Self-Regulatory Organizations; the Options Clearing Corporation; Notice of Filing of a Proposed Rule Change Relating to Flexibly Structured Options

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34064; File No. SR-OCC-94-04]

Self-Regulatory Organizations; the Options Clearing Corporation;

Notice of Filing of a Proposed Rule Change Relating to Flexibly

Structured Options

May 13, 1994.

Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''),\1\ notice is hereby given that on April 25, 1994, 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. The Commission is publishing this notice to solicit

comments on the proposed rule change from interested persons.

---------------------------------------------------------------------------

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

---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance

of the Proposed Rule Change

The proposed rule change will allow OCC to issue, clear, and settle

``flexibly structured options'' on foreign currencies. The rule change

also proposes technical amendments to OCC's By-Laws and Rules to

replace the term ``FLEX options'' with ``flexibly structured options.''

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. 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.

A. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

Generally, the purpose of the proposed rule change is to enable OCC

to clear and settle flexibly structured options on foreign currencies.

Specifically, the purpose of the proposed rule change is to enable OCC

to accommodate within the framework of its existing By-Laws and Rules

the clearance and settlement of customized strike options as proposed

for trading on the Philadelphia Stock Exchange (``PHLX'').\2\

---------------------------------------------------------------------------

\2\For a description of the PHLX proposed rule change, refer to

Securities Exchange Act Release No. 33959 (April 25, 1994), 59 FR

22698, [File No. SR-PHLX-9411] (notice of filing of proposed rule

change).

---------------------------------------------------------------------------

Customized strike options are a type of flexibly structured options

where the underlying security is a foreign currency whereas the

underlying security for the current flexibly structured option product

is an index group. With the current flexibly structured index option

products, certain items, such as the exercise price, exercise style,

and expiration date, of the option can be customized by the parties

within specified limits established by the listing exchange. With

PHLX's customized strike option, parties will be able to establish the

exercise price for each new series of customized strike options.

Because customized strike options are foreign currency options with

flexibly structured exercise prices, they can be treated and processed

like the current foreign currency option product, and only a few

changes to OCC's By-Laws and Rules are necessary to accommodate them.

Accordingly, a definition of flexibly structured options is being added

to section 1 (``Definitions'') of Article XV (``Foreign Currency

Options'') of OCC's By-Laws which will encompass customized strike

options.\3\

---------------------------------------------------------------------------

\3\With respect to foreign currency options, the term ``flexibly

structured option'' is defined in Article XV, Section 1, F(2) of

OCC's By-Laws as a foreign currency option having an expiration

date, an exercise price, and an exercise style that are reported to

OCC by an exchange. No similar term is being added to Article XX of

OCC's By-Laws (``Cross-Rate Foreign Currency Options'') at this

time. In order for OCC to clear and settle flexibly structured

cross-rate foreign currency options, OCC must submit for Commission

approval a proposed rule change under Section 19(b)(2) of the Act.

---------------------------------------------------------------------------

The term ``FLEX option'' in Section 1 (``Definitions'') of Article

XVII (``Index Options'') is being changed to ``flexibly structured

option'' in order to make that term more generic. For the same reasons,

all references to FLEX options in OCC's By-Laws and Rules are being

changed to flexibly structured options. In addition, the definition of

the term flexibly structured option in Section 1 of Article XVII is

being modified to clarify that such definition is applicable only to

flexibly structured index options. As stated above, a separate

definition of flexibly structured options applicable to foreign

currency options is being added to Section 1 of Article XV.

OCC Rule 602(b) also is being amended to broaden the definition of

the term ``premium margin'' with respect to flexibly structured

options. The current definition is applicable only to flexibly

structured indexed options whereas the proposed definition will

encompass flexibly structured index options, customized strike options,

and other types of flexibly structured options as such options are

approved for trading on the various exchanges and for clearance and

settlement at OCC.

OCC believes that the proposed rule change is consistent with the

purposes and requirements of Section 17A of the Securities Exchange Act

of 1934 because it will facilitate the prompt and accurate clearance

and settlement of transactions in customized strike options and the

safeguarding of related securities and funds. The proposed rule change

provides a framework in which the existing OCC systems, rules, and

procedures can be extended to the processing of flexibly structured

foreign currency options.

B. Self-Regulatory Organization's Statement on the Burden on

Competition

OCC does not believe that the proposed rule change will 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 thirty-five 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 ninety 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. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street N.W., Washington, D.C. 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 Section, 450 Fifth Street NW.,

Washington, DC 20549. Copies of such filing will also be available for

inspection and copying at the principal office of the above-referenced

self-regulatory organization.

All submissions should refer to File No. SR-OCC-94-04 and should be

submitted by June 10, 1994.

For the Commission by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-12300 Filed 5-19-94; 8:45 am]

BILLING CODE 8010-01-M