[Federal Register Volume 71, Number 160 (Friday, August 18, 2006)]
[Notices]
[Pages 47854-47856]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-13617]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54305; File No. SR-OCC-2006-11]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating to Quarterly Options
August 11, 2006.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on June 23, 2006, 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. OCC filed the proposed rule change pursuant to Section 19(b)(3)(A)
of the Act \2\ whereby the proposal was effective upon filing with the
Commission. 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).
\2\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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 By-Laws and Rules to
accommodate ``quarterly options'' (i.e., a series of options or index
options that expires on the last business day of the calendar quarter)
which have been proposed for trading by the International Securities
Exchange (``ISE'').
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 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
Quarterly options in general have the same terms as conventional
options
[[Page 47855]]
except that (a) quarterly options expire on the last business day of a
calendar quarter and (b) all quarterly index options would be settled
based on the level of the underlying index at the close on the day of
exercise (``P.M. Settled'') rather than the level of the index at the
opening on that day (``A.M. Settled''). In addition, certain
modifications in exercise procedures are necessary to accommodate the
business day expiration of quarterly options.
Because of concerns with quoting capacity, ISE filed and the
Commission has approved a proposed rule change that allows ISE to list
quarterly options under a pilot program that is limited both in
duration and in the number of classes of quarterly options that may
trade.\4\ Specifically, for an initial one-year period following the
first trade date (``Pilot Period'') ISE would list series of quarterly
options in (a) up to five options classes already listed on ISE that
are either (i) index options or (ii) options on exchange traded funds
and (b) options classes that are selected by any other exchanges that
list quarterly options under a similar pilot program. If ISE decides to
continue to list quarterly options at the end of the Pilot Period, ISE
would have to file an additional rule filing with the Commission as
well as a pilot program report analyzing a variety of data, including
the impact of the pilot program on the capacity of ISE, the Options
Price Reporting Authority, and market data vendors. If ISE decides to
cease listing quarterly options at the end of the Pilot Period or if
the Commission were to refuse to approve a rule change permitting
quarterly options to continue to trade, ISE would not list any
additional series and would permit only closing transactions in open
series.
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\4\ Securities Exchange Act Release Nos. 53857 (June 1, 2006),
71 FR 31246 (May 24, 2006) and 54113 (July 7, 2006), 71 FR 39694
(July 13, 2006) [File No. SR-ISE-2006-24].
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ISE notes in its filing that there is a risk of confusion with
respect to quarterly options series and other options in the same
class. The risk of confusion is lessened with respect to conventional
options because those options cannot expire in the same week as
quarterly options. However, short term options, which are one-week
options that normally are listed on a Friday and expire on the next
following Friday, could expire on the same day as quarterly options. In
order to lessen the likelihood of confusion with respect to short term
options and quarterly options in the same class, ISE will not list a
series of short term options if that series would expire on the same
date as a series of quarterly options in the same class.\5\ Because of
their differing expiration dates, quarterly options are not be fungible
with conventional options or short term options.
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\5\ Supplementary Material .02(b) to ISE Rule 2009.
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Because quarterly options differ from conventional options and
short term options only in their expiration date, the P.M. settlement
feature of quarterly index options, and other modifications relating to
business day expiration, quarterly options can be cleared and settled
by OCC with relatively minor revisions to OCC's By-Laws and Rules. A
new defined term for ``quarterly options'' is added to Article I of the
By-Laws, and the definition of ``expiration date'' in that Article is
amended to clarify that quarterly options do not expire on the same
date as conventional options. Rules 801 and 805 are amended to include
quarterly options among the exceptions to the general rule that options
may not be exercised on the business day before their expiration date.
Rules 801 and 1804 are amended to provide for the automatic exercise of
quarterly index options when those options are in-the-money by a
specified amount. Finally, a reference in Article XVII to ``quarterly
index expiration options'' or ``QIX,'' which are no longer traded, has
been removed to avoid confusion. A conforming reference to short term
options has been added to Rule 801(b) to provide clarity that such
options on indexes are subject to automatic exercise, as presently
provided in Rule 1804(c).
OCC believes that the proposed rule change is consistent with the
purposes and requirements of Section 17A of the Act because it is
designed to promote the prompt and accurate clearance and settlement of
securities transactions, to foster cooperation and coordination with
persons engaged in the clearance and settlement of securities
transactions, to remove impediments to and perfect the mechanism of a
national system for the prompt and accurate clearance and settlement of
securities transactions, and, in general, to protect investors and the
public interest. The proposed changes promote these objectives by
applying to quarterly options the same basic governing principles that
are applicable to other classes of options. The proposed changes are
not inconsistent with the existing By-Laws and rules of OCC, including
those proposed to be amended.
(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)(iii) of the Act \6\ and Rule 19b-4(f)(4) \7\ promulgated
thereunder because the proposal effects a change in an existing service
of OCC that (A) does not adversely affect the safeguarding of
securities or funds in the custody or control of OCC or for which it is
responsible and (B) does not significantly affect the respective rights
or obligations of OCC or persons using the service. 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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\6\ 15 U.S.C. 78s(b)(3)(A)(iii).
\7\ 17 CFR 240.19b-4(f)(4).
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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. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml) or
Send an e-mail to [email protected]. Please include
File Number SR-OCC-2006-11 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2006-11. This
file
[[Page 47856]]
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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, 100 F Street,
NE., Washington, DC 20549. Copies of such filing also will be available
for inspection and copying at the principal office of OCC and on OCC's
Web site at www.optionsclearing.com.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-OCC-2006-11
and should be submitted on or before September 8, 2006.
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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Nancy M. Morris,
Secretary.
[FR Doc. E6-13617 Filed 8-17-06; 8:45 am]
BILLING CODE 8010-01-P