31036 Federal Register / Vol. 65, No. 94 / Monday, May 15, 2000 / Notices

substitutions because: (i) affiliations among the

Applicants do not rise solely by reason of having

common investment advisers, director and/officers;

and (ii) the contemplated redemptions and

subsequent purchases of shares of IGIF may be

effected in-kind and not for cash.

1 15 U.S.C. 78s(b)(1).

2Securities Exchange Act Release No. 42575

(March 24, 2000), 65 FR 17328.

3Section 4 sets forth OCC’s procedures for

establishing the exercise settlement value for an

index option when the current value for the index

is unavailable or inaccurate.

4The rule change will only apply to series of

index options introduced after the later of: (1) The

date of the Commission’s approval of this rule filing

or (2) the date specified in a new Options

Disclosure document or supplement thereto that

discloses the substance of this rule change.

5OCC By-laws, Article XVII, Section 4(a)(2).

6For example, CME Rule 4003 states. ‘‘[I]f the

New York Stock Exchange (NYSE) does not open

on the day scheduled for the determination of the

Final Settlement Price [of S&P 500 index futures],

then the NYSE-stock component of the Final

Settlement Price shall be based on the next opening

prices of NYSE stocks.’’

17. Accordingly, Applicants request

an order of the Commission pursuant to

Section 17(b) of the Act to permit the

substitutions and related transactions

described in this application.

Applicants submit the proposed

substitutions are consistent with the

policies of each of the Applicant

separate accounts and the Underlying

Funds and with the general purposes of

the Act.

18. Applicants assert that the

Commission, in recent years, has issued

several orders pursuant to Sections

17(b) and 26(b) of the Act under

circumstances similar to those

presented in their application, each of

which provides substantial precedent

for the relief requested by this

application. Applicants submit that

these orders involved transactions in

which registered separate accounts that

serve as funding vehicles for variable

contract were permitted to substitute, by

means of in-kind redemptions and

subsequent purchases, shares of one

mutual fund for shares and another

affiliated mutual fund. Applicants state

that certain of the transactions also were

followed by a consolidation of the

underlying sub-accounts. Applicants

maintain that these orders were

conditioned on certain representations

by the respective applicants, which they

believe appear to fall into five

categories:

(i) The funds to be substituted have

objectives, policies and restrictions

sufficiently similar to the objective of

the replaced funds so that the policy

owners objectives can continue to be

met;

(ii) Variable contract owners would be

given sufficient notice of information

about the substitutions and an

opportunity to ‘‘opt out’’ of the

substitution and transfer their policy

values, without charge, to any other

investment option available under the

policy held;

(iii) Substitutions would take place at

relative net asset value and without the

imposition of any additional expense or

charge, such that no change in the

amount of any variable contract

owners’s investment or expenses would

result;

(iv) Neither the rights of variable

contract owners, nor the obligations of

applicant insurance companies under

the variable contract would be altered as

a result of the substitutions; and

(v) All necessary regulatory

requirements would be satisfied prior to

the effective date of the substitutions,

including compliance with applicable

insurance law and the issuance of the

Commission’s order approving the

substitution.

Applicants represent that the facts

and circumstances underlying their

application meet each of the conditions

listed in (i) through (v) above and are

sufficient to assure that the substitutions

and any subsequent account

combination will be carried out in a

manner that is consistent with Sections

17(b) and 26(a) of the Act.

19. Applicants request that the

Commission issue an order pursuant to

Section 17(b) of the Act exempting them

from the provisions of Section 17(a) of

the Act to the extent necessary to permit

the Applicant insurance companies to

carry out the substitution transactions

described herein. The Applicants

represent that, for all the reasons stated

above, the terms of the proposed

substitutions as set forth herein,

including any consideration to be paid

and received, are reasonable and fair

and do not involve overreaching on the

part of any person concerned.

Furthermore, the Applicants represent

that the proposed substitutions will be

consistent with the policies of the

Applicant insurance companies and the

Underlying Funds as stated in the

current registration statement and

reports filed under the Act by each and

with the general purposes of the Act.

Conclusion

Applicants submit that for the reasons

and upon the facts set forth above, the

requested order of approval pursuant to

Section 26(b) and the requested order

granting exemptive relief pursuant to

Section 17(b) should be granted.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–12132 Filed 5–12–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42769; File No. SR–OCC–

00–01]

Self-Regulatory Organizations; The

Options Clearing Corporation; Order

Approving a Proposed Rule Change

Relating to Exercise Settlement Values

for Expiring Index Options

May 9, 2000.

On January 19, 2000, The Options

Clearing Corporation (‘‘OCC’’) filed with

the Securities and Exchange

Commission (‘‘Commission’’) a

proposed rule change (File No. SR–

OCC–00–01) pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) and on March 14, 2000,

amended the proposed rule change.1

Notice of the proposal was published in

the Federal Register on March 31,

2000.2 No comments letters were

received. For the reasons discussed

below, the Commission is approving the

proposed rule change.

I. Description

The proposed rule change adds new

subparagraph (3) to Article XVII,

Section 4 of OCC’s By-Laws 3 to allow

OCC to establish the exercise settlement

value for expiring index options in

conformity with the establishment of

the final settlement value for related

index futures and options on index

futures when the primary market(s) for

one or more component securities of the

index is closed on the last trading day

before expiration.4 OCC’s current

method for setting the exercise

settlement amount for an underlying

index when the primary market(s) for

securities representing a substantial

portion of the value of the index are

closed on the last trading day before

expiration is to use the reported level of

the underlying index at the close of

trading on the last preceding day for

which a closing index level was

reported.5

However, the valuation method that

would be used by the Chicago

Mercantile Exchange (‘‘CME’’) is to set

the settlement value for index futures

whenever the primary market for a

single component stock of the index is

closed the last trading day before

expiration. In such a situation, CME

would determine the settlement value of

the index by using the reported opening

values for index stocks affected by the

closing when the primary market(s) for

such stocks reports.6 The use of

Federal Register / Vol. 65, No. 94 / Monday, May 15, 2000 / Notices 31037

7For example, many market participants use

trading strategies whereby they trade index options

and index futures based on the expectation that the

settlement values will have a predictable

relationship.

8 15 U.S.C. 78q–1(a)(1)(D).

9 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

different dates and hence potentially

different index values for fixing the final

settlement values for options and

futures on the same index creates

uncertainty and risk.7 Therefore, OCC is

amending its By-Laws so that if the

primary market(s) for one or more

component securities of an index does

not open for trading on the last trading

day before expiration of a series of

options on the index, an adjustment

panel acting pursuant to Article XVII

may fix the exercise settlement amount

for such options by using the opening

prices of the affected security or

securities when the primary market

reopens.

OCC also is amending Article XVII to

make clear that (1) OCC has the

discretion to determine which market is

a security’s primary market and (2)

when OCC fixes a settlement price

based on an index level at the close of

trading, the price will be fixed based on

the index level at the close of regular

trading hours, as determined by OCC.

II. Discussion

In Section 17A, Congress stated its

finding that the development of uniform

standards and procedures for clearance

and settlement will reduce unnecessary

costs and increase the protection of

investors and persons facilitating

transactions by and acting on behalf of

investors. Congress then directed the

Commission to facilitate the

establishment of coordinated facilities

for the clearance and settlement of

transactions in securities, securities

options, futures, and options on

futures.8 The Commission believes that

the approval of OCC’s rule change is in

line with this finding and directive of

Congress. The current practice of using

different dates and hence potentially

different index values for fixing the final

settlement values for options and

futures on the same index has the

potential to create uncertainty and risks

for many market participants. This risk

should be minimized by OCC’s new

procedure which will allow OCC to

conform its method of establishing the

expiration settlement value for index

options with that used for establishing

the final settlement price for related

index futures and options on index

futures.

III. Conclusion

On the basis of the foregoing, the

Commission finds that the proposal is

consistent with the requirements of the

Act and in particular with the

requirements of Section 17A of the Act

and the rules and regulations

thereunder.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act, that the

proposed rule change (File No. SR–

OCC–00–01) be and hereby is approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–12134 Filed 5–12–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42764; File No. SR–PHLX–

00–06]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the Philadelphia Stock

Exchange, Inc. Relating to Giving

Preference to Options Specialist Units

Which Resign From Option Trading

Privileges in the Best Interest of the

Exchange in Future Allocation

Decisions Regarding Such Options

May 8, 2000.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’) 1 and Rule 19b–4 thereunder,1

notice is hereby given that on February

1, 2000, the Philadelphia Stock

Exchange, Inc. (‘‘Phlx’’ or ‘‘Exchange’’)

filed with the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

the proposed rule change as described

in Items I and II below, which Items

have been prepared by the Exchange.

The Commission is publishing this

notice to solicit comments on the

proposed rule change from interested

persons. For the reasons discussed

below, the Commission is granting

accelerated approval of the proposed

rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

Phlx proposes new Rule 513,

Voluntary Resignation of Options

Privileges, which provides that when an

option specialist unit voluntarily resigns

from trading privileges in an option in

the best interest of the Exchange, the

option specialist unit which last traded

that option will be given preference in

any future allocation decision regarding

that option, barring any performance or

disciplinary issues. The text of the

proposed rule is as follows:

Voluntary Resignation of Options

Privileges

Rule 513. (a) If an option specialist

unit voluntarily resigns from

registration in a particular option and

the Committee determines such

resignation to be in the best interest of

the Exchange, and that option is

subsequently delisted, barring any

specialist performance or disciplinary

issues, the option specialist unit which

last traded that option will be given

preference in any future allocation

decision regarding that option.

(b) The preference set forth in Section

(a) of this rule shall be in effect for a

period of one year from the date of

resignation from trading privileges by

the specialist unit.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

Phlx 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 III below. The Exchange has

prepared summaries, set forth in

Sections A, B, and C below, of the most

significant aspects of such statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

Currently, the Exchange and the

Options Price Reporting Authority

(‘‘OPRA’’) have serious concerns

regarding mitigation of quote traffic and

maximizing computer capacity. To

address those concerns, proposed Rule

513 is intended to provide incentive for

options specialists to create more

computer capacity by resigning from

relatively low volume/high quote traffic

options. To provide that incentive,

proposed Rule 513 states that the

specialist unit which last traded that

option will be given preference in any

future allocation decision regarding that

option.

Mitigation of excessive quote traffic

and concomitant preservation of

computer capacity is currently an

industry-wide concern, and the

Exchange believes that a preference

provision such as the one contemplated