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Notice

Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change to Clear and Settle Options on Nonequity Fund Shares

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Start Preamble November 26, 2002.

Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), as amended,[1] notice is hereby given that on September 27, 2002, The Options Clearing Corporation (“OCC”) filed with the Securities and Exchange Commission (“Commission”) and on October 18, 2002, amended the proposed rule change as described in items I and II below, which items have been prepared primarily by OCC. The Commission is publishing this notice and order to solicit comments from interested persons and to grant accelerated approval of the proposed rule change.

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

The proposed rule change will amend OCC's by-laws and rules to accommodate the clearance and settlement of options on nonequity fund shares (i.e., shares representing interests in entities holding portfolios or baskets of nonequity securities).

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 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. OCC has prepared summaries, set forth in sections (A), (B) Start Printed Page 72262and (C) below, of the most significant aspects of these statements.[2]

(A) Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

The immediate purpose of the proposed rule change amends article I, VI and XII of OCC's by-laws and chapters VI and XVIII of its rules to accommodate the introduction of options on “iShares.” iShares represent interests in an investment company holding portfolios of government securities, corporate debt securities, or government and corporate debt securities. OCC currently issues and clears options on interests in various entities holding portfolios of equity securities (including iShares' equity-based funds). OCC's Rules define such options and their underlying interests as “stock fund options” and “stock fund shares,” respectively. To accommodate options on iShares representing interests in an entity holding portfolios of debt securities and to accommodate the possibility that exchanges may in the future list options on interests in other entities holding non-equity securities (or a combination of equity and non-equity), the proposed rule change will replace the terms “stock fund options” and “stock fund shares” with the terms “fund options” and “fund shares” and will eliminate any reference to “stock” or “equity” within the definitions.[3]

OCC will interpret the term “fund shares” broadly, as it did the term “stock fund shares,” to include not only interests in registered investment companies but also interests in unregistered trusts (e.g., HOLDRs) and in other investment vehicles holding portfolios of securities. Accordingly, to reflect this broad interpretation the proposed rule change will substitute the term “trusts” for “unit investment trusts” in the definition of “fund share.” Conforming changes will be made throughout OCC's By-laws and Rules to incorporate the new definitions.

OCC believes that the proposed rule change is consistent with the requirements of section 17A of the Act,[4] as amended, and the rules and regulations thereunder applicable to OCC because it promotes the prompt and accurate clearance and settlement of securities transactions, fosters cooperation and coordination with persons engaged in the clearance and settlement of securities transactions, removes impediments to and perfects the mechanism of a national system for the prompt and accurate clearance and settlement of securities transactions, and, in general, protects investors and the public interest.

(B) Self-Regulatory Organization's Statement on Burden on Competition

OCC does not believe that the proposed rule change will have any impact, or 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

Section 17A(b)(3)(F) of the Act and the rules and regulations thereunder, requires that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions.[5] The Commission finds that the proposed rule change is consistent with this obligation because by allowing OCC to clear and settle options on nonequity fund shares, market participants trading these products will obtain the efficiencies and safeguards provided by OCC, a registered clearing agency.

OCC has requested that the Commission find good cause for approving the proposed rule change prior to the thirtieth day after publication of the notice of filing. Both the American Stock Exchange (“Amex”) and the Chicago Board Options Exchange (“CBOE”) have informed OCC that they intend to begin trading options on iShares debt-based funds upon the Commission's approval of this proposed rule change and of a related supplement to the Options Disclosure Document. Accordingly, the Commission finds that there is good cause to approve the rule change prior to the thirtieth day after publication of the notice of filing because by so approving OCC will be able to immediately commence clearing and settling nonequity fund options when Amex and CBOE commence trading them.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 OCC. All submissions should refer to File No. SR-OCC-2002-22 and should be submitted by December 26, 2002.

It is therefore ordered, pursuant to section 19(b)(2) of the Act, that the proposed rule change (File No. SR-OCC-2002-22) be, and hereby is, approved on an accelerated basis.

Start Signature

For the Commission by the Division of Market Regulation, pursuant to delegated authority.[6]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

2.  The Commission has modified the text of the summaries prepared by OCC.

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3.  Because the term “fund share” is now being defined to include a broad class of securities, OCC will separately amend Filing No. SR-OCC-2002-04, which proposes to expand the forms of margin collateral accepted by OCC to include money market fund shares, to eliminate the few instances in which the same term is used to refer narrowly to money market fund shares.

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5.  15 U.S.C. 78q-1(b)(3)(F).

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[FR Doc. 02-30674 Filed 12-3-02; 8:45 am]

BILLING CODE 8010-01-P