[Federal Register Volume 67, Number 110 (Friday, June 7, 2002)]
[Notices]
[Pages 39461-39462]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-14300]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-45993; File No. SR-OCC-2002-05]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating to Closing Values for Index Options
May 29, 2002.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on March 4, 2002, The Options
Clearing Corporation (``OCC'') filed with the Securities and Exchange
Commission (``Commission'') 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 from interested persons.
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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 proposed rule change would amend OCC's Rule 1804 to authorize
OCC if it cannot obtain a closing value for an underlying index on the
last trading day before expiration to fix a closing price for an index
for exercise by exceptions purposes on whatever basis it deems
appropriate, including using the most recent index value available.
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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[[Page 39462]]
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
OCC proposes amend the term ``closing price'' as defined in Rule
1804, which sets forth the ``exercise by exception'' processing
procedure for index options. Exercise by exception is the procedure by
which options that are in the money at expiration by more than a
specified amount are exercised unless the clearing member carrying the
position directs otherwise and options that are in the money by less
than the specified amount are not exercised unless the carrying
clearing member directs otherwise. An option is considered in the money
for exercise by exception processing if the ``closing price'' of the
underlying interest at expiration is more (in the case of a call) or
less (in the case of a put) than the option's exercise price.
The term ``closing price'' \3\ is defined for underlying securities
by Rule 805 and for underlying indexes by Rule 1804. Rule 805 generally
sets forth OCC's expiration date exercise procedures, including
exercise by exception rules for equity options. In 1999, Rule 805 was
amended to provide that if an underlying security did not trade on its
primary market on the last trading day before expiration or if it did
trade but OCC was unable to obtain a closing price, OCC could choose to
exercise its discretion to fix a closing price on whatever basis it
deemed appropriate including using the last sale price on the most
recent trading day for which a price was available.\4\ However, no
parallel change was made to Rule 1804.
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\3\ The closing price of an underlying equity is normally the
last reported sale price on the OCC-designated primary market on the
last trading day before expiration. The closing price of an index is
the index level at the close of trading on the last trading day
before expiration.
\4\ Securities Exchange Act Release No. 41089 (February 23,
1999), 64 FR 10051 [File No. SR-OCC-98-14].
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If there is no reported closing value for an underlying index on
the last trading day before expiration, there is no ``closing price''
for that index for exercise by exception purposes. This result could
create operational problems for clearing members and other securities
firms whose customer agreements contain provisions that expiring
options will be exercised only if OCC's closing price for the
underlying interest exceeds (in the case of a call) or is less than (in
the case of a put) the exercise price by the OCC specified threshold
(unless a customer instructs otherwise). Accordingly, the proposed
modifications to Rule 1804 authorize OCC to fix a ``closing price'' for
an underlying index on whatever basis it deems appropriate (including
using the most recent index value available) if a closing value is not
reported to or obtainable by OCC on the trading day preceding
expiration. This change gives OCC the same authority to fix a closing
price for index options as it has for equity options under Rule 805.
OCC believes that the proposed rule change is consistent with the
purposes and requirements of section 17A of the Act because it promotes
the prompt clearance and settlement of expiring index options.
(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
The foregoing rule change has become effective pursuant to section
19(b)(3)(A)(i) of the Act \5\ and Rule 19b-4(f)(1) \6\ promulgated
thereunder because the proposal constitutes a stated policy, practice,
or interpretation with respect to the meaning, administration, or
enforcement of an existing rule of OCC. At any time within sixty days
of the filing of the proposed rule change, the Commission may summarily
abrogate such rule change if it appears to the Commission that such
action is necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes of
the Act.
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\5\ 15 U.S.C. 78s(b)(3)(A)(ii).
\6\ 17 CFR 240.19b-4(f)(2).
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VI. 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 will also be available for
inspection and copying at the principal office of OCC. All submissions
should refer to the File No. SR-OCC-2002-05 and should be submitted by
June 28, 2002.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-14300 Filed 6-6-02; 8:45 am]
BILLING CODE 8010-01-P