Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change To Accelerate the Expiration Date of American-Style Equity Options That Have Been Adjusted To Call for Cash-Only Delivery, 3466 [E7-1059]

Download as PDF 3466 Federal Register / Vol. 72, No. 16 / Thursday, January 25, 2007 / Notices 2006–87), as amended, be and it hereby is, approved on an accelerated basis. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.23 Nancy M. Morris, Secretary. [FR Doc. E7–1058 Filed 1–24–07; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–55124; File No. SR–OCC– 2006–20] Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change To Accelerate the Expiration Date of American-Style Equity Options That Have Been Adjusted To Call for CashOnly Delivery January 18, 2007. ycherry on PROD1PC64 with NOTICES I. Introduction On October 26, 2006, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) proposed rule change SR–OCC–2006–20 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 November 29, 2006.2 The Commission received no comment letters. For the reasons discussed below, the Commission is approving the proposed rule change. II. Description In a cash-out merger, the common equity of the acquired company (‘‘Security’’) is converted into a right to receive a fixed amount of cash. On the day after the announced consummation date for the merger, the stock exchanges on which the Security is traded suspend all trading in the Security. Concurrently, the options exchanges discontinue trading in options overlying the Security. If a customer does not liquidate an out-of-the money option position before the exchange halts trading, its broker must carry the position until it expires. With increasing volume and the proliferation of options with long expiration dates, clearing members’ cost and operational overhead of carrying these positions is significant. In an effort to reduce these costs, OCC seeks to modify its rules to accelerate the expiration date of American-style 23 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 Securities Exchange Act Release No. 54793 (November 20, 2006), 71 FR 69172. 1 15 VerDate Aug<31>2005 14:58 Jan 24, 2007 Jkt 211001 equity options that are adjusted to call for a cash deliverable to the earliest practicable regular expiration date.3 The exercise by exception price threshold for the adjusted contracts will be $.01 per share of the amount of the cash deliverable.4 OCC will implement the foregoing rule changes on January 1, 2008, to allow clearing members and customers sufficient time to prepare for the change of methodology. OCC will not implement the rule changes until definitive copies of an appropriate revision of or supplement to the options disclosure document, Characteristics and Risks of Standardized Options, are available for distribution. particular Section 17A of the Act and the rules and regulations thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,8 that the proposed rule change (File No. SR– OCC–2006–20) be and hereby is approved. III. Discussion Section 19(b) of the Act directs the Commission to approve a proposed rule change of a self-regulatory organization if it finds that such proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to such organization.5 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.6 The Commission finds that OCC’s rule change is consistent with these requirements because by accelerating the expiration date of American-style equity options that are adjusted to call for a cash deliverable OCC makes procedures for clearance and settlement of these options more efficient and thereby reduces unnecessary costs on investors and persons facilitating transactions by and acting on behalf of investors. As such, the proposed rule change should better enable OCC to promote the prompt and accurate clearance and settlement of securities transactions.7 Reporting and Recordkeeping Requirements Under OMB Review 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 3 OCC rules currently contain a provision for acceleration of the expiration date of European-style equity options that have been converted to a cash deliverable. 4 Every option contract that has an exercise price below (in the case of a call) or above (in the case of a put) the amount of the cash deliverable by $.01 or more will be deemed to have been exercised immediately prior to the accelerated expiration time unless the clearing member directs otherwise. OCC also is making a conforming change to Rule 1106. 5 15 U.S.C. 78s(b). 6 15 U.S.C. 78q–1(b)(3)(F). 7 In approving the proposed rule change, the Commission considered the proposal’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 For the Commission by the Division of Market Regulation, pursuant to delegated authority.9 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–1059 Filed 1–24–07; 8:45 am] BILLING CODE 8011–01–P SMALL BUSINESS ADMINISTRATION Small Business Administration. Notice of Reporting Requirements Submitted for OMB Review. AGENCY: ACTION: SUMMARY: Under the provisions of the Paperwork Reduction Act (44 U.S.C. Chapter 35), agencies are required to submit proposed reporting and recordkeeping requirements to OMB for review and approval, and to publish a notice in the Federal Register notifying the public that the agency has made such a submission. DATES: Submit comments on or before February 26, 2007. If you intend to comment but cannot prepare comments promptly, please advise the OMB Reviewer and the Agency Clearance Officer before the deadline. Copies: Request for clearance (OMB 83–1), supporting statement, and other documents submitted to OMB for review may be obtained from the Agency Clearance Officer. ADDRESSES: Address all comments concerning this notice to: Agency Clearance Officer, Jacqueline White, Small Business Administration, 409 3rd Street, SW., 5th Floor, Washington, DC 20416; and David_Rostker@omb.eop.gov, fax number 202–395–7285 Office of Information and Regulatory Affairs, Office of Management and Budget. FOR FURTHER INFORMATION CONTACT: Jacqueline White, Agency Clearance Officer, jacqueline.white@sba.gov (202) 205–7044. SUPPLEMENTARY INFORMATION: Title: Pro-Net. Form No: N/A. Frequency: On Occasion. Description of Respondents: Small Firms. 8 15 9 17 E:\FR\FM\25JAN1.SGM U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 25JAN1

Agencies

[Federal Register Volume 72, Number 16 (Thursday, January 25, 2007)]
[Notices]
[Page 3466]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-1059]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55124; File No. SR-OCC-2006-20]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving Proposed Rule Change To Accelerate the Expiration Date 
of American-Style Equity Options That Have Been Adjusted To Call for 
Cash-Only Delivery

January 18, 2007.

I. Introduction

    On October 26, 2006, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') 
proposed rule change SR-OCC-2006-20 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 November 29, 2006.\2\ The 
Commission received no comment letters. For the reasons discussed 
below, the Commission is approving the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 54793 (November 20, 
2006), 71 FR 69172.
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II. Description

    In a cash-out merger, the common equity of the acquired company 
(``Security'') is converted into a right to receive a fixed amount of 
cash. On the day after the announced consummation date for the merger, 
the stock exchanges on which the Security is traded suspend all trading 
in the Security. Concurrently, the options exchanges discontinue 
trading in options overlying the Security. If a customer does not 
liquidate an out-of-the money option position before the exchange halts 
trading, its broker must carry the position until it expires. With 
increasing volume and the proliferation of options with long expiration 
dates, clearing members' cost and operational overhead of carrying 
these positions is significant.
    In an effort to reduce these costs, OCC seeks to modify its rules 
to accelerate the expiration date of American-style equity options that 
are adjusted to call for a cash deliverable to the earliest practicable 
regular expiration date.\3\ The exercise by exception price threshold 
for the adjusted contracts will be $.01 per share of the amount of the 
cash deliverable.\4\
---------------------------------------------------------------------------

    \3\ OCC rules currently contain a provision for acceleration of 
the expiration date of European-style equity options that have been 
converted to a cash deliverable.
    \4\ Every option contract that has an exercise price below (in 
the case of a call) or above (in the case of a put) the amount of 
the cash deliverable by $.01 or more will be deemed to have been 
exercised immediately prior to the accelerated expiration time 
unless the clearing member directs otherwise. OCC also is making a 
conforming change to Rule 1106.
---------------------------------------------------------------------------

    OCC will implement the foregoing rule changes on January 1, 2008, 
to allow clearing members and customers sufficient time to prepare for 
the change of methodology. OCC will not implement the rule changes 
until definitive copies of an appropriate revision of or supplement to 
the options disclosure document, Characteristics and Risks of 
Standardized Options, are available for distribution.

III. Discussion

    Section 19(b) of the Act directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
such proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to such 
organization.\5\ 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.\6\ The 
Commission finds that OCC's rule change is consistent with these 
requirements because by accelerating the expiration date of American-
style equity options that are adjusted to call for a cash deliverable 
OCC makes procedures for clearance and settlement of these options more 
efficient and thereby reduces unnecessary costs on investors and 
persons facilitating transactions by and acting on behalf of investors. 
As such, the proposed rule change should better enable OCC to promote 
the prompt and accurate clearance and settlement of securities 
transactions.\7\
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78s(b).
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
    \7\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
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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 Section 17A of the Act and the rules and regulations 
thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (File No. SR-OCC-2006-20) be and 
hereby is approved.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-1059 Filed 1-24-07; 8:45 am]
BILLING CODE 8011-01-P