Document ID: SEC-2006-1478-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Options Clearing Corp.
Posted Date: 2006-11-17T05:00Z

[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