158 Federal Register / Vol. 60, No. 1 / Tuesday, January 3, 1995 / Notices

1 15 U.S.C. 78s(b)(1) (1988).

2Securities Exchange Act Release No. 34837

(October 13, 1994), 59 FR 52852.

3Securities Exchange Act Release No. 31912

(February 23, 1993), 58 FR 11879 [File No. SR–

OCC–92–33] (order approving proposed rule change

relating to flexibly structured index options).

4Securities Exchange Act Release No. 34203

(June 13, 1994), 59 FR 31658 [File No. SR–CBOE–

93–33] (order approving a proposed rule change

relating to FLEX options designated in foreign

currencies).

5Premium and exercise prices for these nonUnited States dollars flexibly structured index

options may be denominated in any of the foreign

currencies currently underlying foreign currency

options. Those currencies include: (1) Australian

dollars, (2) British pounds, (3) Canadian dollars, (4)

European Economic Community currency units, (5)

French francs, (6) German Deutsche marks, (7)

Japanese yen, and (8) Swiss francs. 6 15 U.S.C. 78q–1(b)(3)(F) (1988).

[Release No. 34–35149; File No. SR–OCC–

94–08]

Self-Regulatory Organizations; The

Options Clearing Corporation; Order

Approving a Proposed Rule Change

Relating to Flexibly Structured Index

Options Denominated in a Foreign

Currency

December 23, 1994.

On August 19, 1994, The Options

Clearing Corporation (‘‘OCC’’) filed with

the Securities and Exchange

Commission (‘‘Commission’’) a

proposed rule change (File No. SR–

OCC–94–08) 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 October 19, 1994.2 No comment

letters were received. For the reasons

discussed below, the Commission is

approving the proposed rule change.

I. Description of the Proposal

On September 23, 1993, the

Commission approved a proposed rule

change filed by OCC to accommodate

the clearance and settlement of flexibly

structured index options.3 Flexibly

structured index options exhibit

virtually the same characteristics as

regular index options; therefore, OCC

establishes long and short flexibly

structured index option positions in

clearing member accounts in precisely

the same way it currently does for

regular index options. OCC incorporates

flexibly structured index options in its

premium settlement, margin collection,

exercise notice, exercise assignment,

and exercise/expiration statement

processes without significant changes to

those processes. Premiums and exercise

prices for the flexibly structured index

options that currently are being traded

are denominated in United States

dollars. Parties to a transaction in such

an option may customize certain terms

of the option including the expiration

date, the exercise style, the exercise

price, the cap interval in the case of

capped-style options, and the method to

be used for establishing the current

index value for purposes of settling

expiration date exercises.

Recently, the Chicago Board Options

Exchange (‘‘CBOE’’) amended its rules

regarding flexibly structured index

options 4 in order to allow premiums

and exercise prices of such options to be

denominated in foreign currencies

rather than in United States dollars.5

Accordingly, OCC is amending its ByLaws and Rules in order to clear and

settle these options which OCC calls

Flexibly Structured Index Options

Denominated in a Foreign Currency

(‘‘FX Index Options’’).

To accommodate the clearance and

settlement of FX Index Options, Article

XXIII is being added to the Article of

OCC By-Laws. Because FX Index

Options are a type of index option, the

OCC By-Laws governing index options,

Article XVII, is being incorporated into

new Article XXIII and is being made

applicable to FX Index Options. In

addition, because FX Index Options will

settle in a foreign currency, certain of

the OCC By-Laws governing Cross-Rate

Foreign Currency Options in Article XX

also are being incorporated into new

Article XXIII where appropriate. For

example, those By-Laws governing

extraordinary events, adjustments, and

the payment of premiums are being

incorporated into the new article.

A Chapter XXIV is being added to the

OCC Rules to accommodate FX Index

Options. FX Index Options will be

exercised pursuant to the rules

governing existing index options.

Accordingly, the rules governing

exercise, assignment, allocation, and the

exercise settlement date from Chapter

XVIII, which pertains to index options,

is being incorporated into new Chapter

XXIV. In addition, the settlement

procedure for FX Index Options will be

the same as the procedure for existing

index options. Exercised FX Index

Options will be settled through the

payment of an exercise settlement

amount, which is the difference

between the aggregate exercise price and

the aggregate current index value.

Accordingly, the rules governing

exercise settlement and the exercise

settlement date from Chapter XVIII are

being incorporated into new Chapter

XXIV. Because FX Index Options will

settle in a foreign currency, certain

settlement obligations of a party to an

FX Index Option contract will be similar

to the settlement obligations of a party

to a cross-rate foreign currency option

contract. Therefore, certain rules

governing settlement obligations from

Chapter XXI, which pertains to crossrate foreign currency options, are being

incorporated into new Chapter XXIV.

Specifically, these include the

obligation to set up bank accounts and

the consequence of failing to pay a

foreign currency. Finally, FX Index

Options will be margined like cross-rate

foreign currency options in that the

margin requirement will be calculated

in the applicable trading currency and

then converted to United States dollars.

Consequently, the language of Rule 2111

governing margin requirements for

cross-rate foreign currency options is

being incorporated into new Chapter

XXIV.

Two additional changes to the OCC

By-Laws and an additional change to

OCC’s Rules also are being made.

Specifically, the term ‘‘FX index option

clearing member’’ is being added to the

definition of ‘‘clearing member’’ in

Article I, Section 1 of the By-Laws. In

addition, the reference to the term

‘‘FLEX’’ in the definition of clearing

member is being changed to ‘‘flexibly

structured option’’ in order to make that

term more generic. Finally, OCC Rule

401 is being amended to require that the

currency in which the option is

denominated, the expiration date of the

option contract as opposed to the

expiration month, and the cap price, if

any, be included in the Report of

Matched Trades.

II. Discussion

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder and

particularly with the requirements of

Section 17A(b)(3)(F). 6 Section

17A(b)(3)(F) requires that the rules of a

clearing agency be designed to promote

the prompt and accurate clearance and

settlement of securities transactions,

and to assure the safeguarding of

securities and funds in the custody or

control of the clearing agency or for

which it is responsible. The

Commission believes that OCC’s

proposed rule change meets these

requirements by establishing a

framework in which existing OCC

systems, rules, and procedures are

extended to the processing of the FX

Index Options. OCC should be able to

implement the clearance and settlement

of the FX Index Options without much

difficulty because FX Index Options are

similar to regular index options and

cross-rate foreign currency options

currently cleared by OCC. The

Commission believes that the use of
Federal Register / Vol. 60, No. 1 / Tuesday, January 3, 1995 / Notices 159

7 17 CFR 200.30–3(a)(12) (1994).

1The PSE originally proposed to list and trade

SCOR securities in 1992. That proposal was

published for public comment in Securities

Exchange Act Release No. 32514 (June 25, 1993), 58

FR 35496 (July 1, 1993) (File No. SR–PSE–92–42).

The Commission received several comment letters

regarding the proposal, and subsequently published

amendments to the proposal for public comment in

Securities Exchange Act Release No. 34328 (July 7,

1994), 59 FR 35776 (July 13, 1994). The Exchange

withdrew file no. SR–PSE–92–42 on November 22,

1994, and submitted the instant filing that includes

modifications to the proposal in response to

comments from the public and from Commission

staff.

2Once a single issuance of securities has been

accepted for listing on the Exchange, all securities

of that class will be considered to be ‘‘SCOR’’

securities for purposes of this rule, including

restricted securities (i.e., securities restricted

pursuant to federal or state securities laws, by any

other law, by any agreement, or in any other

manner), provided that such restricted securities

may not be eligible for trading on the Exchange.

3See Small Corporate Offering Registration

Program and Form U–7, 1 Blue Sky L. Rep. (CCH)

¶ 6461 (September 1994).

OCC’s systems for the clearance and

settlement of FX Index Options should

facilitate promptness and precision.

III. Conclusion

The Commission finds that the

proposal is consistent with the

requirements of the Act, particularly

with Section 17A(b)(3)(F) 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–94–08) 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. 94–32253 Filed 12–30–94; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35140; File No. SR–PSE–

94–31]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

Pacific Stock Exchange, Inc. Relating

to the Listing and Trading of Small

Corporate Offering Registration

(‘‘SCOR’’) Securities on the Exchange

December 22, 1994.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on December 15, 1994,

the Pacific Stock Exchange, Inc. (‘‘PSE’’

or ‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’) the proposed rule

change as described in Items I, II and III

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.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The PSE is submitting this rule filing

in order to permit the Exchange listing

and trading of common stock and

preferred stock that qualifies under the

Small Corporate Offering Registration

(‘‘SCOR’’) designation.1

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

Introduction

The Exchange is proposing to list and

trade common stock and preferred stock

that qualifies under the Small Corporate

Offering Registration (‘‘SCOR’’)

designation. Under the proposal, the

SCOR marketplace will be implemented

on a three-year pilot basis and the

program will be evaluated at least on an

annual basis to determine whether this

new marketplace has achieved its policy

objectives—to facilitate capital

formation for small businesses and to

provide public market liquidity. The

SCOR program will include any

securities of an issuer that has been

designated as common stock and/or

preferred issued pursuant to (i)

Regulation A under the Securities Act of

1933 (‘‘Securities Act’’) and using the

prescribed form as applicable; or (ii)

Rule 504 under the Securities Act and

using Form U–7 of the North American

Securities Administrators Association

(‘‘NASAA’’) or a state variation of such

form with substantially similar

requirements.2 Since such securities are

not currently listed or traded on any

national securities exchange, the PSE

believes that the implementation of the

Exchange’s proposal will facilitate the

capital formation process for small

companies and will supply muchneeded liquidity to public investors

within a regulated marketplace. In

addition, under the proposal, companies

will be afforded all of the benefits of an

Exchange listing, with the exception of

the Blue Sky exemption from state

securities registration requirements and

automatic marginability.

In August 1992, the Commission

adopted certain rules as part of its Small

Business Initiatives program. The

program includes, in part, substantive

changes to the ‘‘small issues’’ exemption

from registration requirements under

the Securities Act (Regulation A), as

well as changes to the ‘‘seed capital’’

registration exemption pursuant to Rule

504 under the Securities Act. These

revisions are designed to facilitate the

access of small companies to capital

markets and to reduce the costs of

compliance with the federal securities

laws.

Rule 504

The Commission’s modifications to

Rule 504 include the elimination of

several restrictions and other changes

that would allow small companies to

conduct public offerings of up to $1

million in unrestricted securities during

a twelve-month period. These changes

are designed to allow small companies

to market offerings directly to

prospective investors by bypassing both

the venture capital and small

underwriting houses. At the state level,

offerings may be registered using the

SCOR registration form, Form U–7;

however, such limited offerings must

also qualify under state Blue Sky laws

that require delivery of a prospectus,

offering circular, or disclosure

document to all purchasers prior to sale.

The Form U–7 has been supported by

the American Bar Association as well as

NASAA.3

Regulation A

The Commission revised Regulation A

to exempt from registration public

offerings of up to $5 million in a twelvemonth period. The disclosure

requirements are embodied in the

offering statement (SEC Form 1–A),

which consists of three parts. The

offering circular is contained in Part II

and may be prepared in three alternative

formats, one of which permits the use of

the same simplified disclosure

statement (Form U–7) that is prescribed

by most states for SCOR offerings.

The Exchange believes these changes

to Regulations A and D, in conjunction