On June 25, 2002, The Options Clearing Corporation (“OCC”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change OCC-2002-12 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”). Notice of the proposal was published in the Federal Register on August 13, 2002. No comment letters were received. For the reasons discussed below, the Commission is approving the proposed rule change.
The purpose of the proposed rule change is to permit OCC to accelerate the maturity date of stock futures contracts that have been adjusted to call only for delivery of a fixed amount of cash. If the issuer of an underlying security were party to a cash merger in which its stock was converted into a right to receive cash only, futures on that stock would ordinarily be adjusted to call for delivery of the cash. Under the proposed rule change, OCC would have authority to accelerate the maturity dates of the adjusted futures to fall on or shortly after the effective date of the merger. The final settlement price for all accelerated futures, regardless of maturity date, will be fixed at the amount of cash into which the underlying security has been converted.
The proposed rule change parallels OCC Rule 807, which governs the acceleration of European-style FLEX equity options. Acceleration of the expiration date for European-style options that have been adjusted to call for delivery of cash results in the acceleration of the options' ability to be exercised and therefore in the acceleration of payment of the exercise settlement amount to the holder if the option is in the money. Futures contracts, by contrast, are marked to market daily and settlement of an accelerated contract will occur through a final mark-to-market payment based on the amount of cash into which the underlying security has been converted.
Section 17A(b)(3)(F) of the Act requires that the rules of a clearing agency be designed to protect investors and the public interest. By enabling OCC to advance the maturity dates of stock futures contracts when those contracts have been adjusted to call for a fixed amount of cash, the proposed rule change allows OCC to relieve market participants of the burden of continuing to maintain and account for open interest in contracts that no longer are subject to increases or decreases in value. Accordingly, the Commission finds that the rule change is consistent with OCC's obligation under Section 17A of the Act to protect investors and the public interest.
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 with the requirements of Section 17A of the Act and the rules and regulations thereunder applicable.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-OCC-2002-12) be, and hereby is, approved.Start Signature
For the Commission by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
[FR Doc. 02-26021 Filed 10-10-02; 8:45 am]
BILLING CODE 8010-01-P