

[Federal Register: December 20, 2006 (Volume 71, Number 244)]
[Notices]               
[Page 76417-76418]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20de06-148]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54935; File No. SR-OCC-2006-10]

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Granting Accelerated Approval of a Proposed Rule Change Relating 
to Cash-Settled Foreign Currency Options

December 13, 2006.

I. Introduction

    On June 8, 2006, The Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') proposed 
rule change SR-OCC-2006-10 pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'').\1\ On October 26, 2006, OCC 
amended the proposed rule change. Notice of the proposal was published 
in the Federal Register on November 17, 2006.\2\ No comment letters 
were received. For the reasons discussed below, the Commission is 
granting approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 54721, (November 8, 
2006), 71 FR 67004.
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II. Description

    The proposed rule change will 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''). While OCC's By-Laws and Rules currently provide for the 
clearance and settlement of Cash-Settled FCOs, changes to OCC's By-Laws 
are needed in connection with the Cash-Settled FCOs that are to be 
traded by Phlx.\3\
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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]. Currently, 
there are no cash-settled FCOs traded at any options exhange.
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    The first change is to reflect the different expiration date of the 
Cash-Settled FCOs as compared with the expiration 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 be amended to provide for an 
expiration date on 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 providing for expirations on such other 
dates as an exchange may determine, which is consistent with the 
definition of ``expiration date'' applicable to index options. OCC is 
also amending Article VI, Section 22 of its By-Laws to make clear that 
Cash-Settled FCOs will not clear through OCC's International Clearing 
System.\4\
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    \4\ Interpretation .02 of 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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    OCC amended the proposed rule change on October 26, 2006, to amend 
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.

[[Page 76418]]

The primary conforming changes are the addition of procedures under 
which the exercise settlement amount will 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.
    The amendment also modified 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 
provided for true automatic exercise without the opportunity for 
clearing members to give non-exercise instructions. Phlx 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 the ``exercise-by-exception'' procedures, a Cash-
Settled FCO will 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 adding 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.

III. Discussion

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of a clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions.\5\ The 
purpose of the proposed rule change is to amend OCC's By-Laws and Rules 
so that OCC may clear and settle the new Cash-Settled FCO product 
proposed to be listed and traded on Phlx. Accordingly, the proposed 
rule change should promote the prompt and accurate clearance and 
settlement of securities transactions.
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    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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    OCC has requested that the Commission approve the proposed rule 
prior to the thirtieth day after publication of the notice of the 
amended filing. The Commission finds good cause for approving the 
proposed rule change prior to the thirtieth day after the publication 
of notice because such approval will allow OCC to give its members 
sufficient notice of its clearance and settlement of Cash-Settled FCOs 
before trading begins.

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular Section 17A of the Act and the rules and regulations 
thereunder.\6\
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    \6\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-OCC-2006-10) be and hereby 
is approved.

    For the Commission by the Division of Market Regulation, 
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. E6-21684 Filed 12-19-06; 8:45 am]

BILLING CODE 8011-01-P
