[Federal Register Volume 64, Number 127 (Friday, July 2, 1999)]
[Notices]
[Pages 36062-36063]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-16864]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41561; File No. SR-OCC-99-02]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Order Granting Accelerated Approval of a Proposed
Rule Change Relating to the Use of Non-Equity Securities Options for
Determining Margin and Clearing Fund Requirements
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on March 2, 1999, 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.
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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
The purpose of the proposed rule change is to provide OCC with the
flexibility to designate certain classes of stock fund options as non-
equity securities options for purposes of determining margin and
clearing fund requirements.\2\
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\2\ The complete text of the proposed rule change is included in
OCC's filing, which is available for inspection and copying at the
Commission's public reference room and through OCC.
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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 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\
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\3\ 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 proposed rule change will permit OCC to designate certain
options on stock funds as non-equity options for purposes of margin and
clearing fund calculations.\4\ The American Stock Exchange lists and
trades stock fund options on certain Standard & Poor's Depository
Receipts (``SPDRs'') and plans to trade options on World Equity
Benchmark Shares (``WEBs'') in the near future. OCC proposes to
continue to treat stock fund options like stock options for the
clearance and settlement purposes because stock fund options are
settled through delivery of the underlying fund shares.
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\4\ OCC previously amended its rules to accommodate options on
instruments such as SPDRs and WEBs and to process, settle and margin
them like options on equity securities. Securities Exchange Act
Release No. 40132 (June 25, 1998), 63 FR 36467 [File No. SR-OCC-97-
02]. In another filing, OCC introduced the term ``stock fund
shares'' and replaced the term ``common stocks'' with the phrase
``equity securities.'' Securities Exchange Act Release No. 40595
(October 23, 1998), 63 FR 58438 [File No. SR-OCC-98-08].
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However, OCC believes that for margin and clearing fund purposes it
would be more logical to treat some stock fund options like non-equity
options because the value of the fund shares more closely correlates to
the value of an underlying index. The proposed rule change will allow
OCC to add such stock fund options to the permissible instruments used
to offset index related positions. OCC believes that such flexibility
will potentially allow OCC to prudently reduce the amount of margin and
clearing fund collateral required to be deposited by clearing members.
Under the proposed rule change, OCC will have the discretion to
designate classes of stock fund options as non-equity options for
margin purposes in order to efficiently process these securities while
effectively managing their risk. When classes of stock fund options are
designated as non-equity securities options contracts, they will be
subject to the margin requirements of
[[Page 36063]]
rule 602 and will be included in the non-equity securities clearing
fund.
When no such designation is made, they will be subject to the
margin requirements of Rule 601. Stock fund options that do not
correlate closely with any index will continue to be treated like stock
options for margin purposes and will not be used to offset short
positions relating to a particular index. However, under Rule 601(c)
and Interpretation .02 to Rule 601, 30% of their value can be used to
reduce a clearing member's equity margin requirement. Such stock fund
options will be included in the stock clearing fund because they fall
within the definition of ``stock option contract'' in Article 1 of
OCC's By-Laws, which would be controlling in the absence of a
designation. OCC intends to provide members its designation of the
stock fund options for margin and clearing fund purposes in information
memoranda made available to all clearing members.
Under the proposed rule change, OCC will amend the definition of
``stock option contract'' within the definition of ``option contract''
in Article 1 of the By-Laws to include stock fund shares. In addition,
a provision will be added to the definition stating that for purposes
of Article VIII of the By-Laws and Chapters VI and X of the Rules, OCC
may designate certain stock fund options as non-equity securities
option contracts. OCC is also adding introductions to Article VIII of
the By-Laws and Chapters VI and X of the Rules which state that OCC may
designate certain stock fund options as non-equity securities options
contracts for purposes of those provisions. Finally, because fund
shares are priced like stocks, new subsection (b)(6)(1) will be added
to Rule 602 to define ``marking price'' for an index share to be its
last reported sale price on its primary market.
OCC believes that the proposed rule changes are consistent with the
requirements of the Section 17A of the Act \5\ and the rules and
regulations thereunder because it promotes the prompt and accurate
clearance and settlement of transactions in stock fund options by
allowing OCC to treat such options like stock options for settlement
purposes but like non-equity options for margin and clearing fund
purposes, as appropriate.
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\5\ 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
material impact 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 \6\ requires that the rules of a
clearing agency be designed to assure the safeguarding of securities
and funds which are in the custody or control of the clearing agency or
for which it is responsible. The Commission finds that the proposed
rule change is consistent with this obligation because it should allow
OCC to more accurately calculate the margin and clearing fund
collateral required to be deposited by clearing members.
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\6\ 15 U.S.C. 78q-1(b)(3)(F).
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The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the publication of notice of
the filing. Approving prior to the thirtieth day after publication of
notice will allow OCC to immediately increase the accuracy of margin
and clearing fund calculations for these hybrid exchange-traded fund
share options.
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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609.
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. All submissions
should refer to File No. SR-OCC-99-02 and should be submitted by July
23, 1999.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\7\ that the proposed rule change (File No. SR-OCC-99-02) be and
hereby is approved.
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\7\ 15 U.S.C. 78s(b)(2).
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-16864 Filed 7-1-99; 8:45 am]
BILLING CODE 8010-01-M