Document ID: SEC-2008-0454-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Options Clearing Corp.
Posted Date: 2008-03-25T04:00Z

[Federal Register: March 25, 2008 (Volume 73, Number 58)]
[Notices]               
[Page 15824-15826]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25mr08-112]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57520; File No. SR-OCC-2008-02]

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to the Definition and Use of the Terms ``Settlement Price'' 
and ``Final Settlement Price''

 March 18, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on January 24, 2008, The 
Options Clearing Corporation (``OCC'') 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 
primarily by OCC. OCC filed the proposed rule change pursuant to 
Section 19(b)(3)(A)(i) of the Act \2\ and Rule 19b-4(f)(1) \3\ 
thereunder so that the proposal was effective upon filing with the 
Commission. 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).
    \2\ 15 U.S.C. 78s-1(b)(3)(A)(i).
    \3\ 17 CFR 240.19b-4(f)(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 amends the definition and use of the terms 
``settlement price'' and ``final settlement price'' as applied to 
futures contracts cleared by OCC for the purpose of improving the 
definitions and establishing consistent usage.

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.\4\
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    \4\ 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 primary purpose of the proposed rule change is to revise OCC's 
By-Laws and Rules to eliminate any inconsistencies in the use of the 
terms ``settlement price'' and ``final settlement price'' and to 
clarify the roles of OCC and of the exchanges on which futures are 
traded in determining the daily and if applicable intraday settlement 
price and the final settlement price of a series of futures contracts. 
OCC is also making one change in its rules to reflect a change in the 
services available to clearing members.
    The two key components of the proposed rule change involve the 
definition of ``settlement price'' and ``final settlement price'' as 
used in OCC's By-Laws and Rules and the location of the language 
governing the manner in which settlement prices are determined. 
Currently, the prices used to calculate daily or intraday variation 
payments are referred to simply as ``settlement prices'' rather than 
``interim settlement prices.'' The term ``settlement price'' does not 
encompass the term ``final settlement price,'' which is separately 
defined to refer only to the price used to determine the value of a 
contract at maturity. There are provisions of OCC's By-Laws and Rules 
that apply equally to daily or intraday settlement prices and final 
settlement prices. Accordingly, OCC is revising the definition of 
``settlement price'' to encompass both types of prices. The term 
``interim settlement price'' will be used to refer to prices used to 
determine daily and intraday variation payments. In addition, the 
definition of ``final settlement price'' is being revised in 
recognition of the possibility that prices determined in the futures 
markets themselves, as opposed to prices determined in the cash markets 
for the underlying interests, may sometimes be used to determine the 
final settlement price. OCC is also moving the language regarding the 
establishment of the interim settlement price for futures from Rule 
1301(d) to Article XII, Section 6 of OCC's By-Laws. OCC believes that 
this language more logically belongs in Article XII, which currently 
governs only the establishment of final settlement prices.
Proposed Changes to By-Laws
    OCC is introducing the new term ``interim settlement price'' in 
Article I, Section 1 of its By-Laws with respect to futures to refer to 
what is currently defined simply as ``settlement price''

[[Page 15825]]

and will use the term ``settlement price'' to encompass both interim 
settlement prices and final settlement prices for futures.
    OCC is redefining and simplifying the term ``final settlement 
price'' in Article I, Section 1 of the By-Laws and eliminating the 
reference to ``Exchange Rules,'' which are relevant to some but not all 
determinations of the final settlement price and are referenced 
elsewhere in the By-Laws and Rules where relevant. The definition 
addresses what is meant by ``final settlement price'' with respect to a 
series of futures (i.e., the marking price, rate, level, value, or 
measure of the designated interest on the maturity date of such 
series). It further addresses the uses of the final settlement price 
(i.e., to calculate the final variation payment with respect to cash-
settled futures and the purchase price of the underlying interest in 
respect of physically settled futures). The definition does not address 
the manner in which the final settlement price is determined, which is 
covered in Article XII, Section 6(b), as amended.
    While the final settlement price of a series of stock futures is 
normally determined on the basis of the value of the underlying stock 
at maturity, at least one futures exchange clearing through OCC 
consistently uses the value of the futures contract itself (i.e., the 
settlement price, on the maturity date as the basis for determining the 
final settlement price). Accordingly, in addition to the above changes, 
OCC is revising the term ``final settlement price'' to account for the 
use in some instances of the value of the futures contract rather than 
the value of the underlying interest in determining this price.
    OCC is making certain technical corrections to the definition of 
the term ``maturity date.''
    OCC is modifying Article VI, Section 10(d) of OCC's By-Laws, which 
currently refers to the adjustment of the unit of trading and 
settlement price for a series of stock futures, to reflect OCC's 
current procedures under which one or the other of the unit of trading 
or settlement price but not both is subject to adjustment. OCC is also 
correcting certain erroneous references in this subsection.
    The term ``settlement price'' is used in various locations within 
Article VI, Section 19; Article XV, Section 3; and Article XX, Section 
3 of OCC's By-Laws in a manner that is wholly unrelated to the 
settlement price for security futures. The word ``cash'' has been 
placed before the term ``settlement price'' in each these sections 
wherever the term appears.
    OCC is making a correction to Article XII, Section 1 by replacing 
the term ``security future'' with ``future,'' which includes both 
commodity and security futures. Article XII, Section 3 is revised to 
reflect OCC's current procedures under which the unit of trading or 
settlement price but not both may be adjusted in connection with stock 
splits, stock dividends, and similar corporate events. OCC is modifying 
Article XII, Sections 4, 4A, and 5 under which the terms ``interim 
settlement price,'' ``final settlement price,'' and ``settlement 
price'' are used in a manner consistent with their new or revised 
definitions. OCC is moving the language governing the manner in which 
interim settlement prices are determined from Rule 1301(d) to Article 
XII, Section 6(a) to precede the provision governing the determination 
of final settlement prices covered in Section 6(b). As a result of the 
transfer of the content of Rule 1301(d) to Article XII, Section 6, this 
section now governs the manner in which both interim settlement prices 
and final settlement prices are determined while Rule 1301 addresses 
only variation payments.
    In addition to moving the language of former Rule 1301(d) to 
Article XII, Section 6(a) of the By-Laws, OCC is modifying the 
language. The modifications make it clear that OCC determines the 
interim settlement price used to establish the amount of the required 
variation payment, but does so on the basis of an interim settlement 
price reported to OCC by the relevant exchange. A similar change is 
being made in Article XII, Section 6(b) and in Interpretation and 
Policy .01 to the section. Generally, OCC would simply adopt the price 
it receives from the exchange, but OCC has broad authority to disregard 
that price if it appears erroneous or otherwise defective. The changes 
also clarify OCC's responsibility in connection with settlement prices 
of series of security futures that are traded on more than one 
exchange.
Proposed Changes to Rules
    OCC is deleting Rule 404, relating to its use of a give-up service 
provider, because OCC no longer has a relationship with a give-up 
service provider. OCC is redesignating Rule 1301(e) as Rule 1301(d) as 
a result of the transfer of former Rule 1301(d) to Article XII, Section 
6 of the By-Laws. The portion of Rule 1301(e) governing the 
determination of final settlement prices is deleted as this subject is 
covered by Article XII, Section 6(b) of the By-Laws. Rule 1301 is also 
revised to make the use of the terms ``interim settlement price,'' 
``final settlement price,'' and ``settlement price'' consistent with 
their new or revised definitions.
    The proposed rule change is consistent with the purposes and 
requirements of Section 17A of Act because it is designed to promote 
the prompt and accurate clearance and settlement of transactions in 
futures, 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 to protect investors and the public interest. The proposed 
rule change accomplishes this purpose by establishing consistent usage 
for the terms ``settlement price'' and ``final settlement price'' and 
by revising the definition of ``final settlement price'' to account for 
the use in some instances of the prices determined in the futures 
markets themselves rather than the prices determined in the cash 
markets to determine the final settlement price for futures. The 
proposed rule change is not inconsistent with the By-laws and Rules of 
OCC, including those proposed to be amended.

(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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(i) of the Act \5\ and Rule 19b-4(f)(1) \6\ promulgated 
thereunder because the proposal constitutes an interpretation with 
respect to the meaning, administration, or enforcement of an existing 
rule of OCC. At any time within sixty days of the filing of the 
proposed rule change, the Commission may summarily abrogate such rule 
change if it appears to the

[[Page 15826]]

Commission that such action is necessary or appropriate in the public 
interest, for the protection of investors, or otherwise in furtherance 
of the purposes of the Act.
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    \5\ 15 U.S.C. 78s(b)(3)(A)(i).
    \6\ 17 CFR 240.19b-4(f)(1).
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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-2008-02 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-2008-02. 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 Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of OCC. 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-2008-02 and should be 
submitted on or before April 15, 2008.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-5911 Filed 3-24-08; 8:45 am]

BILLING CODE 8011-01-P