Self-Regulatory Organizations; Delta Government Options Corp.; Notice of Filing of Proposed Rule Change Modifying Exercise Settlement Date and Buy-In Procedures

SECURITIES AND EXCHANGE COMMISSION

Self-Regulatory Organizations; Delta Government Options Corp.;

Notice of Filing of Proposed Rule Change Modifying Exercise Settlement

Date and Buy-In Procedures

[Release No. 34-34083; File No. SR-DGOC-93-04]

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

(``Act''),\1\ notice is hereby given that on December 27, 1993, Delta

Government Options Corp. (``DGOC'') 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

substantially by DGOC. On February 16, 1994, and on March 4, 1994, DGOC

submitted substantive amendments to the filing. 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) (1988).

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

of the Proposed Rule Change

The proposal will amend Delta's exercise settlement procedures.

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

Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, DGOC 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. DGOC 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

Under current practice, the exercise settlement date, depending on

certain factors, occurs from two to five business days following the

expiration date or the date on which an exercise notice is tendered.

Under the proposed amendments to section 1004 of DGOC's procedures, the

exercise settlement date for an option contract on a Treasury bond or a

Treasury note will be (1) the next business day following the date on

which an exercise notice is purposely assigned for those contracts

exercised on a day preceding the expiration date and (2) the next

business day following the expiration date for those contracts

exercised on the expiration date. For an option contract on a Treasury

bill, the exercise settlement date will be the next business day after

an exercise notice is properly tendered. The purpose of the proposal is

to respond to participants who have requested that DGOC's settlement

procedures more closely follow the practices already established in the

over-the-counter (``OTC'') marketplace for the settlement of purchases

and sales of Treasury securities and for the settlement of exercised

options on such securities.

By shortening DGOC's settlement period to conform to the industry

standard, DGOC will reduce the amount of time such settlement

obligations remain outstanding which in turn will reduce credit

exposure to DGOC as well as in the overall cash market clearing system

for the settlement of Government securities. Using the same settlement

period for the settlement of exercised options and for the settlement

of securities in the cash market will ensure a consistent approach

among clearing entities and will serve as a platform for additional

coordination among clearing entities clearing identical or

complimentary securities. In addition to reducing credit risk in the

clearance system, a shortening of the settlement cycle will further

reduce risk by enabling DGOC to uncover potential problems earlier and

will allow DGOC to make expedited determinations of whether failures by

participants to deliver securities are due to processing problems,

market effect, or credit related difficulties.

Because DGOC's current settlement period of two to five business

days is longer than the settlement period for similar OTC products

cleared outside of DGOC, DGOC-issued options carry a price adjustment

for the additional financing costs. As a result, the price of DGOC-

issued options does not match exactly those of similar OTC-traded

options. Implementation of DGOC's revised settlement procedures will

make the relative values of DGOC-issued options comparable to those of

OTC-traded options and will eliminate participants' need to make the

additional calculations necessary to correlate the price of DGOC-issued

options with the price of OTC-traded options. Therefore, this proposal

should provide participants greater ease in trading and exercising

options issued by DGOC and will allow for the automated clearance and

settlement of securities transactions that otherwise would be cleared

through decentralized and labor intensive processes.

In connection with the modifications to the exercise settlement

date, DGOC is proposing to amend section 1005 of its Procedures to

provide that DGOC will allocate exercise settlement obligations prior

to 8 a.m. on the business day prior to the exercise settlement date.

Currently, DGOC allocates exercise settlement obligations on the second

business day prior to the exercise settlement date.

DGOC also is proposing to amend section 1102 of its procedures to

clarify its buy-in process applicable when a participant fails to make

a required delivery of Treasury securities to DGOC. First, upon the

request of the participant failing to deliver and with good cause

shown, DGOC will be authorized to defer the execution of a buy-in.

Currently, DGOC can defer the execution of a buy-in for no more than

twenty-four hours. Second, the time for the delivery of a notice of

buy-in from DGOC to the participant which failed to deliver will be

specifically set forth is thirty calendar days after the failure to

deliver.

Delta believes the proposed rule change is consistent with

requirements of the Act, particularly section 17A of the Act,\2\ and

the rules and regulations thereunder applicable to DGOC. This is

because the proposed rule change will permit more utilization of the

DGOC system by those participants who prefer to trade in options for

hedging purposes or for speculation.

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\2\15 U.S.C. 78q-1 (1988).

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

DGOC does not believe that the proposed rule change will impose a

burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed

Rule Change Received from Members, Participants, or Others

DGOC has neither solicited nor received any comments.

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, NW., Washington, DC 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 also will be available for

inspection and copying at the principal office of DGOC. All submissions

should refer to the file number SR-DGOC-93-04 and should be submitted

by June 15, 1994.

For the Commission by the Division of Market Regulation,

pursuant to delegated authority.\3\

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\3\17 CFR 200.30-3(a)(12) (1993).

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-12748 Filed 5-24-94; 8:45 am]

BILLING CODE 8010-01-M