[Federal Register Volume 65, Number 111 (Thursday, June 8, 2000)]
[Notices]
[Page 36489]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-14408]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42884; File No. SR-OCC-99-16]


Self Regulatory Organizations; The Options Clearing Corporation; 
Order Approving a Proposed Rule Change Relating to Exercises by Put 
Holders During a Shortage of the Underlying Security

June 1, 2000.
    On November 2, 1999, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change (File No. SR-OCC-99-16) pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ Notice of 
the proposal was published in the Federal Register on March 29, 
2000.\2\ On April 10, 2000, OCC filed an amendment to the proposed rule 
change.\3\ No comment letters were received. For the reasons discussed 
below, the Commission is approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 42563 (Mar. 22, 2000), 
65 FR 16679.
    \3\ OCC amended its proposed rule change to extend the proposed 
change to cover foreign currency options and cross-rate foreign 
currency options. Because the amendment made no substantive changes 
to OCC's proposal other than to include additional option products 
OCC clears, republication of notice was not required.
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I. Description

    OCC is amending Article VI, Section 19 of its By-laws to eliminate 
OCC's authority to prohibit exercises by put holders that would be 
unable to deliver the underlying security due to a shortage of the 
underlying security. In lieu thereof, the amended By-laws give OCC the 
right to suspend settlement until it can determine whether the 
unavailability of the underlying stock will extend past the option 
expiration date and upon making that determination to take the 
appropriate action under Article VI, Section 19(b) or (c). Thus, the 
rule change allows OCC to protect the benefit of the put holder's 
bargain and to treat puts and calls equally when there is a shortage of 
the underlying securities.
    A similar change will be made to Article XV, Section 3 and Article 
XX, Section 3 with respect to dollar-denominated and cross-rate foreign 
currency options by deleting Article XV, Section 3 (b)(2) and Article 
XX, Section 3(b)(2). The deletions will conform the treatment of 
foreign currency puts to the treatment of equity puts by eliminating 
OCC's authority to prohibit exercises by put holders who would be 
unable to deliver the underlying interest. OCC already has the 
authority to fix cash settlement prices for foreign currency puts in 
appropriate circumstances.
    Finally, Article XXIV, Section 5 of OCC's By-laws, which relates to 
buy-write options unitary derivatives (BOUNDs),\4\ has been amended to 
conform OCC's treatment of BOUNDs put holders in shortage situations 
with its treatment of equity and foreign currency options holders in 
similar situations.
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    \4\ See Securities Exchange Act Release No. 37603 (Aug. 26, 
1996) 61 FR 46500 (Sept. 3, 1996), for amendments to OCC's By-laws 
and Rules to provide for the issuance, clearance, and settlement of 
BOUNDs.
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II. Discussion

    Section 17A(b)(3)(F) \5\ of the Act requires that the rules of a 
clearing agency not be designed to permit unfair discrimination among 
participants in the use of the clearing agency. The Commission finds 
that OCC's rule change is consistent with OCC's obligation under the 
Act because it amends OCC's rules so that put and call holders are 
treated similarly when there is a shortage of the underlying security.
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    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with 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-99-16) be, and hereby 
is, approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-14408 Filed 6-7-00; 8:45 am]
BILLING CODE 8010-01-M