[Federal Register: November 17, 2006 (Volume 71, Number 222)]
[Notices]
[Page 67004-67005]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17no06-93]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54721; File No. SR-OCC-2006-10]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of a Proposed Rule Change Relating to Cash-Settled
Foreign Currency Options
November 8, 2006.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on June 8, 2006, The Options
Clearing Corporation (``OCC'') filed with the Securities and Exchange
Commission (``Commission'') and on October 26, 2006, 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 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 enable OCC to accommodate a request
from the Philadelphia Stock Exchange, Inc. (``Phlx'') that OCC clear
and settle cash-settled foreign currency options (``Cash-Settled
FCOs'').
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
The purpose of the proposed rule change is to enable OCC to
accommodate a request from the Philadelphia Stock Exchange, Inc.
(``Phlx'') that OCC clear and settle Cash-Settled FCOs. OCC's By-Laws
and Rules currently provide for the clearance and settlement of Cash-
Settled FCOs although no such options are currently traded, but changes
to OCC's By-Laws are needed in connection with the Cash-Settled FCOs
proposed to be traded by Phlx.\3\ The first change is to reflect the
different expiration date of the Cash-Settled FCOs as compared with the
date provided for in OCC's By-Laws. The definition of ``expiration
date'' in Article XXII, Section 1 of OCC's By-Laws provides that Cash-
Settled FCOs generally expire on the Monday specified by the relevant
exchange at or before trading begins. To accommodate the Cash-Settled
FCOs proposed to be traded by Phlx, the definition will need to be
amended to provide for an expiration date of the Saturday following the
third Friday of the expiration month, which is the same as the
expiration date for equity and index options. OCC is also proposing to
provide for expirations on such other dates as an exchange may
determine, which is consistent with the definition of ``expiration
date'' applicable to index options. The next proposed change, to
Article VI, Section 22 of OCC's By-Laws, is intended to make it clear
that Cash-Settled FCOs will not clear through OCC's International
Clearing System.\4\
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\3\ For a description of the Phlx proposed rule change, see
Securities Exchange Act Release No. 54652 (October 26, 2006) 71 FR
64597 (November 2, 2006) [File No. SR-Phlx-2006-34].
\4\ Interpretation .02 under Article VI, Section 22 of OCC's By-
Laws currently provides, ``All classes of foreign currency options
and cross-rate foreign currency options are cleared through ICS.''
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[[Page 67005]]
OCC amended the proposed rule change on October 26, 2006, to
propose amending Article XXII, Section 4 of OCC's By-Laws to conform
the provisions relating to unavailability or inaccuracy of the spot
price for Cash-Settled FCOs to the comparable provisions of Article
XVII of OCC's By-Laws relating to the unavailability or inaccuracy of
the current index value or other value or price used to determine the
exercise settlement amount for index options. The primary conforming
changes are the proposed addition of procedures under which the
exercise settlement amount would be established by an adjustment panel
in the event of the unavailability or inaccuracy of the spot price and
a modification of normal expiration date exercise procedures in
situations in which the adjustment panel delays the fixing of the
exercise settlement amount beyond the last trading day for the affected
series.
This amendment also proposes to amend Rule 2302 of OCC's Rules in
connection with a change in the expiration date exercise procedures for
Cash-Settled FCOs. As originally filed, the rules for Cash-Settled FCOs
would have provided for true automatic exercise without the opportunity
for clearing members to give non-exercise instructions. Phlx has
subsequently informed OCC that Cash-Settled FCOs should be subject to
the same ``exercise-by-exception'' procedures that apply to many other
OCC-issued options. Under ``exercise-by-exception'' procedures, a Cash-
Settled FCO would be deemed to be exercised at expiration if the
exercise settlement value is at least $1.00 per contract unless the
clearing member instructs OCC not to exercise it. OCC is also proposing
to add an interpretation to Rule 2302 to note that the normal
expiration date exercise procedures do not apply in circumstances in
which the fixing of the exercise settlement amount is delayed beyond
the last trading day before expiration of cash-settled foreign currency
options.
OCC believes that the proposed rule change is consistent with
Section 17A of the Act because it is designed to promote the prompt and
accurate clearance and settlement of derivative transactions in Cash-
Settled FCOs, to foster cooperation and coordination with persons
engaged in the clearance and settlement of such transactions, to remove
impediments to and perfect the mechanism of a national system for the
prompt and accurate clearance and settlement of such transactions, and,
in general, protect investors and the public interest.
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 35 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 90 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 the 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-2006-10 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-2006-10. 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 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 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-2006-10
and should be submitted on or before December 8, 2006.
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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Nancy M. Morris,
Secretary.
[FR Doc. E6-19419 Filed 11-16-06; 8:45 am]
BILLING CODE 8011-01-P