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Self-Regulatory Organizations; The Options Clearing Corporation; Order Granting Approval of a Proposed Rule Change Relating to Matched Trade Reporting

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Start Preamble October 28, 2002.

I. Introduction

On July 30, 2002, The Options Clearing Corporation (“OCC”) filed with the Securities and Exchange Commission (“Commission”) proposed rule change File No. SR-OCC-2002-18 pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)[1] . Notice of the proposal was published in the Federal Register on August 23, 2002.[2] No comment letters were received. For the reasons discussed below, the Commission is approving the proposed rule change.

II. Description

The rule change modifies OCC's by-laws and rules to accommodate the transition to near real-time reporting of matched trade information by the options exchanges.[3] In addition, OCC's rules are modified to reflect that OCC may make available to clearing members updated position and exercise information; however, such information is provisional until final processing.

Each option exchange currently compares the trade information submitted by purchasing and selling members with respect to each transaction effected on that exchange. A compared transaction reflects that the parties to the trade have agreed on the terms of the trade. After the completion of its comparison processing, an exchange transmits to OCC a cumulative report of all matched trades effected or reconciled on that exchange on that particular trading day.[4] A compared or “matched” trade reported to OCC also contains information required by OCC, including, for example, the identity of the purchasing and selling clearing members, the accounts in which each side of the transaction was effected, the exercise prices, the expiration date, and the number of options contracts.[5] Each night, OCC processes the cumulative report of matched trades submitted by each option exchange, as well as exercise notices submitted by clearing members and accepted by OCC, and updates the clearing members' positions for the next trading day.

In connection with systems modification, OCC is amending its by-laws and rules so that it will accept and process matched trades reported by the exchanges on a near real-time basis. After receipt of a matched trade, OCC will process the matched trade information and make available updated position information for clearing member review throughout the trading day. However, a matched trade reported by a particular exchange might not always be complete or accurate for a variety of reasons. A clearing member may need to modify or append additional information after the matched trade has been sent to OCC. For example, a clearing member may need to reflect that a transaction was either to open or close a position. In such cases, the reporting exchange will instruct OCC to disregard a previously reported matched trade and will report new matched trade information to replace the original transaction. No replacement matched trade information will be reported by an exchange if the previously reported matched trade was to be disregarded altogether. Because an exchange may instruct OCC to disregard a previously submitted matched trade, Start Printed Page 67230OCC is amending Article VI, section 7 of its By-Laws to reflect that, in accordance with such an instruction, the previously reported matched trade will be deemed null and void and will be given no effect under OCC's by-laws and rules. In addition, section 7 is amended to reflect that OCC will not be liable to any writer, holder, buyer, or seller in acting on an exchange's instruction to disregard a previously submitted trade. Article VII, section 7 of the By Laws and Rules 401 and 402 also are amended to eliminate references to the receipt of a report of matched trades. Instead, these provisions will reference the reporting of matching trade information by an exchange. Other by-law and rule provisions that describe the receipt of a report of matched trades are similarly revised.[6]

Rule 501, which governs position reporting by OCC to its clearing members, is amended to reflect that position information updated during a business day is provisional and informational in nature and that only clearing members' daily position reports can be relied upon as definitely reflecting their final positions. Daily position reports are made available to clearing members each morning and reflect matched trades reported the previous business day.

Rule 801, which relates to exercises of options, also is amended to reflect that exercise information provided throughout a business day is provisional and informational only. Exercises accepted by OCC will be definitely reflected in delivery advices and exercise and assignment reports. Such advices or reports are also made available each morning and reflect exercises from the previous business day.

III. Discussion

Section 17A(b)(3)(F) of the Act requires that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions.[7] By moving towards accepting and processing matched trades and exercises on a near real-time basis, OCC will be able to make available to its clearing members information on their positions, exercises, and assignments in a more timely manner. As a result, OCC will be fulfilling its section 17A obligation to promote the prompt and accurate clearance and settlement of securities transactions and thereby meets the requirements of section 17A(b)(3)(F).

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 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-2002-18) be, and hereby is, approved.

Start Signature

For the Commission by the Division of Market Regulation, pursuant to delegated authority.[8]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


2.  Securities Exchange Act Release No. 46378 (August 19, 2002), 67 FR 54688.

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3.  While the language of this filing reflects OCC's current business of clearing and settling exchange traded options, the filing and the change to OCC's by-laws and rules extend to matching trade information from national securities exchanges, national securities associations, futures merchants, security futures markets, and international markets for which OCC clears and settles transactions.

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4.  While OCC receives periodic matched trade transmissions for each option exchange during a business day, it currently uses the cumulative matched trade transmission made by each exchange for position processing and does not use intraday transmissions for position processing. OCC anticipates that the option exchanges will gradually transition to reporting of matched trades on a near real-time basis. Until all exchanges have transitioned to near real-time matched trade reporting during the business day, OCC's systems will accept and process cumulative batch transmissions, intermittent batch transmissions, and near real-time matched trade reporting.

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5.  See Article VI, Section 7 of OCC's By-Laws and OCC Rule 401 for a description of the information required by OCC.

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6.  In addition, the term settlement time, as defined in Section 1.S. of Articles XV, XX, and XXIII is being modified to reflect OCC's receipt of matching trade information as opposed to a matched trade report.

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7.  15 U.S.C. 78q-1(b)(3)(F).

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[FR Doc. 02-27917 Filed 11-1-02; 8:45 am]