[Federal Register Volume 63, Number 242 (Thursday, December 17, 1998)]
[Notices]
[Pages 69703-69704]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33362]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40779; File No. SR-OCC-98-13]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Order Granting Accelerated Approval of a Proposed
Rule Change Clarifying Adjustment and Settlement Procedures for
Currency Related Options Relating to the Euro
December 10, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on October 28, 1998, 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.
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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 clarify OCC's
adjustment and settlement procedures for currency related options in
anticipation of the European Union conversion to the euro, which is
scheduled to be effective January 1, 1999.
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 parts of these statements.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
On January 1, 1999, the European Union is scheduled to introduce
the euro which will replace the national currencies of the eleven
countries which currently qualify for inclusion in European Monetary
Union. On January 1, 1999, these eleven countries will begin to use the
euro along with their existing currencies (``legacy currencies''). At
that point, the legacy currencies will become units of the euro and
will continue to constitute legal tender in their respective countries
of origin until 2002. In 2002, the legacy currencies will cease to be
units of the euro, and the euro will be the sole medium of exchange of
the participating member states.
The legacy currencies include four that are trading currencies or
underlying currencies in the Philadelphia Stock Exchange's (``PHLX'')
currency options market. They are the French franc, German mark,
Italian lira, and Spanish peseta. On January 1, 1999, the European
currency unit (``ECU'') will be converted on a one-to-one basis into
the euro, and the current PHLX ECU option contract will be adjusted to
call for delivery of euros.
PHLX has advised OCC that effective January 1, 1999, it will also
begin to trade currency options with the euro as the underlying or
trading currency. PHLX also has indicated that it will permit
additional contracts with legacy currencies as the underlying or
trading currency to be listed for a limited period after January 1,
1999. Current open interest in legacy currency contracts will extend to
July 1999.
OCC will continue to identify all existing legacy contracts in
reports and in settlement instructions. OCC will continue to effect its
settlements in legacy currency but will allow members to elect to
delivery either legacy currency or the euro equivalent to meet
settlement obligations. Each legacy currency will have a fixed
conversion to the euro. Because OCC will continue to deliver legacy
currency, members that wish to receive euros will be required to notify
their agent banks to convert legacy currency into euros. Banks will be
required to convert legacy currency into euros, and vice versa, at no
cost to members.
OCC's by-laws currently provide for adjustments of the terms of
outstanding options if the country of origin of the trading currency or
the underlying currency (i) issues a new currency intended to replace
its existing currency
[[Page 69704]]
or (ii) alters the exchange rate or exchange characteristics of its
currency. Euros, however, will not be issued by the countries of origin
of the currencies that they replace.
The proposed rule change clarifies that when a trading currency or
an underlying currency is replaced, affected options may be adjusted
whether or not the replacement currency is issued by the country of
origin of the replaced currency. Similarly, the rule change clarifies
that when a currency's exchange rate or exchange characteristics are
officially altered, affected options may be adjusted whether or not the
alteration is made by the currency's country of origin.
The proposed rule change also amends OCC's by-laws and rules
applicable to the settlement of currency related options to accommodate
the introduction of the euro. As described above, OCC will continue to
use legacy currencies during the euro transition period. The proposed
rule change authorizes members to deliver euros in lieu of the legacy
currencies during the transition period specified by the European Union
provided that the euros are delivered to the OCC agency bank that would
have received the specified legacy currency. OCC's agent banks will
determine if the amount of euros delivered is equivalent (based on the
official conversion rate) to the amount of legacy currency called for
in OCC's settlement instruction. OCC will not permit members to net
obligations to deliver euros under any new euro-denominated contracts
against obligations to receive legacy currencies or vice versa as such
netting would be inconsistent with OCC's credit arrangements.
OCC's rules currently provide that Belgium is the country of origin
for delivery of ECUs unless OCC specifies otherwise. The proposed rule
change similarly specifies Germany as the country of origin for
delivery of the euros unless OCC otherwise directs. OCC is also
authorized to elect to receive euros through a multi-currency account
outside the specified country of origin.
OCC believes that the proposed rule change is consistent with the
requirements of Section 17A because it clarifies OCC's authority to
adjust outstanding foreign currency options in the event that the
European Union converts to the euro and to prescribe the procedures for
settlement in euros.\3\
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\3\ 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 will 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) \4\ requires that the rules of a clearing
agency be designed to promote the prompt and accurate clearance and
settlement of securities transactions. The Commission believes that
OCC's rule change is consistent with OCC's obligations under Section
17A(b)(3)(F) because it clarifies the adjustment and settlement
procedures applicable to currency-related options in anticipation of
the European Union's scheduled conversion to the euro. This
clarification of procedures should help increase the number of
transactions which settle promptly and on a timely basis during the
euro transition period.
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\4\ 15 U.S.C. 78q-1(b)(3)(F).
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OCC has requested that the Commission find good cause for approving
the proposed rule change prior to the thirtieth day after the date of
publication of notice of the filing. Because the European Union is
scheduled to introduce the euro on January 1, 1999, the Commission
finds good cause for approving the proposed rule change prior to the
thirtieth day after the date of publication of notice of filing.
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, N.W., Washington, D.C. 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, N.W.,
Washington, D.C. 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 No. SR-OCC-98-13 and should be
submitted by January 7, 1999.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-OCC-98-13) be and hereby is
approved on an accelerated basis.
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. 98-33362 Filed 12-16-98; 8:45 am]
BILLING CODE 8010-01-M