Federal Register / Vol. 63, No. 140 /Wednesday, July 22, 1998 / Notices 39335

5 15 U.S.C. 78q–1(b)(3)(F).

6 17 CFR 200.30–3(a)(12).

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

2The Commission has modified the text of the

summaries prepared by OCC.

3The complete text of the amendments was

submitted with OCC’s rule filing and is available for

inspection and copying at the Commission’s Public

Reference Room and through OCC.

II Discussion

Section 17A(b)(3)(F) of the Act 5

requires that the rules of a clearing

agency be designed to assure the

safeguarding of securities and funds

which are in its custody or control or for

which it is responsible. The

Commission believes that the proposed

rule change is consistent with OCC’s

obligations under the Act because the

proposed rule change increases the

effectiveness of OCC’s financial

surveillance of its clearing members in

situations where the clearing member’s

net capital falls below that level

required by its futures clearing

organization.

Many of OCC’s clearing members are

also registered as FCMs under the

Commodity Exchange Act and as such

are subject to the financial reporting

requirements and the early warning

notice requirements of the Commodity

Futures Trading Commission and of

commodity DSROs. Because of

differences in the initial and ongoing

minimum net capital requirements used

by the commodity regulatory

organizations and those used by the

securities regulatory organizations, a

clearing member could fail to meet the

net capital requirements of its DSRO

and still satisfy the net capital

requirements established by OCC.

Consequently, a situation could occur

where an FCM clearing member is

required to give early warning notice to

its commodity regulatory authority but

nothing currently would require the

clearing member to give notice to OCC.

As a result, OCC could continue to clear

trades without notice for a clearing

member that may or may not be able to

satisfy its financial obligations.

Therefore, requiring a clearing

member to satisfy the higher applicable

net capital standard and to provide OCC

with early warning notices when it fails

to meet the net capital requirements set

by its DSRO or by OCC should assist

OCC in assessing the ongoing

creditworthiness of its clearing members

and also should help OCC to safeguard

securities and funds in OCC’s custody

or control.

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–97–12) be and hereby is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority. 6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–19437 Filed 7–21–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40209; File No. SR–OCC–

97–13]

Self-Regulatory Organizations; The

Options Clearing Corporation; Notice

of Filing and Order Granting

Accelerated Approval of a Proposed

Rule Change Relating to Adjustments

to Exercise Prices

July 15, 1998.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

September 22, 1997, the Options

Clearing Corporation (‘‘CCC’’) filed with

the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change (File No. SR–

OCC–97–13) as described in Items I and

II below, which items have been

prepared primarily by OCC. The

Commission is publishing this notice

and order to solicit comments on the

proposed rule change from interested

persons and to grant accelerated

approval of the proposal.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The purpose of the proposed rule

change is to amend OCC’s by-laws

regarding the adjustment of exercise

prices. Specifically, adjustment of

exercise prices will be rounded to the

next nearest trading increment as

specified by the primary market for the

underlying security.

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

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

Under the proposed rule change, OCC

will amend Article VI, Section 11(i) of

its by-laws to provide for the rounding

of adjustments of exercise prices to the

nearest ‘‘trading increment’’ for the

underlying security, as fixed by the

primary market for the security.3

Currently, OCC rounds adjustments to

exercise prices to the nearest eighth of

a dollar. The securities industry has

moved from quoting prices in eights of

a dollar (‘‘eighths’’) to sixteenths of a

dollar (‘‘sixteenths’’) and is moving

towards quoting prices in decimals.

Therefore, OCC believes that the

adjustment provisions of its by-laws

require amendment. Amending its bylaws to provide for rounding to the

nearest trading increment will

accommodate the interim change to

pricing in sixteenths and any final

change to decimal pricing.

The proposed rule change also will

add a new interpretation .09 to Article

VI, Section 11 expressly authorizing

OCC’s securities committee to adjust

exercise prices of outstanding options to

a new trading increment (e.g., decimals)

to correspond to a change in the trading

increment in the underlying security in

its primary market. The rule change will

not mandate such adjustments, but it

will give clear authority to the

committee to adjust exercise prices if

the committee deems such action to be

appropriate in light of the factors cited

in Article VI, Section 11(b) of OCC’s bylaws.

Currently, exercise prices of newly

introduced options series are expressed

in half dollar increments. However,

there generally will be options series

outstanding with exercise prices

expressed in eighths or sixteenths as a

result of previous adjustments. Eighths

cannot be converted to fewer than three

decimal places and sixteenths cannot be

converted to fewer than four without

rounding. As a result, the rule change

will provide for rounding adjusted

exercise prices to the nearest unit of the

applicable trading increment or, where

an exercise price is equidistant between

two units, to the next lowest unit.

Rounding would result in a small gain

($0.25 per contract in the case of
39336 Federal Register / Vol. 63, No. 140 /Wednesday, July 22, 1998 / Notices

4 15 U.S.C. 78q–1.

5 15 U.S.C. 78q–1(b)(3)(F).

6 15 U.S.C. 78s(b)(2).

7 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Exchange Act Release No. 38575 (May 5,

1997), 62 FR 26606 (May 14, 1997) (order granting

temporary accelerated approval of File No. SR–

PCX–97–16); see also Exchange Act Release No.

38780 (June 26, 1997), 62 FR 36087 (July 3, 1997)

(order approving File No. SR–PCX–97–15,

amending Rule 5.3(b)).

sixteenths and $0.50 per contract in the

case of eighths assuming a trading

increment of one cent) for one side of

each adjusted contract and a

corresponding loss for the other.

However, OCC believes that the

committee will not use its adjustment

authority unless it determines that the

benefits of adjusting outweigh the

detriments. If approved, the proposed

rule change will be disclosed in a

supplement to the options disclosure

document.

OCC believes that the proposed rule

change is consistent with the

requirements of Section 17A of the Act 4

because it should promote the prompt

and accurate clearance and settlement of

securities transactions.

B. Self-Regulatory Organizations’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

Section 17A(b)(3)(F) of the Act 5

requires that the rules of a clearing

agency be designed to promote the

prompt and accurate clearance and

settlement of securities transactions.

The Commission believes that the

proposed rule change is consistent with

this obligation because it should ensure

that the exercise price of an option on

a security can be expressed in the same

increment as the price of the underlying

security when the pricing increment of

an underlying security has been

changed after the issuance of the option.

As a result, the proposed rule change

should increase the accuracy of the

clearance and settlement of options

transactions and promote the prompt

and accurate clearance and settlement of

securities transactions.

The Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after the

publication of notice of the filing.

Approving prior to the thirtieth day

after publication of notice should

immediately reduce the possibility of

inaccurate clearance and settlement of

options transactions where the exercise

price of the option is expressed in a

different increment than the trading

increment of the underlying security.

IV. Solicitation of Comment

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.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, DC 20549. 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

Room, 450 Fifth Street NW.,

Washington, DC 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of OCC. All submissions should

refer to the file number SR–OCC–97–13

and should be submitted by August 12,

1998.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,6 that the

proposed rule change (File No. SR–

OCC–97–13) be and hereby is approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–19442 Filed 7–21–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40199; File No. SR–PCX–

97–46]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the Pacific Exchange,

Inc. Relating to Minimum Trading

Increments

July 14, 1998.

Pursuant to Section 19(b)(1) of

Securities Exchange Act of 1934

(‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule

19b–4 thereunder,2 notice is hereby

given that on December 22, 1997, the

Pacific Exchange, Inc. (‘‘PCX’’ 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 self-regulatory organization. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons and to

grant accelerated approval to the

proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The PCX proposes to amend its Rule

5.3(b) by adding a new Commentary .02

to permit members to trade on the

Exchange in increments smaller than

1⁄16, in order to match bids and offers

displayed in other markets for the

purpose of preventing Intermarket

Trading System (‘‘ITS’’) trade-throughs.

The text of the proposed rule change is

available at the Office of the Secretary,

the PCX, and at the Commission

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

self-regulatory organization 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.

The self-regulatory organization 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

In May 1997, the Commission

approved an Exchange proposal to

amend its rules to permit trading of

stocks in sixteenths when the selling

price is $5 or above.3 Previously such