[Federal Register Volume 63, Number 214 (Thursday, November 5, 1998)]
[Notices]
[Pages 59834-59835]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29623]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40624; File No. SR-OCC-98-06]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of a Proposed Rule Change Relating to Market
Coordination in the Application of Circuit Breakers
October 30, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on June 9, 1998, The Options
Clearing Corporation (``OCC'') filed with the Securities and Exchange
Commission (``Commission'') and on July 23, 1998 and October 27, 1998,
amended the proposed rule change 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.
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\1\ 15 U.S.C. 78s(b)(1).
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[[Page 59835]]
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The proposed rule change would provide OCC with the authority to
adjust margin requirements with respect to cross-margined accounts in
the event of an asynchronized application of circuit breakers by the
securities and futures exchanges.
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.\2\
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\2\ 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
OCC believes there are no assurances that the application of
trading halts or ``circuit breakers'' will be coordinated among the
securities markets and the stock index futures markets. According to
OCC, the securities markets could reopen after a significant market
decline while trading in stock index futures remained halted. A a
result, OCC believes that the closing prices used by the futures
markets to determine variation margin on index futures and the closing
prices of futures options may lose their theoretical relationship to
the closing prices of related index option contracts. Under such
circumstances OCC's margin calculation for cross-margined accounts may
either overestimate or underestimate the actual risk of the cross-
margined positions.
Under the proposed rule change, OCC will have plenary authority to
take whatever actions that it deems appropriate to adjust margins with
respect to cross-margined accounts when futures and options markets
have become delinked as a result of an asynchronized application of
circuit breakers in the futures and securities options markets.
OCC has submitted comments regarding asynchronized application of
circuit breakers to the Commission with respect to the amendments to
New York Stock Exchange (``NYSE'') Rule 80B.\3\ In its comment letter,
OCC noted that the amended Rule 80B would permit the securities markets
to reopen after a trading halt and continue to trade in the range of
twenty to thirty percent down while the rules of the Chicago Mercantile
Exchange (``CME'') would not permit index futures contracts to trade
below twenty percent down. Moreover, OCC noted that CME variation
settlements would be based on the limit price, potentially resulting in
inconsistent closing prices in the two markets.
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\3\ Securities Exchange Act Release No. 39846 (April 9, 1998),
63 FR 18477 (April 15, 1998) (order approving NYSE's proposed rule
change). OCC's comment letter is attached to OCC's filing of this
proposed rule change which is available for inspection and copying
at the Commission's Public Reference Room and through OCC.
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As a result of the potentially disparate application of the circuit
breaker rules, OCC believes that it is necessary to have the authority
to address as best it can the distortions in risk calculations and
settlement values that could result with respect to cross-margined
accounts. OCC believes that it has been able to identify certain
actions it might take in the exercise of its authority. However, OCC
also believes that it is presently unable to ascertain each and every
type of action that it might need to take in the event of asynchronized
application of circuit breakers.
OCC believes that the proposed rule change is consistent with the
purposes and requirements of Section 17A of the Act \4\ in that it is
designed to address the potential problems caused by a lack of
coordination among markets in the application of circuit breakers. OCC
believes that the authority to address distortions in risk calculation
and settlement values when there is an asynchronized application of
circuit breakers should promote the protection of investors and the
safety of the national system for the clearance and settlement of
securities transactions.
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\4\ 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
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, 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.
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. Sec. 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-98-06 and should be submitted by
November 27, 1998.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-29623 Filed 11-4-98; 8:45 am]
BILLING CODE 8010-01-M