As filed with the Securities and Exchange Commission on March 31, 1997
Registration No. 333-3654
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-20
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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THE OPTIONS CLEARING CORPORATION
(Exact name of registrant as specified in its charter)
440 South LaSalle Street
Suite 2400
Chicago, Illinois 60605
312-322-6200
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Wayne P. Luthringshausen, Chairman
The Options Clearing Corporation
440 South LaSalle Street
Suite 2400
Chicago, Illinois 60605
312-322-6200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With a copy to:
William H. Navin
Schiff Hardin & Waite
7200 Sears Tower
Chicago, Illinois 60606
312-258-5534
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Amending Part I and Part II
<PAGE> 2
THE OPTIONS CLEARING CORPORATION
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CROSS REFERENCE SHEET
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Pursuant to Rule 404(c) Showing Location in the Prospectus of
Information Required by Items of Form S-20
Item Number and Caption Prospectus Section
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus Cover Page
2. Description of Registrant The Options Clearing
Corporation
3. Description of Securities to
be Registered Description of Options
<PAGE> 3
PROSPECTUS
[LOGO]
THE OPTIONS CLEARING CORPORATION
PUT AND CALL OPTIONS
This prospectus pertains to put and call options ("Options")
issued by The Options Clearing Corporation ("OCC").
CERTAIN TYPES OF TRANSACTIONS IN OPTIONS INVOLVE A HIGH DEGREE OF
RISK AND ARE NOT SUITABLE FOR MANY INVESTORS. INVESTORS SHOULD
UNDERSTAND THE NATURE AND EXTENT OF THEIR RIGHTS AND OBLIGATIONS AND
BE AWARE OF THE RISKS INVOLVED. AN OPTIONS DISCLOSURE DOCUMENT
CONTAINING A DESCRIPTION OF THE RISKS OF OPTIONS TRANSACTIONS IS
REQUIRED, UNDER U.S. LAWS, TO BE FURNISHED TO OPTIONS INVESTORS. THAT
DOCUMENT IS ENTITLED CHARACTERISTICS AND RISKS OF STANDARDIZED
OPTIONS. INVESTORS MAY OBTAIN IT FROM THEIR BROKERS. THAT DOCUMENT IS
NOT A PART OF THIS PROSPECTUS, AND IT IS NOT INCORPORATED HEREIN BY
REFERENCE OR OTHERWISE.
Financial statements of OCC and certain additional information
required to be contained in Part II of the registration statement of
which this prospectus forms a part, other than exhibits, may be
obtained without charge upon request from OCC. The exhibits required
to be contained in Part II may be inspected at the offices of OCC or
obtained from OCC or from the Securities and Exchange Commission
("SEC") upon payment of the applicable fee.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------
The date of this prospectus is April 30, 1997.
<PAGE> 4
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS ON BEHALF OF OCC OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
OCC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OPTIONS IN
ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER. THE DELIVERY OF THIS PROSPECTUS DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
Certain Options issued by OCC and traded on U.S. exchanges may
also be traded on non-U.S. exchanges. Options issued by OCC that are
traded on non-U.S. exchanges are identical to Options having the same
terms that are traded on U.S. exchanges. A United States investor
desiring to effect transactions in OCC-issued Options on non-U.S.
exchanges generally can do so through a United States broker who is a
member of the non U.S. exchange or who maintains an affiliation or
correspondent relationship with a member of that exchange. Investors
should bear in mind that non-U.S. exchanges, transactions in Options
executed on such exchanges, and non-U.S. members of such exchanges
are not subject to regulation by the SEC, are not generally subject to
the requirements of the securities or other laws of the United States,
and may not be subject to the jurisdiction of courts in the United
States.
<PAGE> 5
THE OPTIONS CLEARING CORPORATION
OCC was organized as a corporation in 1972 under the laws of the
state of Delaware. OCC is owned equally by the U.S. exchanges that
provide markets in Options. As of the date of this prospectus, those
exchanges are the American Stock Exchange, Inc., the Chicago Board
Options Exchange, Incorporated ("CBOE"), the New York Stock Exchange,
Inc. ("NYSE"), the Pacific Stock Exchange Incorporated, and the
Philadelphia Stock Exchange, Inc. The NYSE has agreed, subject to
certain conditions, to transfer its Options market to the CBOE. OCC
expects to repurchase the shares of its stock held by the NYSE after
the transfer becomes effective.
OCC's principal business consists of issuing Options, providing
facilities for the clearance and settlement of transactions in
Options, and providing incidental services to its Clearing Members and
to the markets on which Options are traded. (Clearing Members are
organizations-generally securities firms-that assume responsibility to
OCC for the settlement of transactions in Options and the performance
of the obligations undertaken by writers of Options.)
OCC is managed by a board of directors consisting of nine
directors who represent Clearing Members, one director representing
each of the exchanges named above, one public director, and the chief
executive officer of OCC.
The principal executive offices of OCC are located at 440 South
LaSalle Street, Chicago, Illinois 60605, telephone (312) 322-6200.
DESCRIPTION OF OPTIONS
GENERAL
The Options covered by this prospectus are put and call options
issued by OCC. As of the date of this prospectus, Options are traded
or approved for trading on common stocks and certain other equity
securities, including preferred stocks, publicly traded limited
partnership interests, and American Depositary Receipts, all of which
are included in the term "stock" as used in this prospectus. Options
are also currently traded or approved for trading on United States
Treasury bonds, notes, and bills (sometimes referred to below as "debt
instruments"), on foreign currencies, on stock indexes, and on the
yields of certain Treasury securities. Stock, debt instruments,
currencies, and indexes on which Options are traded are referred to as
"underlying interests." Options may be traded on other underlying
interests in the future.
There are three "styles" of Options-American, European, and
capped. Subject to certain limitations prescribed in the by-laws and
rules of OCC, an American-style Option may be exercised at any time
prior to expiration. A European-style Option or a capped Option may
be exercised only at expiration. In addition, a capped Option will be
automatically exercised if the value of the underlying interest on any
<PAGE> 6
trading day (determined at a specified time of day) equals or exceeds
(in the case of a call Option), or equals or is less than (in the case
of a put Option), the pre-established "cap price" for the Option.
Certain American-style and European-style Options will be
automatically exercised at expiration if they are in the money or in
the money by a minimum amount. An Option holder may determine from
his broker whether and under what circumstances the Option will be
automatically exercised; and, if the Option will not be automatically
exercised, what steps the holder must take in order to exercise.
Some Options call for the delivery of the underlying interest
against payment of the exercise price. When an Option of that type is
exercised, subject to limitations that may be imposed by OCC pursuant
to its by-laws and rules, the exercising holder sells (in the case of
a put) or buys (in the case of a call) the number of shares or other
units of the underlying interest covered by the Option at a fixed or
determinable exercise price. Other Options are "cash-settled." When a
cash-settled Option is exercised, the holder is entitled to receive a
cash "exercise settlement amount." The exercise settlement amount for
a cash-settled Option is equal to the product of (i) the difference
between the exercise price of the Option and the settlement value of
the underlying interest as of a specified date and time (or, in the
case of a capped Option that is automatically exercised, the cap
price) and (ii) the number of units of the underlying interest covered
by the Option, or, in the case of Options on indexes or yields, a
fixed "multiplier."
As of the date of this prospectus, an exchange has proposed to
trade "packaged spread Options" and another exchange has proposed to
trade "differential Options." Upon receipt of all necessary SEC
approvals, such Options will be issued by OCC. A packaged spread
Option is a cash-settled European-style Option which, upon exercise,
calls for the payment by the assigned writer to the exercising holder
of an amount equal to the net exercise settlement values of the
options comprising a specified type of spread position. A
differential Option is a cash-settled European-style Option based on
the differential (positive in the case of a call or negative in the
case of a put) between the percentage price performance of a
designated interest and that of a benchmark interest over the life of
the Option.
Certain Options may provide for payments or deliveries prior to
exercise, such as dividend equivalent payments.
OBLIGATIONS OF OCC
The obligations of OCC to holders and writers of Options are
prescribed in its by-laws and rules, copies of which may be obtained
as described under "Additional Information" below. The following is a
brief summary of some, but not all, of those obligations, and is
qualified in its entirety by the provisions of the by-laws and rules
themselves.
<PAGE> 7
1. Acceptance and Rejection of Transactions
----------------------------------------
If a market reports an Option transaction to OCC on a timely
basis, OCC ordinarily becomes obligated to "accept" the transaction-
that is, to issue the Option if the buyer was engaging in an opening
purchase transaction or to cancel a pre-existing writer's position if
the buyer was engaging in a closing purchase transaction-on the
following business day. When OCC issues Options, it assumes the
obligations described below under "Exercise and Settlement." OCC has
no obligation with respect to any transaction in Options unless and
until the transaction is reported to OCC by the responsible market.
In the case of certain Options, OCC reserves the right to reject even
properly reported transactions if the Clearing Member representing the
buyer fails to meet when due its total net obligations to OCC. If a
transaction is rejected for nonpayment of premiums, the writer may
have remedies under the rules of the market where the transaction took
place.
2. Exercise and Settlement
-----------------------
When OCC issues an Option, it becomes obligated to purchase (in
the case of a put) or sell (in the case of a call) the underlying
interest for the stated exercise price (or, in the case of a cash-
settled Option, to pay the exercise settlement amount) if the Option
is exercised. The procedures whereby OCC discharges these obligations
are prescribed in the by-laws and rules of OCC, and are summarized
below.
After an Option is exercised, OCC assigns the exercise to a
Clearing Member whose account with OCC reflects the writing of an
Option of the same series as the exercised Option. The assigned
Clearing Member then becomes obligated to perform OCC's obligations on
its behalf-that is, to purchase the underlying interest (in the case
of an exercised put) or to sell the underlying interest (in the case
of an exercised call) for the specified exercise price, or, to pay the
exercise settlement amount in the case of a cash-settled Option.
While an American-style Option normally can be exercised at any
time prior to its expiration, and a European-style or capped-style
Option ordinarily can be exercised at expiration, both OCC and the
Options markets have the authority to restrict the exercise of Options
at certain times in specified circumstances. It also is possible that
a court, the SEC or another regulatory agency having jurisdiction
would impose a restriction which would have the effect of restricting
the exercise of an Option or settlement of such exercise. If a
restriction on exercise is imposed at a time when trading in the
Option has also been halted, holders of that Option may be locked into
their positions until either the restriction or the trading halt has
been lifted. Further, certain restrictions could prevent exercise
<PAGE> 8
throughout the exercise period, in which event an Option would expire
worthless.
A. STOCKS. Settlement obligations among Clearing Members
resulting from the exercise of Options calling for the delivery of
stocks, like those resulting from other purchases and sales of stock,
are ordinarily discharged through stock clearing corporations. Like
OCC, these clearing corporations are registered with the SEC as
clearing agencies, and their rules are subject to SEC review. After
an exercise of an Option calling for the delivery of stock has been
assigned as described above, OCC will report the exercise to the stock
clearing corporation(s) designated for settlement purposes by the
exercising and the assigned Clearing Members (or their agents). Each
Clearing Member then looks to its own clearing corporation for
settlement, and receives delivery of the underlying stock or payment
of the exercise price, as the case may be, in accordance with the
rules of that clearing corporation. The clearing corporation in turn
looks to the other Clearing Member (if both Clearing Members
designated the same clearing corporation), or to the stock clearing
corporation designated by the other Clearing Member, for an offsetting
delivery or payment. When an exercise is submitted to one or more
stock clearing corporations for settlement and not rejected by them,
the responsibility for completing the settlement passes from OCC to
the stock clearing corporation(s). This occurs on or prior to the
exercise settlement date, at a time determined by agreement between
OCC and the stock clearing corporations. After that time, OCC has no
further responsibility to its Clearing Members for the exercise.
Instead, rights and responsibilities run between the exercising and
assigned Clearing Members and their respective stock clearing corpora-
tions. In unusual circumstances, OCC may require that particular
exercises (or exercises of stock Options generally) be settled
directly between the exercising and the assigned Clearing Members. In
those cases, OCC's obligations are discharged when the aggregate
exercise price in the case of a put, or the underlying stock in the
case of a call, is delivered to the exercising Clearing Member.
B. DEBT INSTRUMENTS. Exercises of Options requiring delivery
of debt instruments are settled directly between the exercising and
the assigned Clearing Members or their agents. OCC's obligations are
discharged when the aggregate exercise price in the case of a put, or
the deliverable underlying debt instrument in the case of a call, is
delivered to the exercising Clearing Member.
C. FOREIGN CURRENCIES. Exercises of Options requiring delivery
of foreign currencies are settled through OCC. Currencies are
delivered to OCC, and redelivered by OCC to the receiving Clearing
Members, through banking channels that make the underlying currency
available to the recipient in the country of origin. Exercise prices
are paid to OCC, and credited by OCC to the accounts of the delivering
Clearing Members, either through OCC's regular cash settlement system
or through the banking channels used for delivery of the underlying
currencies. Certain foreign currency Options have exercise prices
<PAGE> 9
that are denominated in currencies other than U.S. dollars (E.G.,
Options to purchase British pounds for Japanese yen). Payment of
exercise prices denominated in foreign currencies and delivery of the
underlying currencies are effected through banking arrangements
established for that purpose by OCC in the country of origin of the
currency being paid or delivered.
Clearing Members may arrange in some cases for delivery of
underlying foreign currency and payment of exercise prices to be made
directly between a customer's bank account and an OCC correspondent
bank. In some cases, OCC may act as an agent for The Intermarket
Clearing Corporation ("ICC"), a subsidiary of OCC, in making foreign
currency settlements with Clearing Members, and settlements between
OCC and ICC may be netted. ICC's settlement procedures are the same
as OCC's. OCC's obligations to the exercising Clearing Member are
discharged when the aggregate exercise price in the case of a put, or
the underlying currency in the case of a call, is delivered to the
Clearing Member.
D. CASH SETTLEMENTS. Exercises of cash-settled Options are
settled through OCC. The exercise settlement amount is credited to
the exercising Clearing Member's settlement account with OCC and
charged to the account of the assigned Clearing Member. OCC's
obligations are discharged when the exercise settlement amount is
credited to the account of the exercising Clearing Member. In the
future, exchanges may introduce cash-settled Options with exercise
settlement amounts payable in currencies other than U.S. dollars. OCC
and Clearing Members would pay and receive such amounts through
banking channels that make the relevant currency available to the
recipient in the country of origin.
Exercise settlement amounts for cash-settled Options are
calculated based upon values or prices for the underlying interests
determined in accordance with procedures specified in the by-laws and
rules of OCC or in the rules of the exchanges on which the Options are
traded. Special discretionary procedures for determining exercise
settlement amounts may apply when values or prices of the underlying
interests are unreported or otherwise unavailable or have been
affected by trading halts or other unusual conditions.
E. NET SETTLEMENT. If a Clearing Member is obligated both to
purchase and to sell a particular underlying interest for the same
exercise price on the same exercise settlement date, OCC may offset
the Clearing Member's purchase and sale obligations against each
other, so that only the net purchase obligation or the net sale
obligation will have to be settled as described above. Where an
exercise is settled by offset, OCC has no further responsibility in
respect of that exercise. OCC may net a Clearing Member's purchase
and sale obligations with respect to foreign currencies even where the
purchase and sale are at different exercise prices. In that event,
the difference in exercise prices is settled in cash between OCC and
the Clearing Member.
<PAGE> 10
F. SETTLEMENT WITH CUSTOMERS. The foregoing describes the
system for exercise settlements among OCC and its Clearing Members.
Clearing Members settle independently with their customers (or with
brokers representing customers). OCC has no responsibility for
settlements between a Clearing Member or broker and its customer or
for the funds or securities of a customer that are held by a Clearing
Member or broker.
G. SHORTAGES OF UNDERLYING INTERESTS. In certain circumstances
involving shortages of underlying securities or currencies or in other
unusual situations, OCC has the power to impose special exercise
settlement procedures. These special procedures may involve delaying
settlements or fixing of cash settlement prices in lieu of delivery of
the underlying security or currency. In such circumstances OCC also
may prohibit the exercise of puts by holders who would be unable to
deliver the underlying security or currency on the exercise settlement
date. In the event of a shortage of an underlying debt instrument,
OCC may permit the delivery of other, generally comparable securities,
and may adjust the exercise prices of affected Options to compensate
for such substitute deliveries.
3. Remedies
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A. GENERAL RULE. If an exercising or an assigned Clearing
Member is suspended by OCC, with the result that a pending exercise
will not be settled in the ordinary course, or if a Clearing Member
fails to make settlement for an exercise that was to have been settled
directly with another Clearing Member or an exercise of foreign
currency Options, OCC may require that the underlying interest be
bought in or sold out by the non-defaulting party to the exercise.
Losses on such transactions constitute senior claims against certain
assets of the defaulting Clearing Member in the possession of OCC, and
are compensable out of OCC's Clearing Funds (see "The Back-Up System")
to the extent that those assets are insufficient. In addition, losses
sustained by an exercising Clearing Member would constitute claims
against the general assets of OCC.
B. CASH-SETTLED PRODUCTS. Even if a Clearing Member that is a
party to an exercise of a cash-settled Option is suspended or fails to
pay the exercise settlement amount to OCC, OCC is obligated to settle
with all Clearing Members that have filed exercise notices that were
assigned to the suspended or defaulting Clearing Member.
C. SETTLEMENTS THROUGH STOCK CLEARING CORPORATIONS. After
responsibility for completing a settlement passes to one or more stock
clearing corporations as described above, the exercising and assigned
Clearing Members have no further rights against OCC or any assets in
its possession.
D. TENDER OFFERS, ETC. If an exercising or an assigned
Clearing Member fails to make timely delivery of an underlying
<PAGE> 11
security on the exercise settlement date, and as a result another
party is unable to deliver the security in sufficient time to
participate in a tender offer, exchange offer, or other transaction,
the Clearing Member that failed to make timely delivery may be held
liable for any loss sustained by the other party. Similarly, a
Clearing Member may seek to hold its customer liable for losses
sustained due to the customer's failure to make timely delivery.
4. The Back-Up System
------------------
OCC's settlement procedures are designed so that for every
outstanding Option there will be a writer-and a Clearing Member that
is or that represents the writer-of an Option of the same series who
has undertaken to perform OCC's obligations in the event that an
exercise is assigned to such writer. As a result, no matter how many
Options of a given series may be outstanding at any time, there will
always be a group of writers of Options of the same series who, in the
aggregate, have undertaken to perform OCC's obligations with respect
to such Options.
A customer who writes an Option is contractually bound to its
broker to perform in accordance with the terms of the Option. These
contractual obligations are secured by the securities or other margin
that the customer is required to deposit with its broker.
Clearing Members are contractually bound to perform their
obligations to OCC regardless of whether their customers perform.
Standing behind a Clearing Member's obligations are the Clearing
Member's net capital, the Clearing Member's margin deposits with OCC,
OCC's lien and setoff rights with respect to certain of the Clearing
Member's assets, and the Clearing Funds.
A. THE CLEARING MEMBER'S NET CAPITAL. Every U.S. Clearing
Member must have an initial net capital (as defined in SEC rules) of
$1 million or more, depending on the nature and magnitude of its
assets and obligations. A Clearing Member's net capital may fall to
less than that amount as a result of transactions in the regular
course of business, but a Clearing Member may not engage in or clear
any opening transaction if its net capital falls below $750,000 or a
greater amount determined in accordance with the rules of OCC.
Certain non-U.S. Clearing Members may elect to comply with alternative
financial requirements. These alternative requirements may be more or
less stringent than those applicable to U.S. Clearing Members. A
Clearing Member's assets are, of course, subject to claims by
creditors other than OCC.
OCC obtains certain financial reports from each Clearing Member
on a monthly basis, and may require more frequent reports. In
appropriate cases, OCC may impose restrictions on a Clearing Member's
operations, such as a prohibition on opening transactions or a
<PAGE> 12
requirement that the Clearing Member reduce or eliminate certain
writing positions.
When options issued by OCC are traded on non-U.S. exchanges,
clearinghouses associated with those exchanges ("Associate
Clearinghouses") may maintain Options accounts with OCC. The
financial and reporting requirements applicable to Associate
Clearinghouses, as well as OCC's ability to impose restrictions on
positions carried by Associate Clearinghouses, would be subject to
agreements between OCC and the Associate Clearinghouses.
B. THE CLEARING MEMBER'S MARGIN DEPOSITS. Subject to certain
exceptions described below, each Clearing Member is required to
deposit and maintain margin with OCC with respect to each Option for
which it represents the writer. Several different forms of margin are
permitted, including cash, marketable securities and bank letters of
credit, and certain margin assets may be denominated in foreign
currencies. OCC may in the future accept margin deposits in still
other forms.
The amount of margin is specified by OCC in accordance with its
rules, and may be reduced to the extent a Clearing Member is permitted
or required to pledge to OCC certain Options positions carried in its
accounts with OCC. OCC may require any Clearing Member to deposit
higher margins at any time in the event it deems such action necessary
and appropriate in the circumstances to protect the interests of other
Clearing Members, OCC or the public. OCC may waive a margin deposit
that would otherwise be required to be made if it determines that the
waiver is advisable in the public interest and for the protection of
investors and is consistent with maintaining OCC s financial
integrity.
OCC has implemented "cross-margining" arrangements with various
commodity clearing organizations. Under these arrangements, OCC
Clearing Members that are also members of one or more of the
participating commodity clearing organizations, or that have
affiliates that are members of such clearing organizations, can pledge
positions in certain Options to secure their obligations (or
obligations of their designated affiliates) in respect of positions in
related futures and futures options and vice versa. The obligations
of one or more participating commodity clearing organizations are
substituted in whole or in part for the Clearing Member's obligations
to deposit margin in respect of cross-margined Option writing
positions. Margin deposited in satisfaction of any remaining margin
requirement in respect of cross-margined Options, futures and futures
options positions is held jointly for the benefit of OCC and the
participating commodity clearing organizations.
OCC also functions as an intermediary in stock lending and
borrowing transactions among participating Clearing Members.
Positions representing the rights and obligations of the borrowing or
lending Clearing Member to OCC are carried in the Clearing Member's
<PAGE> 13
accounts at OCC. A Clearing Member's margin requirements reflect the
increase or decrease in risk to OCC associated with the inclusion of
those positions in the Clearing Member's accounts.
Margin deposited by a Clearing Member may be applied only to the
obligations of that Clearing Member and its designated affiliates and
may not be applied to the obligations of other Clearing Members or the
obligations of OCC itself.
In lieu of depositing margin with respect to writing positions in
certain call Options, a Clearing Member may deposit the underlying
interest, or, in the case of index Options, a combination of cash and
marketable securities with an aggregate initial value determined in
accordance with the rules of OCC. In lieu of depositing margin with
respect to writing positions in certain put Options, a Clearing Member
may deposit cash and/or short-term government securities with an
aggregate initial value not less than the aggregate exercise price.
Cash and securities deposited in lieu of margin must be placed with a
depository satisfactory to OCC under agreements requiring their
delivery or liquidation and payment of the proceeds in the event that
the writer is required to perform its exercise settlement obligations
with respect to the position covered by the deposit.
OCC has no reason to believe that any depository holding margin
deposits or deposits made in lieu of margin will not deliver them in
accordance with the terms of its agreement with OCC, or that any bank
will not honor letters of credit issued to OCC for margin purposes.
However, there can be no assurance that a bank or other depository
will not delay or default in performing these or other obligations to
OCC, or be restrained by court order or regulatory action from
performing these obligations, and such delays or defaults could
adversely affect OCC's ability to perform its obligations as the
issuer of Options.
C. OCC'S LIEN AND SETOFF RIGHTS. OCC has a lien on, and setoff
right against, certain securities, margin deposits, funds and other
assets maintained in Clearing Members accounts with OCC. If a
Clearing Member does not perform its obligations to OCC, these assets
may be sold or converted to cash and the proceeds applied to the
performance of the Clearing Member's obligations to OCC (such
application being limited, in certain cases, to obligations arising
from the same account in which the assets were held).
D. THE CLEARING FUNDS. OCC's rules provide for Clearing Funds
composed of mandatory deposits by Clearing Members. These Funds are
for the protection of OCC and are not general indemnity funds
available to other persons, such as customers of Clearing Members.
The amounts of the Funds vary over time, based on formulas designed to
reflect OCC's risk exposure. The proportionate contribution of each
Clearing Member takes into account the size of the Clearing Member's
positions relative to the positions of all Clearing Members. All
Clearing Fund deposits must be made in cash or by the deposit of
<PAGE> 14
government securities having a maturity of ten years or less, except
that OCC may agree with an Associate Clearinghouse that its Clearing
Fund deposit may be made in different or additional forms.
If a Clearing Member fails to discharge any obligation to OCC in
connection with Options or stock loan/borrow transactions, its
deposits to the Clearing Funds may be applied to the discharge of that
obligation. If a Clearing Member's obligation to OCC exceeds its
deposits to the Clearing Funds, the amount of the deficiency may be
charged by OCC on a predetermined basis against all other Clearing
Members' deposits to the Clearing Funds. OCC also may charge to the
Clearing Funds, on the same basis, certain other losses resulting from
its business as a clearing agency and issuer of securities. Whenever
amounts are paid out of Clearing Funds as a result of such a charge,
Clearing Members are required promptly to make good any deficiency in
their deposits resulting from such payment, except that a Clearing
Member is not required to pay more than an additional 100% of the
amount of its prescribed deposits to a Clearing Fund if it ceases to
clear transactions in Options of the types for which the applicable
Clearing Fund was established and promptly closes out or transfers all
of its positions in such Options.
Under certain limited circumstances, OCC may borrow against the
Clearing Funds on a short term basis to meet obligations arising out
of the suspension of a Clearing Member and related actions taken by
OCC or to cover losses resulting from bank or clearing organization
failures.
OCC will also have available its own assets in the event that the
Clearing Funds are insufficient However, these assets are small
relative to the magnitude of OCC's potential obligations.
CERTIFICATELESS TRADING
No certificates are issued to evidence Options. Investors look
to the confirmations and statements that they receive from their
brokers to confirm their positions as holders or writers of Options.
ADDITIONAL INFORMATION
Certain additional information, which is neither part of this
prospectus nor incorporated herein in any way, can be obtained as
described below:
1. The document entitled CHARACTERISTICS AND RISKS OF
STANDARDIZED OPTIONS referred to on the cover page of this
prospectus may be obtained by U.S. customers from their
brokers.
2. The by-laws and rules of OCC, as the same may be amended
from time to time, are filed with the SEC under the
Securities Exchange Act of 1934. These filings may be
<PAGE> 15
obtained from the SEC upon payment of the fees prescribed by
the SEC.
3. The constitutional provisions, rules, regulations and other
requirements of the U.S. exchanges that are authorized to
provide markets in Options, and of the stock clearing
corporations through which exercises of stock Options are
settled, are required to be filed with the SEC. These
filings may be obtained from the SEC upon payment of the
fees prescribed by the SEC. Copies of corresponding
documents relating to non-U.S. exchanges that provide
markets in Options may be obtained in accordance with the
rules applicable to those exchanges. OCC is not responsible
for the content, interpretation, sufficiency or enforcement
of such provisions, rules, regulations, other requirements
or documents.
4. The financial statements of OCC and certain other
information may be obtained as described on the cover page
of this prospectus.
<PAGE> 16
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 4. DIRECTORS AND EXECUTIVE OFFICERS.
OCC's by-laws provide for a board of directors consisting of nine
Member Directors elected by Clearing Members, one Exchange Director
designated by each of the self-regulatory organizations authorized to
provide a market in Options, one Public Director who is not affiliated
with any national securities exchange or national securities
association or any broker or dealer in securities, and one Management
Director who is the chief executive officer of OCC. The nine Member
Directors, who are selected by a Nominating Committee (or by vote of
the Clearing Members where nominees have been proposed by petition),
are divided into three classes whose terms are staggered so that three
directors are elected each year. The Public Director (who is nominated
by the Chairman of the Board with the approval of the Board of
Directors) is currently elected for a term of two years. Under a
recently proposed amendment to OCC s By-laws, the Public Director will
be elected for a term of three years. The Exchange Directors and the
Management Director are elected for a term of one year. The
Nominating Committee is composed of six representatives of Clearing
Members who are elected in the same manner as Member Directors. Terms
expire in April of each year.
As of the effective date of this Registration Statement, the
directors and executive officers of OCC are as follows:
DIRECTORS
WAYNE P. LUTHRINGSHAUSEN, age 53, has been the Management
Director of OCC since 1973. He has served as Chairman of the Board
and Chief Executive Officer of OCC for over five years. His present
term as a director of OCC expires in April, 1998.
MARC L. BERMAN, age 51, has been a Member Director of OCC since
1992. Mr. Berman has been the Vice President and Managing Director of
SBC Derivatives, Inc., a Clearing Member of OCC, and Managing
Director/Legal Affairs of Swiss Bank Corporation, the parent of SBC
Derivatives, Inc., since 1992. Mr. Berman was General Counsel of
O'Connor & Associates from 1986 until 1992 and was a partner of that
firm from 1989 until its assets were acquired by SBC Capital Markets
Inc. in January, 1995. His present term as a director of OCC expires
in April, 1998.
W. GORDON BINNS, JR., age 67, has been a Public Director of OCC
since 1993. Mr. Binns has been a member of the Investment Advisory
Committee of the Virginia Retirement System since 1994 (and its
chairman until June 30, 1996). He was President and Chief Executive
Officer of General Motors Investment Management Corporation from 1990
<PAGE> 17
until 1994 and was Vice President of General Motors and its Chief
Investment Funds Officer from 1986 until 1994. Mr. Binns serves as a
director of Equity Fund of Latin America, Commonwealth Equity Fund,
and Taubman Centers, Inc. Mr. Binns also serves on several non-profit
boards. His present term as a director of OCC expires in April, 1999.
DOUGLAS J. ENGMANN, age 49, has been a Member Director of OCC
since 1992. Mr. Engmann has been President and co-founder of Sage
Clearing L.P., a securities firm and a Clearing Member of OCC, since
1980. His present term as a director of OCC expires in April, 1999.
FREDDY ENRIQUEZ, age 56, has been a Member Director of OCC since
April, 1995. Mr. Enriquez has been the First Vice President and
Director of Global Equity Operations for Merrill Lynch Pierce Fenner &
Smith, Inc., a securities firm and a Clearing Member of OCC, since
1992. From 1982 to 1992, Mr. Enriquez was the Vice President of
Global Equity Operations for Merrill Lynch Pierce Fenner & Smith, Inc.
His present term as a director of OCC expires in April, 1998.
NICHOLAS A. GIORDANO, age 54, has been an Exchange Director of
OCC, representing the Philadelphia Stock Exchange, Inc., since 1978.
Mr. Giordano has been President and Chief Executive Officer of that
exchange since 1981. His present term as a director of OCC expires in
April, 1998.
ALFRED J. GOLDEN, age 62, has been a Member Director of OCC since
1992. Mr. Golden has been Executive Vice President and Director of
Operations of Dean Witter Reynolds, Inc., a securities firm and a
Clearing Member of OCC, since 1985. Mr. Golden also serves as a
director of the National Securities Clearing Corporation. His present
term as a director of OCC expires in April, 2000.
ROBERT M. GREBER, age 59, has been an Exchange Director of OCC,
representing the Pacific Stock Exchange, Incorporated, since April,
1996. Mr. Greber has been Chairman and Chief Executive Officer of
that exchange since January, 1996. Mr. Greber was President and Chief
Operating Officer for that exchange from 1992 to 1996, and was the
Executive Vice President for Marketing and Strategic Planning for that
exchange from 1990 to 1992. His present term as a director of OCC
expires in April, 1998.
M. BLAIR HULL, age 54, has been a Member Director of OCC since
1993. Mr. Hull has been the Managing Principal, and was the founder,
of Hull Trading Company, LLC, a securities firm and a Clearing Member
of OCC, since 1985. His present term as a director of OCC expires in
April, 1999.
EDWARD J. JOYCE, age 45, has been an Exchange Director of OCC,
representing the Chicago Board Options Exchange, Incorporated, since
1991. He has been an Executive Vice President-Trading Operations of
that exchange since 1987. His present term as a director of OCC
expires in April, 1998.
<PAGE> 18
DAVID KRELL, age 50, has been an Exchange Director of OCC,
representing the New York Stock Exchange, Inc., since November, 1995.
Mr. Krell has been a Vice President of that Exchange since 1984. His
present term as a director of OCC expires in April, 1998.
PETER QUICK, age 41, has been a Member Director of OCC since
April, 1997. Mr. Quick has been the Vice President of U.S. Clearing
Corporation, a securities firm and a Clearing Member of OCC, and the
President of Quick and Reilly, Inc., a securities firm and the parent
of U.S. Clearing Corporation, since 1996. He was the President of The
Quick & Reilly Group, Inc., a securities firm, from 1994 to 1996.
From 1990 to 1994, Mr. Quick was the President of U.S. Clearing
Corporation. His present term as a director of OCC expires in April,
2000.
WILLIAM A. ROGERS, age 58, has been a Member Director of OCC
since April, 1994. Mr. Rogers has been the Chief Executive Officer of
Wayne Hummer Investments, LLC, a securities firm and a Clearing Member
of OCC, for over five years. Mr. Rogers also serves as a director of
the National Association of Securities Dealers, Inc. His present term
as a director of OCC expires in April, 2000.
HARVEY SILVERMAN, age 56, has been the Vice Chairman of the Board
of OCC since 1994 and a Member Director of OCC since 1993. Mr.
Silverman has been the Senior Managing Director and Chief Operations
Officer of Spear, Leeds & Kellogg, a securities firm and a Clearing
Member of OCC, since 1988. Mr. Silverman also serves as a member of
the Board of Governors of the American Stock Exchange. His present
term as a director of OCC expires in April, 1999.
JOSEPH B. STEFANELLI, age 58, has been an Exchange Director of
OCC, representing the American Stock Exchange, Inc., since December,
1995. Mr. Stefanelli has been Executive Vice President of that
exchange since 1993, and prior to that time had been a Senior Vice
President of that exchange. His present term as a director of OCC
expires in April, 1998.
MELVIN B. TAUB, age 53, has been a Member Director of OCC since
April, 1996. Mr. Taub has been a Senior Executive Vice President and
Director of Securities Operations and Information Services at Smith
Barney, Inc., a securities firm and a Clearing Member of OCC, since
1991. Mr. Taub also serves as a Director of the National Securities
Clearing Corporation and the Securities Industry Automation
Corporation and is a member of the NASDAQ Industry Advisory Committee.
His present term as a director of OCC expires in April, 1998.
NON-DIRECTOR EXECUTIVE OFFICERS
PAUL G. STEVENS, JR., age 52, has been President and Chief
Operating Officer of OCC since 1989 and has been the Treasurer and
Chief Financial Officer of OCC since 1994.
<PAGE> 19
GEORGE S. HENDER, age 54, has been Senior Executive Vice
President of OCC since 1990 and was General Counsel of OCC from 1992
until 1994.
RALPH E. PFAFF, age 58, has been Executive Vice President and
Corporate Information Officer of OCC since 1984.
NICHOLAS J. FERGADIS, age 59, has been a Senior Vice President of
OCC since 1982 and Chief Administrative Officer of OCC since 1986.
ITEM 5. LEGAL PROCEEDINGS.
None.
ITEM 6. LEGAL OPINIONS AND EXPERTS.
The opinion of Schiff Hardin & Waite, Chicago, Illinois,
counsel to OCC, as to the legality of the securities being registered
has been previously filed as an exhibit to the Registration Statement.
The consolidated Financial Statements of the Company as of
December 31, 1996 and 1995, and for the years then ended, included in
this Post-Effective Amendment No. 1 to the Registration Statement have
been audited by Deloitte and Touche LLP, Independent Auditors, as
dated in their report appearing herein, and included in reliance upon
the report of such firm given upon their authority as experts in
accounting and auditing.
ITEM 7. FINANCIAL STATEMENTS.
There are set forth below the audited statements of consolidated
financial condition of OCC and subsidiaries as of December 31, 1996
and 1995, and the related statements of consolidated income and
retained earnings for each of the three years in the period ended
December 31, 1996.
<PAGE> 20
STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION
Financial Statements
The Options Clearing Corporation and Subsidiaries
<TABLE>
<CAPTION>
<S> <C> <C>
December 31 1996 1995
----------- ---- ----
ASSETS:
Current Assets:
Cash and cash equivalents $20,271,231 $18,488,816
Accounts receivable 7,000,372 5,569,166
Exchange billing receivable Note 9 7,319,121 6,395,451
Due from participant exchanges Note 9 782,470 708,873
Other current assets 1,751,447 2,496,428
Deferred income taxes Note 10 1,513,322 1,411,729
---------- ----------
Total Current Assets 38,637,963 35,070,463
Property and Equipment:
Data processing equipment, furniture, etc. 7,054,228 6,664,817
Building and leasehold improvements 4,810,120 4,125,417
---------- ----------
Total property and equipment 11,864,348 10,790,234
Less accumulated depreciation and amortization (9,893,760) (9,076,743)
---------- ----------
Property and equipment-net 1,970,588 1,713,491
Clearing fund Note 4 587,207,000 461,232,000
Other assets 335,143 746,521
Deferred income taxes Note 10 999,145 1,133,344
---------- ----------
Total Assets $629,149,839 $499,895,819
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $1,188,224 $1,377,946
SEC fees payable 7,427,686 6,059,954
Income taxes payable 151,257 709,966
Refundable clearing fees Note 7 2,382,394 1,723,550
Exchange billing payable Note 9 7,319,121 6,395,451
Other accrued expenses 4,529,797 5,416,770
---------- ----------
Total Current Liabilities 22,998,479 21,683,637
Clearing fund Note 4 587,207,000 461,232,000
Commitments and contingent liabilities
Notes 2, 3, 4, 5, 8, 13
<PAGE> 21
Shareholders' Equity Note 5:
Common stock 600,000 600,000
Paid-in capital 1,393,332 1,393,332
Retained earnings 17,284,361 15,320,183
---------- ----------
Total 19,277,693 17,313,515
Less treasury stock (333,333) (333,333)
---------- ----------
Total Shareholders' Equity 18,944,360 16,980,182
---------- ----------
Total Liabilities and Shareholders' Equity $629,149,839 $499,895,819
============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 22
STATEMENTS OF CONSOLIDATED INCOME AND RETAINED EARNINGS
Financial Statements
The Options Clearing Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years Ended December 31 1996 1995 1994
----------------------- ---- ---- ----
REVENUES:
<S> <C> <C> <C>
Clearing fees Note 7 $48,890,851 $47,011,981 $44,499,820
Interest 2,982,415 2,255,708 1,078,747
Disclosure documents 457,392 390,369 1,502,545
Data processing service fees 2,104,161 2,023,754 2,029,553
Other 3,536,073 3,910,274 3,508,572
---------- ---------- ----------
Total Revenues 57,970,892 55,592,086 52,619,237
EXPENSES:
Employee costs 23,609,513 22,507,972 20,719,708
Data processing costs 12,842,707 10,154,623 9,506,589
Professional fees 6,133,179 6,082,934 4,537,648
General and administrative Note 9 7,357,265 7,332,590 7,093,871
Disclosure documents 345,885 279,515 1,211,891
Rental, other than data 3,520,423 5,135,437 3,764,890
processing equipment
Depreciation and amortization 817,016 861,619 781,003
---------- ---------- ----------
Total Expenses 54,625,988 52,354,690 47,615,600
---------- ---------- ----------
Income before provision for 3,344,904 3,237,396 5,003,637
taxes on income
Provision for Taxes on
Income Note 10
Federal-current 1,061,911 1,419,724 1,653,386
State and local-current 286,209 414,896 412,336
Federal-deferred 25,742 (500,008) (19,963)
State-deferred 6,864 (133,336) (2,348)
---------- ---------- ----------
Total Provision for Taxes
on Income 1,380,726 1,201,276 2,043,411
---------- ---------- ----------
Net income
[Earnings per Class B common
share-1996, $78.56; 1995, $81.44;
1994, $118.41]
Notes 1 and 5 1,964,178 2,036,120 2,960,226
<PAGE> 23
Retained Earnings,
Beginning of Year 15,320,183 13,284,063 10,323,837
---------- ---------- ----------
Retained Earnings,
End of Year $17,284,361 $15,320,183 $13,284,063
=========== =========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 24
STATEMENTS OF CONSOLIDATED CASH FLOWS
Financial Statements
The Options Clearing Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years Ended December 31 1996 1995 1994
----------------------- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $1,964,178 $2,036,120 $2,960,226
Adjustments to Reconcile Net
Income to Net Cash Flows from
Operating Activities:
Depreciation and amortization 817,016 861,619 781,003
Deferred income taxes 32,606 (633,344) (22,311)
Disposal of assets 225,941
Changes in Balance Sheet Items:
Accounts receivable (2,428,472) (621,972) (796,865)
Other current assets 744,981 214,527 (1,736,750)
Accounts payable and accrued expenses 1,214,707 4,247,322 1,532,684
Refundable clearing fees 658,844 431,082 (981,512)
Income tax payable (558,709) 539,724 (1,092,499)
---------- --------- ----------
Net cash flows from operating activities 2,445,151 7,301,019 643,976
---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,074,114) (760,012) (378,076)
Other-net 411,378 (562,481) 99,264
---------- ---------- ----------
Net cash flows from investing activities (662,736) (1,322,493) (278,812)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Treasury Stock (333,333)
---------- ---------- ----------
Net increase in cash and cash equivalents 1,782,415 5,978,526 31,831
---------- ---------- ----------
Cash and cash equivalents, Beginning of Year 18,488,816 12,510,290 12,478,459
---------- ---------- ----------
Cash and cash equivalents, End of Year $20,271,231 $18,488,816 $12,510,290
=========== =========== ===========
Supplemental disclosure of
cash flow information:
Cash paid for income taxes $1,936,260 $1,849,691 $3,262,473
========== ========== ==========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Financial Statements
The Options Clearing Corporation and Subsidiaries
NOTE 1. Summary of Significant Accounting Policies
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The
Options Clearing Corporation ("OCC") and its wholly-owned
subsidiaries, The Intermarket Clearing Corporation ("ICC") and
International Clearing Systems, Inc. ("ICSI"). All intercompany
balances and transactions have been eliminated in consolidation.
References to the "Clearing Corporation" will include both OCC and its
subsidiaries, as applicable.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised primarily of United States
Government securities held under agreements issued by major banking
institutions, which mature on the next business day. During the term
of the agreements, the underlying securities are transferred through
the Federal Reserve System to a custodial account maintained by the
issuing bank for the benefit of the Clearing Corporation. The Clearing
Corporation considers all highly liquid debt instruments with a
maturity of three months or less from the date of purchase to be cash
equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at historical cost, net of
accumulated depreciation. Depreciation is computed using straight-line
and accelerated methods based on estimated useful lives of five to
twenty years. Leasehold improvements are amortized over the terms of
the related leases.
IMPAIRMENT OF LONG-LIVED ASSETS
The Clearing Corporation has adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" ("SFAS No. 121"), which
requires the Clearing Corporation to review long-lived assets for
possible impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
If such review indicates that the carrying amount of a long-lived
<PAGE> 26
asset is not recoverable, the carrying amount is reduced to the
estimated recoverable value. The adoption of SFAS No. 121 had no
impact on these consolidated financial statements.
INCOME TAXES
The Clearing Corporation uses the asset and liability method, under
which deferred tax assets and liabilities are recorded based on
differences between the financial accounting and tax basis of assets
and liabilities. Deferred tax assets and liabilities are measured
based on the currently enacted tax rate expected to apply to taxable
income in which the deferred tax asset or liability is expected to be
settled or realized.
EARNINGS PER SHARE
Earnings per share are calculated based on the weighted average number
of Class B common shares outstanding during the year; 25,000 shares in
1996, 1995 and 1994.
RECLASSIFICATIONS
Certain prior years' amounts have been reclassified to conform with
the current year presentations.
NOTE 2. Off-Balance-Sheet Risk, Concentration of Credit Risk and Fair
Value of Financial Instruments
OCC is the registered clearing agency for U.S. listed securities
options. OCC issues, clears and guarantees option contracts traded on
its Participant Exchanges. OCC clears options on several types of
underlying interests including preferred and common stocks, foreign
exchange, stock indexes, American depository receipts and interest
rate composites. OCC also is the clearing agency for exercise
settlements of foreign currency options and stock index options. OCC
maintains lines of credit with major domestic and foreign banks in the
amount of approximately $1.1 billion as of December 31, 1996. Of these
lines of credit, $930 million are available to ensure the performance
of the foreign currency settlement process in the event that a
Clearing Member should fail to deliver foreign currencies on a timely
basis; $150 million are available to reimburse OCC to meet any
suspension obligations or to reimburse itself for bankruptcy losses;
and $20 million are available to meet working capital requirements
incurred in the ordinary course of business. Commitment fees are paid
to the issuing banks for these lines of credit.
ICC clears, settles and guarantees futures contracts and options
on futures contracts executed on its Participant Exchanges. ICC
maintains lines of credit with major domestic and foreign banks in the
amount of approximately $50 million as of December 31, 1996. These
lines of credit are utilized to ensure performance of the foreign
currency settlement process in the event that a Clearing Member should
fail to deliver foreign currencies on a timely basis. Commitment fees
are paid to the issuing banks for these lines of credit.
OCC and ICC perform a guarantee function which ensures the
financial integrity of the markets they clear. Consequently, OCC and
<PAGE> 27
ICC bear counterparty credit risk in the event that future market
movements create conditions which could lead to Clearing Members
failing to meet their obligations to OCC or ICC. OCC and ICC are thus
exposed to off-balance-sheet risk, with respect to the securities
broker dealers and futures commission merchants that are their
respective Clearing Members.
OCC and ICC reduce their exposure through a risk management
program that strives to achieve a prudent balance between market
integrity and liquidity. This program of safeguards, which provides
substance to OCC's guarantee, consists of: rigorous initial and
ongoing financial responsibility standards for membership; margin
deposits (see Note 3); and clearing fund deposits (see Note 4).
The carrying value of the Clearing Corporation's cash and cash
equivalents approximates fair value because of the short maturities of
those investments. Margin deposits (see Note 3) and clearing fund
deposits (see Note 4) are presented at market value at December 31,
1996, in accordance with the rules of the Clearing Corporation.
Neither OCC nor ICC assumes any guarantor role unless it has a
precisely equal, and offsetting, claim against another Clearing
Member. Therefore, the fair value of the open interest of options,
futures and options on futures contracts cleared and settled by the
Clearing Corporation is not included in the statements of consolidated
financial condition.
NOTE 3. Margin Deposits
The rules and practices established by OCC's Membership/ Margin
Committee provide that each Clearing Member representing the writer of
an option must either deposit the underlying interest or maintain
specified margin deposits in the form of cash, bank letters of credit,
U.S. Government securities (as defined in the By-laws) or other
acceptable margin securities ("valued securities"). The margin
deposits of each Clearing Member are available to meet only the
financial obligations of that Clearing Member to OCC. All margin
deposits, except letters of credit, are held at securities
depositories or banks. All obligations and non-cash margin deposits
are marked to market on a daily basis. OCC also haircuts, on a daily
basis, the value of equity securities and Government securities with
more than one year to maturity in order to provide a cushion against
price fluctuations. Valued securities are given margin credit at 60%
of the daily exchange closing price. The margin credit granted for the
securities of any one issuer cannot exceed 10% of a Clearing Member's
daily margin requirement.
The Rules of ICC provide that each Clearing Member, with respect
to each option on futures contract for which it represents the writer,
and with respect to each futures contract, is required to deposit and
maintain specified margin in the form of cash, U.S. Government
securities, or bank letters of credit.
Under the Rules of the Clearing Corporation, bank letters of
credit are required to be irrevocable except upon two full business
days' prior written notice. Cash margin deposits which are held may be
invested, and any interest or gain received or loss incurred on
<PAGE> 28
invested funds accrues to the Clearing Corporation. OCC's margin
deposits are not included in the statements of consolidated financial
condition.
The values of underlying securities, Government securities (all
foreign government securities are converted to U.S. dollars using the
year-end exchange rate) and margin deposits at December 31, 1996 for
the Clearing Corporation were approximately as follows:
Underlying securities at market value $5,894,838,000
Valued securities at market value 7,755,924,000
Cash and temporary investments 29,648,000
Bank letters of credit 2,517,688,000
Government securities deposited
as margin (at market value at date
of deposit, which approximates
market value at December 31, 1996) 2,187,448,000
--------------
Total $18,385,546,000
===============
Further, as of December 31, 1996, OCC had on deposit Index Option
Escrow Receipts which represent acceptable collateral on deposit with
approved banks which OCC has accepted in lieu of margin for
approximately 96,000 short index contracts. At December 31, 1996, the
market value of the index option contracts collateralized under the
escrow receipts program approximated $5.8 billion.
OCC also maintains cross-margining arrangements with U.S.
commodities clearing organizations, including ICC. Under the terms of
the arrangements with the commodities clearing organizations, an OCC
Clearing Member that is also a Clearing Member of a commodities
clearing organization, or that has an affiliate that is a Clearing
Member of a commodities clearing organization, may maintain
cross-margin accounts in which the Clearing Member's positions in
OCC-cleared options are combined, for purposes of calculating margin
requirements, with positions of the Clearing Member (or its affiliate)
in futures contracts and/or options on futures contracts. Margin
deposits on the combined positions are held jointly by OCC and the
commodities clearing organization and are available (together with any
proceeds of the options and futures positions themselves) to meet
financial obligations of the Clearing Member(s) to OCC and the
commodities clearing organization. In the event that either OCC or the
commodities clearing organization suffers a loss in liquidating
positions in the cross-margin account, the loss is to be shared
equally by OCC and the commodities clearing organization. Margin
deposits in respect of cross-margin accounts may be in the form of
cash, valued securities, U.S. Government securities or bank letters of
credit. The value of margin deposits at December 31, 1996 for
cross-margin accounts, which is included in the above table, was
approximately $270 million.
<PAGE> 29
NOTE 4. Clearing Fund Deposits
OCC and ICC maintain separate clearing funds to cover possible losses
suffered by either of them should a Clearing Member, bank, or a
securities or commodities clearing organization default. A Clearing
Member's clearing fund deposit is based on its pro-rata share of
options, futures or options on futures activity which is recomputed
monthly. Therefore, the OCC and ICC clearing funds expand and contract
in size in relation to activity in their respective markets. The OCC
and ICC clearing funds mutualize the risk of default among all
Clearing Members. The entire clearing fund is available to cover
potential losses in the unlikely event that margin deposits and the
clearing fund deposits of a defaulting Member are inadequate or not
immediately available to fulfill that Member's outstanding financial
obligations. In the event of a default, the Clearing Corporation is
required, in the case of an exercise of a call option, to sell, and in
the case of an exercise of a put option, to buy, the underlying
interest covered by the option at the stated exercise price. In
addition, in the event a futures contract or an option on futures
contract remains open after the close of business on the last day of
trading, ICC is required to purchase the commodity underlying the
contract from the seller of the contract and to sell the commodity
underlying the contract to the purchaser.
Clearing fund deposits must be in the form of cash or Government
securities (as defined in the By-laws), as the clearing fund is
intended to provide the Clearing Corporation with an immediately
available pool of liquid assets. Clearing Members may make clearing
fund deposits in cash to the Clearing Corporation or an approved
segregated funds account, or in Government securities to various
securities depositories or banks. Cash deposits in non-segregated
accounts may be invested and any interest or gain received or loss
incurred on invested funds accrues to the Clearing Corporation. Cash
in a segregated account is a demand deposit which is held in the name
of the Clearing Corporation, which names an individual Clearing Member
whose clearing fund obligation the deposit represents and which can
only be withdrawn by the Clearing Corporation. These segregated funds
cannot be invested by the Clearing Corporation. Clearing fund cash and
securities deposits are included in the statements of consolidated
financial condition. The total amount of the clearing funds (all
foreign government securities are converted to U.S. dollars using the
year-end exchange rate) at December 31,1996 was as follows:
Cash and temporary investments $10,951,000
Segregated funds accounts 25,000
Government securities, at market value 576,231,000
------------
Total $587,207,000
============
The clearing funds maintained by OCC and ICC were $584,429,000
and $2,778,000, respectively.
<PAGE> 30
NOTE 5. Common Stock, Stockholders Agreement and Agreements with
Participant Exchanges
OCC has Class A and Class B common stock, both with $10 par value,
60,000 shares authorized, 30,000 shares issued and 25,000 shares
outstanding at December 31, 1996 and 1995. Treasury stock comprises
5,000 shares of Class A common stock and 5,000 shares of Class B
common stock at a cost of $333,333. The Class B common stock is
issuable in twelve series of 5,000 shares each. The Class B common
stock is entitled to receive dividends whereas the Class A common
stock is not. Upon liquidation of OCC, the Class A common stock would
participate only to the extent of its par value.
The By-laws of OCC provide that any national securities exchange
or national securities association which meets specific requirements
may become a participant by acquiring 5,000 shares of Class A common
stock and 5,000 shares of Class B common stock.
The purchase price for such shares will be the aggregate book
value of a comparable number of shares at the end of the preceding
calendar month, but not less than $250,000 nor more than $333,333.
OCC is a party to the Stockholders Agreement and Restated
Participant Exchange Agreement with its shareholders.
The Stockholders Agreement provides that each stockholder appoint
the members of the Nominating Committee of OCC as its proxy for
purposes of voting its shares for the appointment of member directors,
the Chairman of OCC as the management director and members of the
following year's Nominating Committee. It also provides for the
purchase by OCC of all of its stock owned by any stockholder under
specified circumstances, but the obligation to pay the purchase price
will be subordinated to OCC's obligations to creditors and the
purchase price cannot be paid if the payment would reduce the capital
and surplus below $1,000,000. If OCC is required to purchase its stock
from any stockholder, the purchase price for the two years following
the date the stockholder acquired its stock is the stockholder's
purchase price paid reduced by $100,000 and, thereafter, the purchase
price at the date of purchase is the lesser of the aggregate book
value of the shares or the original purchase price paid less $80,000,
$60,000, $40,000, $20,000 or zero after the second, third, fourth,
fifth or sixth year, respectively, from the date of sale of such
stock.
The Restated Participant Exchange Agreement deals with the
business relationship between and among OCC and each participant
securities exchange and securities association. Likewise, ICC is a
party to a Participant Exchange Agreement with its participant futures
exchanges ("participant" or "participants"), which deals with the
business relationship between ICC and each participant and among such
participants.
NOTE 6. Sale and Buy Back Agreements
Sale and Buy Back agreements outstanding, including amounts in margin
and clearing fund deposits, averaged $66 million during 1996 and the
maximum amount outstanding during the year was $266 million. The
<PAGE> 31
amounts outstanding approximate the market value of the underlying
securities.
NOTE 7. Clearing Fees
The Boards of Directors set clearing fees and determine the amounts of
refunds, if any, based upon the current needs of OCC and ICC. The
Boards of Directors have determined in the years ended December 31,
1996, 1995 and 1994 that refunds of clearing fees should be made to
Clearing Members. Such refunds, which have been netted against
clearing fees in the statements of consolidated income, amounted to
$8,382,000, $8,221,000 and $9,292,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
NOTE 8. Commitments
Future minimum rental payments under noncancelable operating leases
(principally for office space and data processing equipment) in the
aggregate in effect as of December 31, 1996, are as follows:
1997 $7,698,000
1998 5,393,000
1999 4,321,000
2000 3,718,000
2001 2,998,000
Thereafter 564,000
-----------
Total $24,692,000
===========
Rental expense for the years ended December 31, 1996, 1995 and
1994 amounted to $11,950,000, $11,026,000 and $9,625,000,
respectively. Included in rental expense for 1995 is a $1,117,000
charge for vacating certain office space.
Total minimum rentals to be received under noncancelable
subleases as of December 31, 1996 are $579,000. Rental income received
under subleases for the years ended December 31, 1996, 1995 and 1994
amounted to $276,000, $136,000, and $253,000 respectively.
The Clearing Corporation has employment agreements with certain
of its senior officers. The aggregate commitment for future salaries
at December 31, 1996, excluding bonuses, was approximately $1 million.
NOTE 9. Related Party Transactions
Certain exchanges and their affiliates provide some operational and
other services on behalf of OCC for which expenses of approximately
$102,000, $94,000, and $83,500 were incurred for the years ended
December 31, 1996, 1995 and 1994, respectively.
The Clearing Corporation also bills and collects transaction fees
for the Chicago Board Options Exchange, Incorporated and the New York
Futures Exchange, Inc. Fees billed and uncollected at December 31,
<PAGE> 32
1996 and 1995 were $7,319,000 and $6,395,000 respectively, and are
included in the statements of consolidated financial condition as
Exchange billing receivable and payable.
In 1992, OCC entered into a joint marketing effort with its
Participant Exchanges to form The Options Industry Council ("OIC").
The total amounts expended by OCC on behalf of OIC for the years ended
December 31, 1996, 1995 and 1994 were $2,151,000, $2,000,000,and
$1,774,000 respectively. The Participant Exchanges' share of OIC
expenditures for the years ended December 31, 1996, 1995 and 1994 was
$1,070,000, $1,000,000, and $889,000 respectively. At December 31,
1996 and 1995, the amounts due from Participant Exchanges were
$782,000 and $709,000 respectively.
Transactions between OCC and shareholder exchanges and their
affiliates are settled by cash payments.
NOTE 10. Income Taxes
The provision for taxes on income is reconciled to amounts determined
by applying the statutory Federal income tax rate.
<TABLE>
<CAPTION>
Years Ended December 31 1996 1995 1994
----------------------- ---- ---- ----
<S> <C> <C> <C>
Federal income tax at the statutory rates $1,170,716 $1,133,089 $1,751,273
Permanent tax differences 94,673 86,398 68,656
State income tax effect 186,036 183,014 271,357
Tax credits (73,643) (162,394)
Other 2,944 (38,831) (47,875)
---------- ---------- ----------
Provision for taxes on income $1,380,726 $1,201,276 $2,043,411
========== ========== ==========
The deferred tax asset consists of the following:
Years Ended December 31 1996 1995
----------------------- ---- ----
Compensation and employee benefits $1,075,749 $1,065,137
Other items 437,573 346,592
--------- ---------
Current asset 1,513,322 1,411,729
--------- ---------
Accelerated depreciation 578,182 452,315
Capitalized start-up costs 102,641 256,600
Lease write-off 318,322 424,429
--------- ---------
Long-term asset 999,145 1,133,344
--------- ---------
Total $2,512,467 $2,545,073
========== ==========
</TABLE>
<PAGE> 33
NOTE 11. Retirement Plans
The Clearing Corporation has a trusteed, noncontributory, qualified
retirement plan covering employees who meet specified age and service
requirements. Retirement benefits are primarily a function of both
years of service and the level of compensation during the highest
consecutive five years out of the last ten years before retirement.
The Clearing Corporation also has a funded supplemental executive
retirement plan ("SERP"). Retirement benefits are primarily a function
of both years of service and the level of compensation during the
highest three non-consecutive years out of the last ten years before
retirement.
The Clearing Corporation's funding policies, subject to the
minimum funding requirements of U.S. employee benefit and tax laws,
are to contribute such amounts as are determined on an actuarial basis
to provide the plans with assets sufficient to meet the benefit
obligations of the plans.
The components of net periodic pension cost were as follows:
<TABLE>
<CAPTION>
Years Ended December 31 1996 1995 1994
----------------------- ---- ---- ----
<S> <C> <C> <C>
Service cost $666,000 $549,000 $562,000
Interest cost 1,094,000 967,000 816,000
Actual return on assets (1,506,000) (1,642,000) 63,000
Net amortization and deferrals 683,000 964,000 (722,000)
-------- -------- --------
Net periodic pension cost $937,000 $838,000 $719,000
======== ======== ========
</TABLE>
Assets and liabilities for the Retirement Plan and SERP were
measured as of September 30, 1996. The funded status as of December
31, 1996 is the same as the funded status as of September 30, 1996.
The plans' funded status follows:
<TABLE>
<CAPTION>
Years Ended December 31 1996 1995
----------------------- ---- ----
<S> <S> <S>
Actuarial present value of
projected benefit obligation
Vested Benefits $(12,451,000) $(9,989,000)
Nonvested Benefits (1,426,000) (1,565,000)
---------- ----------
Accumulated benefit obligation (13,877,000) (11,554,000)
Effect of future compensation increases (2,739,000) (1,933,000)
---------- ----------
Projected benefit obligation ("PBO") (16,616,000) (13,487,000)
Plan assets at fair value 13,923,000 10,775,000
---------- ----------
Plan assets in excess of (less than) PBO (2,693,000) (2,712,000)
Unrecognized net (gain) loss 2,262,000 1,328,000
<PAGE> 34
Unrecognized net transition
obligation being recognized over 15 years 84,000 101,000
Unrecognized prior service cost 539,000 671,000
---------- ----------
Prepaid (accrued) pension cost 192,000 (612,000)
Additional minimum liability - (558,000)
---------- ----------
Prepaid pension cost/(pension liabiity) $192,000 $(1,170,000)
---------- ----------
Intangible asset offsetting
additional minimum liability - $558,000
========== ==========
</TABLE>
The major assumptions used to determine the projected benefit
obligation are 7.75% interest discount and 4.75% future salary
increases as of December 31, 1996 and 8.5% interest discount and 4.75%
future salary increases as of December 31, 1995. The expected
long-term return on assets was 9.5% for both 1996 and 1995.
The plans' assets consist primarily of listed common stocks,
fixed income securities and units of certain trust funds administered
by Harris Trust and Savings Bank.
The Clearing Corporation also maintains a defined contribution
plan qualified under Internal Revenue Code section 401(k) for eligible
employees who elect to participate in the plan. Eligible employees may
elect to have their salaries reduced by a percentage. This amount is
then paid into the plan by the Clearing Corporation on behalf of the
employee.
The Clearing Corporation will make matching contributions to the
participant's account subject to certain limitations. The Clearing
Corporation's expenses for matching contributions to the plan for the
years ended December 31, 1996, 1995 and 1994 were $423,000, $401,000,
and $360,000 respectively.
NOTE 12. Postretirement Benefits Other Than Pensions
The Clearing Corporation currently sponsors a plan that provides
postretirement benefits for all eligible employees. Eligibility for
the Clearing Corporation's "Defined Dollar Benefit Plan" for employees
and their covered dependents is based upon age and years of service at
time of retirement.
<PAGE> 35
Net postretirement health care cost for 1996, 1995 and 1994
consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31 1996 1995 1994
----------------------- ---- ---- ----
<S> <C> <C> <C>
Service cost of benefits earned $33,000 $29,000 $62,000
Interest cost 42,000 43,000 82,000
Expected return on assets - - -
Amortization of transition obligation 16,000 28,000 28,000
------- -------- --------
Net periodic postretirement benefit cost $91,000 $100,000 $172,000
======= ======== ========
</TABLE>
The Clearing Corporation's postretirement health care plan
currently is not funded.
The status of the plan follows:
<TABLE>
<CAPTION>
Years Ended December 31 1996 1995
----------------------- ---- ----
<S> <C> <C>
Accumulated Postretirement
Benefit Obligation (APBO):
Active employees fully eligible for benefits $(403,000) $(349,000)
Other active employees (48,000) (46,000)
Current retirees (346,000) (166,000)
--------- ---------
Total (797,000) (561,000)
Fair value of plan assets - -
--------- ---------
APBO (In excess of) less
than plan assets (797,000) (561,000)
--------- ---------
Unrecognized amounts:
Transition obligation 449,000 477,000
Prior service cost - -
Losses (gains) (82,000) (262,000)
--------- ---------
Total 367,000 215,000
--------- ---------
Prepaid (accrued) postretirement benefit cost $(430,000) $(346,000)
========= =========
</TABLE>
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit was 9.90% in 1996, gradually
declining to 5% by the year 2003 and remaining at that level
thereafter. A one-percentage-point increase in the assumed health care
<PAGE> 36
cost trend rate for each year would not increase the accumulated
postretirement benefit obligation or net postretirement health care
cost under the Defined Dollar Benefit Plan.
The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 7.75% in 1996 and 8.50% in 1995.
NOTE 13. Contingencies
In the normal course of business, the Clearing Corporation may be
subjected to various lawsuits and claims. At December 31, 1996, no
litigation exists which management of the Clearing Corporation
believes would have a material adverse effect on the consolidated
financial statements of the Clearing Corporation.
<PAGE> 37
Independent Auditors' Report
The Options Clearing Corporation and Subsidiaries:
We have audited the accompanying statements of consolidated
financial condition of The Options Clearing Corporation and
Subsidiaries (the "Corporation") as of December 31, 1996 and 1995 and
the related statements of consolidated income and retained earnings
and of consolidated cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Corporation's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the consolidated financial
position of the Corporation at December 31, 1996 and 1995 and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Chicago, Illinois
January 27, 1997
<PAGE> 38
ITEM 8. UNDERTAKINGS
1. The undersigned registrant hereby undertakes to file a
post-effective amendment, not later than 120 days after the end of
each fiscal year subsequent to that covered by the financial statements
presented herein, containing financial statements meeting the requirements
of Regulation S-X and the supplementary financial information specified
by Item 302 of Regulation S-K.
2. The undersigned registrant hereby undertakes not to issue,
clear, guarantee or accept any securities registered herein until there
is a definitive options disclosure document meeting the requirements of
Rule 9b-1 of the Securities Exchange Act of 1934 with respect to the class
of options.
<PAGE 39>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has duly caused this Post-Effective
Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of
Chicago, and the State of Illinois on the 27th day of March, 1997.
THE OPTIONS CLEARING CORPORATION
By: /s/ Wayne P. Luthringshausen
----------------------------
Wayne P. Luthringshausen
Chairman and Principal
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to the Registration Statement has been
signed by the following persons in the capacities set forth below on
March 27, 1997.
/s/ Wayne P. Luthringshausen /s/ Alfred J. Golden
-------------------------------- -----------------------------
Wayne P. Luthringshausen Alfred J. Golden, Director
Chairman and Principal Executive
Officer
/s/ Robert M. Greber
/s/ Paul G. Stevens, Jr. -----------------------------
-------------------------------- Robert M. Greber, Director
Paul G. Stevens, Jr.,
Principal Financial Officer
/s/ Nicholas J. Fergadis /s/ M. Blair Hull
-------------------------------- -----------------------------
Nicholas J. Fergadis, M. Blair Hull, Director
Principal Accounting Officer
/s/ Marc L. Berman /s/ Edward J. Joyce
-------------------------------- -----------------------------
Marc L. Berman, Director Edward J. Joyce, Director
/s/ W. Gordon Binns, Jr. /s/ David Krell
-------------------------------- -----------------------------
W. Gordon Binns, Jr., Director David Krell, Director
<PAGE> 40
/s/ William F. Devin /s/ William A. Rogers
-------------------------------- -----------------------------
William F. Devin, Director William A. Rogers, Director
/s/ Douglas J. Engmann /s/ Harvey Silverman
-------------------------------- -----------------------------
Douglas J. Engmann, Director Harvey Silverman, Director
/s/ Freddy Enriquez /s/ Joseph B. Stefanelli
-------------------------------- -----------------------------
Freddy Enriquez, Director Joseph B. Stefanelli,
Director
/s/ Nicholas A. Giordano /s/ Melvin B. Taub
-------------------------------- -----------------------------
Nicholas A. Giordano, Director Melvin B. Taub, Director
<PAGE> 41
EXHIBIT INDEX
The following documents are filed as a part of this Registration
Statement.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
5 Opinion of Schiff Hardin & Waite*
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Schiff Hardin & Waite
(included in Exhibit 5)*
24 Power of Attorney (included on the
signature page to the Registration
Statement, as filed with the Commission
on April 8, 1996)*
------------
* Previously filed.
<PAGE> 42
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to
the Registration Statement on Form S-20 of The Options Clearing
Corporation of our report dated January 27, 1997, appearing in Part II
hereof, and to the reference to us under the heading "Legal Opinions
and Experts" in Part II hereof.
DELOITTE & TOUCHE LLP
Chicago, Illinois
March 26, 1997
