[Federal Register: January 18, 2006 (Volume 71, Number 11)]
[Notices]
[Page 2973-2975]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18ja06-89]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53090; File No. SR-OCC-2005-19]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change Relating to Submission of
Exercise Notices for American Option Contracts Other Than at Expiration
January 10, 2006.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on December 12, 2005, The
Options Clearing Corporation (``OCC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change 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 parties.
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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 Rule 801, which applies to
the submission of exercise notices for American-style option contracts
other than at expiration, to delete specific references as to times
when such exercise notices may be submitted and to instead provide OCC
with the authority to prescribe the time frames for their submission.
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 these
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
The purpose of the proposed rule change is to modify OCC Rule 801,
which applies to the submission of exercise notices for American-style
option contracts other than at expiration, to delete specific
references to the times when such exercise notices may be submitted,
and to instead provide OCC with the authority to prescribe the
timeframes for their submission. Implementing this change would require
additional conforming changes to Rule 801 as described herein.
Rule 801
Rule 801(a) permits a clearing member desiring to exercise an
American-style equity or non-equity option on a business day other than
the business day prior to its expiration to submit an exercise notice
to OCC between 9 a.m. and 7 p.m., provided that an exercise notice for
an American-style currency option must be submitted by 2:30 p.m.\3\
(All times are at Central Time.) Exercise instructions submitted with
respect to equity and non-equity options become irrevocable at 7 p.m.
and 2:30 p.m. in the case of currency options unless modified or
revoked by a clearing member because of a bona fide error by the
clearing member or its customer in accordance with the procedures
prescribed by OCC.
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\3\ Except for short dated options, an American-style option may
not be exercised on the business day prior to its expiration date.
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Rule 801(b) allows the OCC Board of Directors to designate with not
less than seven days' prior written notice to non-equity securities
clearing members a cut-off time earlier than that specified in Rule
801(a) as the deadline for submitting exercise notices with respect to
American-style non-equity option contracts and the time when such
exercise notices become irrevocable.
Subject to specified exceptions and conditions, Rule 801(e) grants
certain OCC employees \4\ the discretion to permit a clearing member to
file, revoke, or modify any exercise notice submitted in accordance
with Rule 801(a) after the 7 p.m. deadline for the purpose of
correcting a bona fide error. One condition is that the requesting
clearing member is liable to OCC for a late filing fee in escalating
increments and time segments. The late filing fee is as follows:
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\4\ Those employees are OCC's Chairman, Management Vice
Chairman, President, or a designee of such officer.
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$2,000 for any request accepted between 7 p.m. and 8 p.m.;
$5,000 for any request accepted between 8:01 p.m. and the
start of critical processing provided that the request does not
materially affect the start of critical processing; and
$20,000 per line item listed on any exercise notice
accepted for filing after the start of critical processing with 50%
[[Page 2974]]
of the fee to be distributed to the assigned clearing member or
clearing members on a pro rata basis if more than one clearing member
is assigned.
Changes to Rule 801
The operational and processing efficiencies gained from real-time
trade submission have prompted the OCC Roundtable \5\ to propose that
OCC advance the 7 p.m. cut-off time for submission of post-trade
instructions, including exercise notices, by clearing members on
regular business days. The Roundtable believes that an earlier deadline
for filing such instructions would further straight-through processing
goals by permitting OCC to move forward the times when it initiates
nightly processing and distributes data to members.
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\5\ The OCC Roundtable is an OCC-sponsored advisory group
comprised of representatives from OCC, a cross-section of clearing
members, participant exchanges, and industry service bureaus. The
Roundtable considers operational improvements that may be made to
increase efficiencies and to lower costs in the options industry.
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Although current discussions have centered on a post-trade
submission cut-off time of 6:30 p.m., the Roundtable has not yet
reached a consensus on a recommended time.\6\ Notwithstanding that
additional discussions are required to determine a new deadline, the
Roundtable has asked OCC to amend Rule 801 to eliminate the requirement
that exercise notices with respect to most American-style options be
submitted between 9 a.m. and 7 p.m. on a business day. In response to
the Roundtable's request and consistent with other OCC rules, OCC
proposes that Rule 801 be amended to permit OCC to specify the times
when such exercise notices may be submitted.\7\ (Such times would be
specified in OCC's operations manual.) Such an amendment would allow
OCC to implement the new deadline for post-trade instructions promptly,
once it is determined, and would give OCC greater flexibility in
responding to future operational and technology developments. OCC also
proposes to make the following conforming changes to Rule 801:
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\6\ A preliminary analysis by OCC staff suggests that fewer than
five clearing members submit exercise notices after 6:30 p.m.
\7\ Under Rule 805, OCC already has the authority to prescribe
deadlines for the submission of exercise instructions for purposes
of expiration date processing.
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Amend Rule 801(a) to eliminate the mandated 2:30 p.m.
deadline for filing exercise notices with respect to currency options.
The deadline would instead be a time specified by OCC (in its
operations manual). While there are no current plans to advance this
deadline, the language of the rule would be changed for consistency and
future flexibility.
Amend Rule 801(a) to provide that the prescribed deadlines
for submitting exercise notices may be changed with not less than 30
days' prior written notice to affected clearing members. This would
ensure that clearing members have sufficient time to adjust their
procedures for submitting exercise notices.
Delete Rule 801(b) which authorizes the Board to advance
the deadline for submitting exercise notices for American-style non-
equity options. The subject matter of Rule 801(b) would be covered by
the changes to Rule 801(a) described above.
Amend Rule 801(e) to restructure portions of the fee
schedule for submitting late requests to file, revoke, or modify
exercise notices. The $2,000 filing fee would be eliminated. The $5,000
filing fee would be applied to all requests accepted after the deadline
specified pursuant to Rule 801(a) but before the start of critical
processing. No change would be made to the filing fee for requests
accepted after the start of critical processing. These proposed changes
would align the filing fee schedule under Rule 801 with the filing fee
schedule for supplementary exercise notices filed under Rule 805 (which
applies to expiration date processing).
* * * * *
OCC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act \8\ and the rules and
regulations thereunder applicable to OCC because it enhances the
efficiency and effectiveness of OCC's procedures for accepting
submissions of exercise notices otherwise than at expiration by giving
OCC the flexibility to designate the applicable time frames and revise
them in response to future operational and technological developments.
The proposed rule change is not inconsistent with the existing rules of
OCC, including any other rules proposed to be amended.
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\8\ 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
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
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 the self-regulatory organization 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. 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 rule-comments@sec.gov. Please include
File Number SR-OCC-2005-19 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 20549-9303.
All submissions should refer to File Number SR-OCC-2005-19. This file
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
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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 filings also will be
available for inspection and copying at the principal office of OCC and
on OCC's Web site, http://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-2005-19 and should be
submitted on or before February 8, 2006.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-463 Filed 1-17-06; 8:45 am]
BILLING CODE 8010-01-P