[Federal Register Volume 60, Number 52 (Friday, March 17, 1995)]
[Notices]
[Pages 14475-14477]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6574]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35472; File No. SR-OCC-95-01]
Self-Regulatory Organizations; the Options Clearing Corporation;
Notice of Filing of a Proposed Rule Change Clarifying Rules Regarding
the Unavailability of Current Index Values
March 10, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on January 23, 1995, The
Options Clearing Corporation (``OCC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change (File No.
SR-OCC-95-01) as 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
persons.
\1\15 U.S.C. 78s(b)(1) (1988).
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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 clarify the
respective rights [[Page 14476]] and responsibilities of OCC and the
options exchanges (``Exchanges'') in the event that the primary market
for securities representing a substantial part of the value of an
underlying index is not trading at the time when the current index
value would ordinarily be determined or in the event that the current
index value is unreported or otherwise unavailable for purposes of
calculating the exercise settlement amount. The proposed rule change
also makes certain technical changes in OCC's By-Laws and Rules
governing index options and its proposed By-Laws and Rules governing
Flexible Structured Index Options Denominated in a Foreign Currency
(``FX Index Options'').\2\
\2\For a complete description of FX Index Options, refer to
Securities Exchange Act Release No. 35149 (January 3, 1995), 60 FR
158, [File No. SR-OCC-94-08] (order approving proposed rule change).
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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 that 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.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
On July 15, 1994, technical difficulties delayed the opening of the
National Association of Securities Dealers Automated Quote System
(``NASDAQ'') until 11:55 a.m., Eastern Time, nearly two and a half
hours after the time trading normally begins. Prior to the delayed
opening, however, transactions in NASDAQ listed securities occurred via
telephone and the Instinet on-line trading system. Prices reported in
connection with those transactions (``preopening prices'') had been
transmitted to certain designated reporting authorities, and some or
all of those reporting authorities used those prices in calculating
values for certain stock indexes settling at the opening.
An issue arose that day as to whether the Exchanges would be able
to provide OCC with settlement values for those indexes settling on the
opening of the market whose component securities included NASDAQ listed
issues. The Exchanges were concerned that they would be unable to
provide OCC with settlement values prior to OCC's exercise processing
cut-off time.
Fortunately, the designated reporting authorities were able to
calculate and report the settlement values for the affected series to
the Exchanges. The Exchanges, in turn, reported those settlement values
to OCC in time for OCC to conduct its normal expiration processing.
Although the Exchanges reported the settlement values somewhat later
than usual, the late reporting did not have a significant impact on
OCC's processing. In fact, OCC clearing member reports were not delayed
at all.
While the NASDAQ incident was resolved without significant impact,
the incident prompted OCC to take a closer look at its rules respecting
the unavailability of current index values and to consider more fully
what steps would be taken in such a situation. Following its review,
OCC determined that certain technical changes should be made to its
rules to clarify the respective rights and responsibilities of OCC and
the Exchanges with respect to the reporting of current index values and
the determination of settlement values.
During the NASDAQ event, OCC was prepared to exercise this
authority had it become necessary. However, questions arose as to what
prices OCC would use to fix exercise settlement amounts, and what the
basis for that determination would be. OCC's proposed changes are
intended to address those issues. OCC is proposing to amend its By-
Laws, Article XVII, Section 4, which empowers OCC to fix an exercise
settlement amount in the event that OCC determines that the current
index value is unreported or otherwise unavailable.
First, the proposed rule change will make it clear that OCC has the
authority to fix an exercise settlement amount whenever the primary
market for securities representing a substantial part of the value of
an underlying index is not open for trading at the time when the
current index value (i.e., the value used for exercise settlement
purposes) ordinarily would be determined. OCC believes that this
authority is implicit in the language of the present By-Law because in
such circumstances the current index value would generally be
``unreported or otherwise unavailable.'' However, the proposed rule
change would make it explicit.
In addition, the proposed change assigns the responsibility for
fixing exercise settlement amounts to a panel consisting of two
designated representatives of each Exchange on which the affected
series is open for trading, one of whom shall be such Exchange's
representative on OCC's Securities Committee, and OCC's Chairman. This
structure, which assigns the decision-making responsibility to an
exchange-controlled panel, conforms to the way in which determinations
with respect to adjustments to terms of FX index option contracts are
made pursuant to Article XXIII, Section 4. The proposed change
authorizes the panel to fix the exercise settlement amount based on its
judgment as to what is appropriate for the protection of investors and
the public interest including, without limitation, fixing the exercise
settlement amount on the basis of the reported level of the underlying
index at the close of trading on the last preceding trading day for
which a closing index level was reported.
Identical changes also are being made to Article XXIII, Section 5,
which governs the fixing of exercise settlement amounts for FX Index
Options. Under these proposed changes, the situation contemplated by
the last two sentences of the definition of ``expiration date'' in
Article XXIII, Section 1.E.(3) (i.e., where the primary market for
underlying securities representing a substantial part of the value of
an index is closed on an expiration date) will be explicitly covered by
Article XXIII, Section 5. Therefore, the last two sentences of Article
XXIII, Section 1.E.(3) have been deleted.
The remainder of the proposed changes to the By-Laws are technical
changes, primarily for the purpose of conforming those By-Laws to
changes approved in SR-OCC-94-08.\3\
\3\Supra Note 2.
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OCC believes the proposed rule change is consistent with the
requirements of the Act, specifically with Section 17A of the Act, and
the rules and regulations thereunder because it will facilitate the
prompt and accurate settlement of transactions in index options,
flexibility structured index options, and FX Index Options.
(B) Self-Regulatory Organization's Statement on Burden on Competition
OCC does not believe that the proposed rule change will have an
impact on or impose a burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
OCC has not sought or received comments on the proposed rule
change. [[Page 14477]] OCC will notify the Commission of any written
comments received by OCC.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within thirty-five days of the date of publication of this notice
in the Federal Register or within such longer period (i) as the
Commission may designate up to ninety days of such date if it finds
such longer period to be appropriate and publishes its reasons for so
finding or (ii) as to which OCC consents, the Commission will:
(a) By order approve such proposed rule change or
(b) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.
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 will also be available for
inspection and copying at the principal office of OCC. All submissions
should refer to the file number SR-OCC-95-01 and should be submitted by
April 7, 1995.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\4\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-6574 Filed 3-16-95; 8:45 am]
BILLING CODE 8010-01-M