooses to exercise the standardized 
option or hold the security future until expiration. For this reason, 
when a standardized option or security futures product fails to meet an 
exchange's maintenance standards, the exchange may not add new options

[[Page 34410]]

series or expiration months in security futures products, but market 
participants are still allowed to do closing transactions in open 
series of options until expiration or until the settlement date of the 
security futures product.
    Accordingly, it is ordered, pursuant to section 36 of the Exchange 
Act,\9\ that any standardized option issued by a clearing agency and 
traded on a national securities exchange, and any security futures 
product that is traded on a national securities exchange, is exempted 
from Rule 12d2-2 under the Exchange Act until October 31, 2004.
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    \9\ 15 U.S.C. 78mm.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-13968 Filed 6-18-04; 8:45 am]
BILLING CODE 8010-01-P