[Federal Register Volume 72, Number 68 (Tuesday, April 10, 2007)]
[Notices]
[Pages 17976-17978]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-6668]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55579; File No. SR-OCC-2007-02]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change Relating to Rate-Modified Foreign Currency Options

April 4, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on March 5, 2007, The Options 
Clearing Corporation (``OCC'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I and II below, which items have been prepared primarily by OCC. 
The Commission is publishing this notice and order to solicit comments 
on the proposed rule change from interested persons and to grant 
accelerated approval of the proposal.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

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

    The proposed rule change will allow OCC to clear and settle rate-
modified foreign currency options (``Rate-Modified FCOs'') which have 
been proposed and approved for trading by the International Securities 
Exchange (``ISE'').\2\
---------------------------------------------------------------------------

    \2\ Securities Exchange Act Release No. 55575 (April 3, 2007) 
(File No. SR-ISE-2006-59). For notice of the proposal, see 
Securities Exchange Act Release No. 55336 (February 23, 2007), 72 FR 
9364 (March 1, 2007).
---------------------------------------------------------------------------

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

    The purpose of this rule change is to accommodate a request from 
ISE that OCC clear and settle Rate-Modified FCOs. OCC's By-Laws and 
Rules currently provide for the clearance and settlement of cash-
settled foreign currency options (``Cash-Settled FCOs'').\4\ However, 
unlike the Cash-Settled FCOs currently covered by OCC's By-Laws and 
Rules, the underlying interest for Rate-Modified FCOs is stated in 
terms of the exchange rate between a ``currency pair,'' one of which 
may be the U.S. dollar or both of which may be non-U.S. currencies, as 
modified by a ``rate modifier'' determined by ISE.
---------------------------------------------------------------------------

    \4\ The Commission recently approved a proposed rule change 
filed by OCC to accommodate Cash-Settled FCOs traded on the 
Philadelphia Stock Exchange (``Phlx''). Securities Exchange Act 
Release No. 54935 (December 13, 2006), 71 FR 76417 (December 20, 
2006) (File No. SR-OCC-2006-10). The rule changes that were made 
with respect to the Phlx Cash-Settled FCOs will also apply to Rate-
Modified FCOs.
---------------------------------------------------------------------------

    The rate modifier for Rate-Modified FCOs is selected so that the 
underlying modified rate looks similar to an index. The exchange rates 
underlying Rate-Modified FCOs may or may not be stated in the same way 
that they are conventionally quoted in the spot market. For example, 
exchange rates between the U.S. dollar and the euro are generally 
quoted as dollars per euro on the spot market, but the rate modifying a 
Rate-Modified FCO could be stated as euros per dollar. The number by 
which the exchange rate is multiplied to determine the modified rate 
for a particular class of options will be 1, 10 or 100 depending on the 
level of the exchange rate in question.
    For purposes of determining an exercise settlement amount, Rate-
Modified FCOs would use a multiplier

[[Page 17977]]

of $100 (i.e., the exercise settlement amount will be the difference 
between the strike price and the exercise settlement value of the 
underlying modified rate times the multiplier). The multiplier, which 
always has a value of $100, is not the same thing as the rate modifier. 
Similarly, premium quotations would be multiplied by $100 to obtain the 
aggregate premium amount for a single option.
    The exercise settlement amount for Rate-Modified FCOs will be based 
on the noon buying rates for the underlying currencies as published by 
the Federal Reserve Bank of New York. If the Federal Reserve Bank does 
not publish a noon buying rate for a particular currency pair, ISE will 
use a rate obtained by a market data vendor. OCC will ordinarily look 
to ISE to supply the final value of the underlying for exercise 
settlement purposes, but OCC will retain its customary authority to set 
a value if none is available from ISE. Trading of Rate-Modified FCOs 
will ordinarily cease at 12:00 noon Eastern Time on the business day 
before the expiration date.
    Rate-Modified FCOs are to be European style and will expire on the 
Saturday following the third Friday of the expiration month. Rate-
Modified FCOs will have up to three near-term expiration months 
followed by three calendar quarter-end expiration months.
    To accommodate Rate-Modified FCOs, OCC is proposing to add or 
modify certain defined terms in Article XXII of the By-Laws. 
Definitions of ``multiplier,'' ``rate-modified foreign currency 
options,'' ``underlying currency pair,'' and ``underlying modified 
rate'' will be added, and the definitions of ``call,'' ``exercise 
price,'' ``exercise settlement amount,'' ``premium,'' ``put,'' 
``reporting authority,'' ``series of options'' and ``spot price'' will 
be amended to reflect the use of a modified exchange rate as the 
underlying interest for Rate-Modified FCOs. In addition, Section 5 of 
Article XXII of the By-Laws relating to the time for determination of 
the spot price will be amended for clarification. OCC will delete the 
definition of ``aggregate exercise price,'' which is no longer used in 
OCC's By-Laws or Rules with respect to Cash-Settled FCOs.
    The introduction to Chapter XXIII of the Rules will be amended to 
make a non-substantive change to conform to the terminology in Article 
XXII of the By-Laws.
    The proposed rule change is consistent with Section 17A of the Act 
because it is designed to promote the prompt and accurate clearance and 
settlement of transactions in Rate-Modified FCOs by applying the same 
basic rules and procedures to such options as are applied to other 
cash-settled foreign currency options. The proposed rule change is not 
inconsistent with the existing rules of OCC, including those rules 
proposed to be amended.

(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

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of a clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions.\5\ The 
purpose of the proposed rule change is to amend OCC's By-Laws and Rules 
so that OCC may clear and settle the new Rate-Modified FCO product to 
be listed and traded on ISE. Accordingly, the proposed rule change 
should promote the prompt and accurate clearance and settlement of 
securities transactions.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    OCC has requested that the Commission approve the proposed rule 
prior to the thirtieth day after publication of the notice of the 
filing. The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the publication of notice 
because such approval will allow ISE to commence trading of Rate-
Modified FCOs without any unnecessary delay.

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-2007-02 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-2007-02. 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 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-2007-02 
and should be submitted on or before May 1, 2007.

V. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular Section 17A of the Act and the rules and regulations 
thereunder.\6\
---------------------------------------------------------------------------

    \6\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-OCC-2007-02) be and hereby 
is approved.


[[Page 17978]]


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

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

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-6668 Filed 4-9-07; 8:45 am]
BILLING CODE 8010-01-P