[Federal Register Volume 71, Number 33 (Friday, February 17, 2006)]
[Notices]
[Pages 8628-8629]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-2298]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53267; File No. SR-OCC-2005-25]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Adjustment Panels

February 9, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on December 23, 2005, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which items have been prepared 
primarily by OCC. OCC filed the proposed rule change pursuant to 
Section 19(b)(3)(A) of the Act \2\ whereby the proposal was effective 
upon filing with the Commission. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change amends certain By-Law provisions in order 
to consolidate common policies and procedures relevant to adjustment 
panels that act from time to time on behalf of OCC to adjust the terms 
of outstanding cleared contracts to reflect events affecting the issuer 
of the instrument underlying the relevant contract.

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.\3\
---------------------------------------------------------------------------

    \3\ The Commission has modified parts of these statements.
---------------------------------------------------------------------------

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    As currently in effect, Article VI (Clearance of Exchange 
Transactions) Section 11 (Adjustments Panel Policies and Procedures) 
paragraph (b) of OCC's By-Laws provides that adjustments are to be made 
by OCC's Securities Committee and describes factors to be taken into 
account by the Securities Committee in making adjustments. Under 
Article VI, Section 11(k), also as currently in effect, the authority 
of the Securities Committee to make adjustment determinations in 
particular cases is delegated to adjustment panels whose actions are 
deemed to constitute actions by the Securities Committee. Article VI, 
Section 11(k) sets forth procedures governing matters such as 
adjustment panel composition and voting. Several other articles of the 
By-Laws that are applicable to specific products other than stock 
options also provide for adjustment panels and incorporate certain 
provisions of the current Article VI, Section 11(k) by reference. 
Specifically, these other articles and the relevant sections are: 
Article XV (Foreign Currency Options), Section 4; Article XVII (Index 
Options), Section 3; Article XX (Cross-Rate Foreign Currency Options), 
Section 4; Article XXII (Cash-Settled Foreign Currency Options), 
Section 3; Article XXIII (Flexibly Structured Index Options), Section 
4; and Article XXIV (BOUNDs), Section 6. These adjustment provisions, 
which are generally duplicative of those in Article VI, Section 11(k), 
inadvertently omit the conflict of interest provision of Article VI, 
Section 11(k) that prohibits persons with a financial interest in the 
adjustment from serving on an adjustment panel. Although the adjustment 
provisions governing products other than stock options incorporate by 
reference some policies and procedures from Article VI, Section 11, 
they repeat other provisions.
    In order to correct the inadvertent exclusion of the conflict of 
interest provision and to eliminate repetitive language, thereby 
decreasing the potential for inadvertent inconsistencies between the 
adjustment provisions of the various articles of the By-Laws if one or 
more of such provisions were amended in the future, OCC proposes to 
revise Section 11 of Article VI to be generally applicable to all 
adjustment panels regardless of the product type and to insert cross-
references to Section 11 in the other articles where appropriate. In 
addition, OCC is proposing to add Section 11A to Article VI that will 
preserve those paragraphs of the existing Section 11 that apply 
specifically to stock options.
    Proposed Section 11(a)-(c) of Article VI is largely a restatement 
of policies and procedures currently applicable to the Securities 
Committee and adjustment panels acting on its behalf as found in 
existing Sections 11(b) and (k) of Article VI. In proposed Article VI, 
Section 11(a), the list of factors which the Securities Committee may 
consider in making an adjustment determination is a comprehensive list 
of such factors, some of which may not be applicable to a particular 
cleared contract. In proposed Article VI, Section 11(c), the term 
``cleared contracts'' replaces references to ``option contracts and 
BOUNDs'' in the corresponding sentences of existing Section 11(k).
    Proposed Section 11A of Article VI is a restatement of existing 
Section 11(a) and (c)-(j) of Article VI except for revisions to reflect 
proper references to Section 11A or Section 11, as applicable.
    To preserve stockholder prerogatives, Article XI (Amendment of the 
By-Laws and Rules), Section 1, which requires stockholder approval for 
amendments to

[[Page 8629]]

specified By-Law provisions, including existing Article VI, Section 11, 
is revised to include new Section 11A as well.
    Minor technical changes are made to Article XII, Section 3(a). OCC 
is also proposing to delete references to ECU-based foreign currency 
options and their treatment by the adjustment panel in Article XV 
(Foreign Currency Options), Section 4 and Interpretation .02 
thereunder; Article XX, Section 4 and Interpretation .02 thereunder; 
and Article XXII, Section 3 because the transition from ECUs to the 
euro, which does not have constituent currencies, is complete and 
because references to ECUs and EMUs are obsolete.
    OCC believes that the proposed rule change is consistent with the 
purposes and requirements of Section 17A of the Act because it is 
designed to ensure uniform standards and procedures to the extent 
possible for adjustments to the terms of outstanding contracts cleared 
by OCC and therefore to promote the prompt and accurate clearance and 
settlement of securities transactions. The proposed rule change is not 
inconsistent with the rules of OCC, including any rules proposed to be 
amended.\4\
---------------------------------------------------------------------------

    \4\ OCC intends to file an amendment to File SR-OCC-2004-21, 
which proposes to add a new Article XIV to OCC's By-Laws in 
connection with the proposed trading of fixed return options, to 
make conforming changes to the adjustment provisions of new Article 
XIV.
---------------------------------------------------------------------------

(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 proposed rule change has become effective pursuant to 
Section 19(b)(3)(A)(iii) of the Act \5\ and Rule 19b-4(f)(4) \6\ 
thereunder because it effects a change in an existing service of a 
registered clearing agency that (i) does not adversely affect the 
safeguarding of securities or funds in the custody or control of the 
clearing agency or for which it is responsible; and (ii) does not 
significantly affect the respective rights or obligations of the 
clearing agency or persons using the service. At any time within 60 
days of the filing of the proposed 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.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \6\ 17 CFR 240.19b-4(f)(4).
---------------------------------------------------------------------------

VI. 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-2005-25 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-OCC-2005-25. 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, 100 F Street, 
NE., 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 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-2005-25 and should be submitted on 
or before March 10, 2006.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
---------------------------------------------------------------------------

    \7\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Nancy M. Morris,
Secretary.
 [FR Doc. E6-2298 Filed 2-16-06; 8:45 am]
BILLING CODE 8010-01-P