SEC Division of Trading and Markets no-action letter: Société de Compensation des Marchés Conditionnels

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON. D.C. 20549

DIVISION OF
MARKET REGULATION
June 17, 1996

Davis Polk & Wardwell
450 Lexington Ave.

New York, N.Y. 10017

Re: Societt5 de compensation des Marches Conditionnels - MONEP Eauitv and Index Options Dear Mr. Truesdell:

In your letter, dated June 17, 1996, on behalf of the

Societe de Compensation des Marches Conditionnels ("SCMCW), which

is the French corporation responsible for the management and

surveillance of the French options market known as the Marche des

Outions Nesociables de Paris ("MONEP"), you request advice that

the Division of Market Regulation ("Divisionm) will not recommend

enforcement action to the Securities and Exchange Commission

(wCommission") against the SCMC, any officer, director, or member

thereof under Section 6 of the Securities Exchange Act of 1934

(vvExchangeActvv) by reason of the MONEP not registering under the Exchange Act as a securities exchange, against the SCMC or MONEP Members ("MONEP Membersu) ,' under Section 15 of the Exchange Act, by reason of the SCMC and MONEP Members not registering under the Exchange Act as broker-dealers, or against the SCMC or the Societe des Bourses Fran~aises ("SBFu) under Section 17A of the Exchange Act, by reason of their not registering under the Exchange Act as a clearing agency, if the SCMC and MONEP Members act as described below to familiarize certain registered broker￾dealers and large financial institutions in the United States with the MONEP and its equity and index options. We understand the facts to be as follows:

The MONEP was organized in 1987 under the laws of the

~epublic of France as the equity options market of Paris, and is

an integral part of the French securities markets (collectively,

"Paris Boursevv). As part of the Paris Bourse, the MONEP is

subject to the supervisory authority of the Ministry of the

Economy, Fi,nances and Planning (through the Treasury Department).

As with all French financial markets, the MONEP is supervised by

the Commission des Operations de Bourse ("COBM), the supervisory

authority responsible for investor protection. The general

1 A person may become a MONEP Member by executing an agreement

with the SCMC whereby such person agrees to comply with the

rules and regulations of the MONEP and the SCMC.

' . 3
~ a . Richard Truesdell, Jr., Esq.
June 17, 1996 authority responsible for investor protection. The general organization of the Paris Bourse was set out by the law of January 22, 1988, which created the Conseil des Bourses de Valeurs ("CBVtt) and the SBF. The CBV is the body responsible for the organization and regulation of the Paris Bourse. The CBV establishes the General Rules and Directives which govern all French securities markets, including the MONEP. The SBF is the French market's business corporation, which implements the regulations promulgated by the CBV and handles day-to-day administration, security, and development of the Paris Bourse at large. Under French law, only members authorized by the competent French authorities may have direct access to a market placed under the supervision of the COB; Lthus, only MOWEP Members may have direct access to the MONEP~? As provided in the General Rules of the CBV, the SBF delegates technical responsibilities with respect to the day-to￾day operations of the MONEP to its 99.95% owned subsidiary, the SCMC, which assumes full responsibility for technical clearing, general administration and market surveillance of the MONEP on the SBF1s behalf. The SCMC, however, does not provide any guarantee of the trades cleared between MONEP clearing members ("Clearing Memberstt); such a guarantee is provided by the SBF itself, as described below. With shareholderst equity (which, by definition, does not include deposits of Clearing Members) in excess of FF 1 billion as of December 31, 1995, the SBF is the ultimate guarantor of all trades registered by the SCMC and cleared between Clearing Members with respect to options contracts available on the MONEP, and guarantees each of the clearing Members, as necessary, full payment of deficits resulting from another Clearing Member's default. As an institution financiere s~6cialisee, the SBF also benefits from certain institutional procedures designed to ensure the financial security of the French financial community. These procedures provide that the Bank of France may intervene to provide support to certain financial institutions, including the SBF. Tvo basic types of options are traded on the MONEP: options on individual stocks that are listed and traded on the Paris Bourse (%quity Optionsn) and options on the CAC-40 8t~~k indeg (uIndex Optionsn and, together with Equity Options, "MONEP Optionsw). , 2 The CAC-40 stock index consists of the 40 stocks that are most representative of the various business sectors quoted on the monthly settlement market of the Paris Bourse, and is managed by an independent committee.

June 17, 1996

Each Clearing Member is required to deposit and maintain a

margin with the SBF with respect to each Option for which it

represents the writer. Such margin is calculated by the SCMC,

and collected and held by the SBF. The margin represents the

amount necessary to cover the theoretical cost of liquidation of

a Clearing Member's Option positions. Margin deposit

requirements are adjusted at a minimum on a daily basis, and are

calculated separately for each global account kept by the

Clearing Member on the basis of overall portfolio risk. The SBF

may require a Clearing Member to deposit higher margin.in excess

of the minimum cover requirements in the event it deems such

action necessary and appropriate to protect the interests of

other Clearing Members, the MONEP, the SBF, or the public.

Prices on the MONEP for Equity and Index Options are

publicly quoted, and the Options are bought and sold, in French

francs. All transactions creating or closing positions in such

Options are executed and settled in Paris by MONEP Members. The

Options are dematerialized (certificateless) and transactions and

positions are evidenced by statements from the SCMC to Clearing

Members and statements from Clearing Members to customers.

MONEP Equity and Index Options are not fungible nor

interchangeable with options that are traded on any other market.

Thus, any MONEP Equity and Index Option position registered can

be closed only on the MONEP or exercised by a Clearing Member

giving an exercise notice to the SCMC.

The SCMC1s 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 the writer'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 always will be a

group of writers of Options of the same series who, in the

aggregate, have undertaken to perform the writer's obligations

with respect to such Options. Once an exercise of an Option is

allocated by a broker to a particular writer, that writer is

contractually obligated to its broker to perform in accordance

with the terms of the Option. These contractual obligations are

secured by the securities or other margin which the customer is

required to deposit with its broker,

Once an Equity Option is allocated, clearing and settlement

of the transaction in the underlying security take place within

the monthly settlement system of the equity market of the Paris

Bourse. Index Options, however, are cash-settled only.

The SCMC wishes to familiarize certain registered broker-

dealers and large financial institutions in the United States

with the Equity and Index Options traded on the MONEP, and thus

June 17, 1996

proposes to take the limited steps described below with respect

only to "Eligible Broker-Dealersn and "Eligible institution^.^

To be Eligible, each such entity must meet the following

standards:

(a) it must be a wqualified institutional buyern as defined

in Rule 144A(a)(l) under the Securities Act of 1933 ("Rule

144A" and the wSecurities Acttn respectively), or an

international organization excluded from the definition of

"U.S. personw in Rule 902 (0) (7) of Regulation S under the

Securities Act, and

(b) it must have had prior actual experience with traded options in the United States options market (and, therefore, would have received the disclosure document for U.S. standardized options called for by Rule 9b-1 under the Exchange Act) . MONEP Members will be required to take reasonable steps to

assure themselves, before effecting any MONEP Option transaction

for or with a customer located in the United States, that the

customer is an Eligible Broker-Dealer or an Eligible Institution,

that the customer is acting for its own account or the account of

another Eligible Broker-Dealer or Eligible Institution or the

managed account of a non-U.S. person (within the meaning of Rule

902(0) (2) of Regulation S under the Securities Act), and that the

customer has received the MONEP disclosure document referred to

below- The SCMC will advise MONEP Members that it has been

advised that, under U.S. law, MONEP Members which are not U-S.

registered broker-dealers may deal with Eligible Institutions

only in accordzmce with Rule 15a-6 under the Exchange Act,

principally through U.S. registered broker-dealers as provided in

such Rule.

The SCMC will institute rules requiring MONEP Members to

furnish to ~ligZble Broker-Dealers an~i~ee1nsf'i~uons a MONEP disclosure document before accepting an order from that Eligible Broker-Dealer or ~iigible Institution to purchase or sell MONEP Options. The rules also will recpire that MONEP Members obtain written representatTomT6m an~-~l~%Broker-

Dealer or Eligible Institution, sEjiiS3 by an appropriate officer

of the Eligible Broker-Dealer or Eligible Institution, to the

following effect:

1. it is an Eligible Broker-Dealer or Eligible ~nstitution,

and as such it (i) owns and invests on a discretionary basis a

specified amount of eligible securities sufficient for it to be a

qualified institutional buyer under Rule 144A under the

Securities Act (and if a bank, S&L, or other thrift institution,

has a net worth meeting the requirements of Rule 144A under the

Securities Act), and (ii) has had prior actual experience in the

U.S. standardized options markets and as a result thereof has

' ..
' Richard Truesdell, Jr., Esq.

June 17, 1996

received the options disclosure document entitled "Understanding

the Risks and Uses of Listed Optionsn (I1Options Disclosure

Documentu1 or vvODD1l) that is prepared by The Options Clearing

Corporation and U.S. options exchanges;

2. it has received the MONEP disclosure document;

3. its transactions in MONEP Options will be for its own

account or for the account of another Eligible Broker-Dealer or

Eligible Institution or for the managed account of a non-U.S.

person within the meaning of Rule 902(0)(2) of Regulation S under

the Securities Act;

4. it will not transfer any interest or participation in a
   MONEP Option it has purchased or written to any other U.S. person, or to any person in the United States, that is not an ~ligible Broker-Dealer or Eligible Institution;
5. it will cause any disposition of a MONEP Option that it
   has purchased or written to be effected only on the MONEP and to be settled on the MONEP in Paris, and it understands that any required payments for premium, settlement, exercise or closing of any MONEP Option in respect of which it has a contract with the MONEP Member must be made in Paris and in French francs. It also understands that, if in relation to a MONZP 0pEon it has a contract as a writer with the MONEP Member, margin must be provided to the MONEP Member, and maintained, measured and deposited in French francs or any other instrument approved by the SBF;
6. if it is an Eligible Broker-Dealer or Eligible

Institution acting on behalf of another Eligible Broker-Dealer or

Eligible Institution that is not a managed account, it has

obtained from the other a written representation to the same

effect as the foregoing and will provide it to the MONEP Member

upon demand; and

7. it will notify the MONEP Member of any change in the

foregoing representations prior to placing any future order, and

the foregoing representations will be deemed to be made with

respect to each order it gives to the MONEP Member.

A MONEP disclosure document, in the form submitted and

reviewed by the Division, will be provided only to Eligible

Broker-Dealers and Eligible Institutions. The disclosure

document provides an overview of the MONEP and the MONEP Options,

with attention to significant differences from standardized

options in the U.S. domestic options market, and sets forth

special factors relevant to U.S. entities transacting in MONEP

Options.

. .

June 17, 1996

The SCMC will not engage in any general advertisement

concerning MONEP Options in the United States.

The SCMC will appoint certain officers located in Paris to

act as the MONEP's representatives in the United States ("MONEP

Representativesm). MONEP Representatives will be available to

respond to inquiries concerning the MONEP from Eligible Broker-

Dealers and Eligible Institutions. Any MONEP Representative may

make personal calls on and correspond or otherwise communicate

with entities whom such representative reasonably believes to be

Eligible Broker-Dealers and Eligible Institutions to familiarize

them with the existence and operations of the MONEP. Any Eligible Broker-Dealer or Eligible Institution would be provided

with the MONEP disclosure document upon its first visit,

communication or inquiry. MONEP Representatives located in Paris

will maintain a reasonable supply of that document, and of the

most recently published annual reports of the SCMC and the SBP,

to respond to requests therefor from Eligible Broker-Dealers and

Eligible Institutions. A MONEP Representative also may

in programs and seminars in the United States. MONEP

Representatives will not give investment advice nor make any

recommendations with respect to specific HONEP Options, nor will

MONEP Representatives solicit, take, or direct orders, nor

recommend, or refer particular MONEP Members. If requested by an

Eligible Broker-Dealer or Eligible Institution, a MONEP

Representative may make available to the requester a list of all

MONEP Members and any registered U.S. broker-dealer affiliates of

such MONEP Members.

You represent that the MONEP will continue to be an organized exchange operating and regulated abroad, and that making its MONEP Equity and Index options known to a particular, sophisticated segment of the U.S. financial community will not alter this fact. You also represent that the SCMC will establish careful limitations to assure compliance with applicable U.S. securities laws, and that the SCPlC will continue as necessary to establish further limitations to assure continued compliance with applicable U.S. securities laws. You further represent that making information concerning the MONEP available in the United States as described in this letter will serve to increase, in a responsible manner, information concerning an important and growing marketplace in Europe that will be of benefit to appropriate U.S. professionals. Finally, you also ask the Division to confirm (1) that the

furnishing of the MONEP disclosure document by a MONEP

Representative, by a MONEP Member or by an Eligible Broker-

Dealer, in each case, to an Eligible Broker-Dealer or Eligible

Institution will satisfy the obligation under Rule 9b-l(d) of the

Exchange Act to furnish an options disclosure document before

accepting an order from a customer to purchase or sell a MONEP

Option, and (2) that neither the MONEP Representative's

. . Richard Truesdell, Jr., Esq.
June 17, 1996 furnishing of a MONEP disclosure document to an Eligible Broker-

Dealer or Eligible ~nstitution, nor a MONEP Member's furnishing

of a MONEP disclosure document to an Eligible Broker-Dealer or,

in response to an unsolicited inquiry to an Eligible Institution,

will constitute either solicitation or the provision of a

research report as those terms are used in Rule 15a-6(a) under

the Exchange Act.

Response:
Based on the facts and representations set forth above, the

Division will not recommend enforcement action to the commission

against SCMC or MONEP Members under Section 15(a) of the Exchange

Act if SCMC or MONEP members act as you describe to familiarize

Eligible Broker-Dealers and Eligible Institutions in the United

States with MONEP Options without SCMC or MONEP Members

registering with the Commission as broker-dealers under Section

15(b) of the Exchange Act. Also, the Division will not recommend

enforcement action to the Commission against SCMC or its members

under Section 15(a) of the Exchange Act if, solely in connection

with the satisfaction of obligations under Exchange Act Rule 9b-

l(d) and under the limited circumstances set forth above, (1) a

MONEP Representative, MONEP Member, or Eligible Broker-Dealer

provides the MONEP disclosure document to an Eligible Broker-

Dealer and the MONEP Member effects transactions in MONEP Options

with or for that Eligible Broker-Dealer pursuant to Rule 15a-

6(a)(4) under the Exchange Act, or (2) a MONEP Representative

furnishes a MONEP disclosure document to an Eligible Institution,

or a MONEP Member furnishes a MONEP disclosure document to an

Eligible Institution in response to an otherwise unsolicited

inquiry concerning MONEP Options, and the MONEP Member effects

transactions in MONEP Options with or for that Eligible

Institution pursuant to Rule 15a-6(a)(l) under the Exchange Act.

Based on the foregoing, the ~ivision also will not recommend

that the Commission take enforcement action against either the

SCMC or the SBF under Section 17A of the Exchange Act if they

operate solely in the manner described above for MONEP Options

without registering with the Commission as a clearing agency. In

addition, the Division will not recommend that the Commission

take enforcement action against SCMC under Section 5 of the

Exchange Act if the MONEP operates solely in the manner described

above with respect to MONEP Options without registering with the

Commission as a national securities exchange under Section 6 of

the Exchange Act.

Finally, the ~ivision has reviewed the proposed MONEP

disclosure document. Based on our review of that document, the

Division wishes to advise you that it will not recommend that the

Commission take enforcement action against an Eligible Broker-

Dealer, MONEP Representative, or MONEP Member pursuant to Rule

9b-l(d) under the Exchange Act, if the Eligible Broker-Dealer,

rn
June 17, 1996
MONEP Representative or MONEP Member furnishes the MONEP disclosure document to an Eligible Broker-Dealer or Eligible Institution before the Eligible Broker-Dealer or Eligible Institution effects a transaction in MONEP Options, subject to the following conditions:
(1) the Eligible Broker-Dealer or Eligible Institution . previously has received the ODD; (2) SCMC requires that MONEP Members, before effecting a transaction with or for an Eligible Broker-Dealer or Eligible Institution in MONEP Options, determine as described above Mat the Eligible Broker-Dealer or Eligible Institution has received the ODD and the MONEP disclosure document and maintain a record of that determination; and (3) SCMC furnishes the Division, at least 30 days prior to the date definitive copies are furnished to Eligible Broker-Dealers or Eligible Institutions, with a copy of any amendment made to the MONEP disclosure document because the information contained in that document becomes or will become materially inaccurate or incomplete, or-becausethere is or will be an omission of material information necessary to ensure that the document is not misleading. These positions of the Division concern enforcement action only and do not represent conclusions on the applicability of statutory or regulatory provisions of the federal securities laws. The ~ivisionhas taken these positions based, in part, on the fact that the Commission has entered into a Memorandum of Understandin? with the COB regarding the sharing of investigative information, and that foreign broker-dealers, including MONEP Members, electing to deal with U.S. institutional investors pursuant to Rule 15a-6(a) (3) under the Exchange Act are required to provide directly to the commission, upon request, information, documents, testimony, and assistance in taking evidence of persons that relate to transactions pursuant to Rule 15a-6(a)(3) under the Exchange Act. Moreover, these positions are based on the understanding that under French law only members authorized by the competent French authorities may have direct access to a market placed under the supervision of the COB, and, therefore, only MONEP Members may have direct access to the MONEP. , 3 Understanding Regarding the Establishment of a Framework for Consultations Between the Securities and Exchange Commission and the Commission des 0p6rations de Bourse (December 14, 1989).

'b.. * 't

June 17, 1996

The positions of the Division in this letter are based on

the representations that you have made; any different facts or

conditions might require a different response, and these

positions are subject to modification or revocation if the facts

and representations set forth above are altered.

Sincerely,

Robert
@W
L. D.

Deputy

1 300 1 STREET. N. W. 450 LEXINGTONAVENUE 17-22. AKASAKA 2-CHOME WASHINGTON. O.C. ZOO05 NEWYORK,N.Y.10017 MINATO-KU. TOKYO 107
4. PLACE OE LA CONCOROE 2 12-450-4000 MESSETURM
75008 PARIS 60308 FRANKFURT AM MAIN

• FIX: 2 12-450-4800
  IFREDERICK'S PLACE 3A CHATER ROAD LONDON ECZR BAB WRITER'S DIRECT NUMBER: HONG KONG June 17, 1996

Mr. Robert Colby

Deputy Director

Division of Market Regulation

Securities and Exchange Commission

450 5th Street, N.W.

Judiciary Plaza

Washington, D.C. 20549

Dear Mr. Colby:

On behalf of the Soci6t6 de Compensation des Marche's Conditionnels (the "SCMC"), which is the French corporation (socigt6 anonyme) responsible for the management and surveillance of the French options market known as the Marche' des Options Ne'gociables de Paris (the "MONEP" ) , we request your advice that, based on the circumstances stated in this letter, and in view of the relief granted by the Division of Market Regulation (the "Divisionll) to the Hong Kong Futures Exchange ~imited' and to the London International Financial Futures Exchange and the London Clearing House ~imited', the Division will not recommend to the Securities and Exchange Commission (the "Commissionu) any enforcement action (i) against the SCMC, any officer, director or member thereof under Section 6 of the Securities Hong Kong Futures Exchange Limited -- Hang Seng Index Options, available September 26, 1995. Z~ London International Financial Futures Exchange,

available May 1, 1992.

Exchange Act of 1934, as amended (the "Exchange Act"), by

reason of the MONEP not registering under the Exchange Act as

a securities exchange, (ii) against the SCMC or MONEP

~embers~ ("MONEP Membersvv) under Section 15 of the Exchange

Act, by reason of the SCMC and MONEP Members not registering

under the Exchange Act as broker-dealers, or (iii) against

the SCMC or the SBF (as defined below) under Section 17A of

the Exchange Act, by reason of their not registering under

the Exchange Act as a clearing agency, if the SCMC and MONEP

Members act as described below to familiarize certain

registered broker-dealers and large financial institutions in

the United States with the MONEP and its equity and index

options.

The MONEP was organized in 1987 under the laws of the Republic of France as the equity options market of Paris, and, as one of the largest options markets in Europe, is an integral part of the French securities markets (collectively, the "Paris Boursen) . The MONEP is an integral part of the Paris Bourse

and is therefore subject to the supervisory authority of the

Ministry of the Economy, Finances and Planning (through the

Treasury Department). As with all French financial markets,

the MONEP is supervised by the Commission des Op6rations de

Bourse (the vlCOBvl), the supervisory authority responsible for investor protection. The general organization of the Paris Bourse was set out by the law of January 22, 1988 which created the Conseil des Bourses de Valeurs (the "CBVU) and the Soci6t6 des Bourses Franqaises (the "SBFU) . The CBV is the body responsible for the organization and regulation of the Paris Bourse. The CBV establishes the General Rules and Directives which govern all French securities markets, including the MONEP. The SBF is the French markets' business corporation, which implements the regulations promulgated by the CBV and handles day-to-day administration, security, and development of the Paris Bourse at large. Under French law, only members authorized by the competent French authorities may have direct access to a market placed under the supervision of the COB; thus, only MONEP Members may have direct access to the MONEP. As provided in the General Rules of the CBV, the

SBF delegates technical responsibilities with respect to the

day-to-day operations of the MONEP to its 99.95% owned

'A person may become a MONEP Member by executing an

agreement with the SCMC whereby such person agrees to comply

with the rules and regulations of the MONEP and the SCMC.

subsidiary the SCMC, which assumes full responsibility for

technical clearing, general administration and market

surveillance of the MONEP on the SBF's behalf. However, the

SCMC does not provide any guarantee of the trades cleared

between MONEP clearing members (the "Clearing Membersn); such

guarantee is provided by the SBF itself, as discussed below.

With shareholders' equity (which, by definition, does not include deposits of Clearing Members) in excess of FF 1 billion at December 31, 1995, the SBF is the ultimate guarantor of all trades registered by the SCMC and cleared between C-learing Members with respect to options contracts available on the MONEP, and guarantees each of the Clearing Members, as necessary, full payment of deficits resulting from another Clearing Memberf s default. As an insti tution financigre sp6cialis6ef the SBF also benefits from certain institutional procedures designed to ensure the financial security of the French financial community. These procedures provide that the Bank of France may intervene to provide support to certain financial institutions, including the SBF. Each Clearing Member is required to deposit .and

maintain a margin with the SBF with respect to each Option

for which it represents the writer. Such margin is

calculated by the SCMC, and collected and held by the SBF.

The margin represents the amount necessary to cover the

theoretical cost of liquidation of the Clearing Members'

Option positions. Margin deposit requirements are adjusted

at a minimum on a daily basis, and are calculated separately

for each global account kept by the Clearing Member, on the

basis of overall portfolio risk. The SBF may require a

Clearing Member to deposit higher margins in excess of the

minimum cover requirements in the event it deems such action

necessary and appropriate to protect the interests of other

Clearing Members, the MONEP, the SBF or the public.

Two basic types of options are traded on the MONEP:

options on individual stocks that are listed and traded on

the Paris Bourse ("Equity Optionsn) and options on the CAC-40

stock index4 ("Index Options1' and, together with Equity

Options, ItOptions").

Prices'on the MONEP for Equity and Index Options

are publicly quoted, and the Options are bought and sold, in

4~heCAC-40 stock index consists of the 40 stocks that

are most representative of the various business sectors

quoted on the monthly settlement market of the Paris Bourse,

and is managed by an independent committee.

French francs. All transactions creating or closing

positions in such Options are executed and settled in Paris

by Members of the MONEP. The Options are dematerialized

(certificateless) and transactions and positions are

evidenced by statements from the SCMC to Clearing Members and

statements by Clearing Members to customers.

MONEP Equity and Index Options are not fungible or

interchangeable with options that are traded on any other

market. Thus, any MONEP Equity and Index Options position

registered can be closed only on the MONEP or exercised by a

Clearing Member giving an exercise notice to the SCMC.

The SCMC1s 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

the writer'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

the writer's obligations with respect to such Options.

Once an exercise of an Option is allocated by a broker to a

particular writer, that writer is contractually obligated to

its broker to perform in accordance with the terms of the

Option. These contractual obligations are secured by the

securities or other margin which the customer is required to

deposit with its broker.

Once Equity Options are allocated, clearing and

settlement of the transaction in the underlying security take

place within the monthly settlement system of the equity

market of the Paris Bourse. The Index Options are cash-

settled only.

The SCMC wishes to familiarize certain registered broker-dealer.s and large financial institutions in the U.S. with the Equi ty and Index Options traded on the MONEP, and thus proposes to take the limited steps described below with respect only to "Eligible Broker-Dealers" and "Eligible Institutionsn. To be Eligible, each such entity must meet the following standards:
(a) it must be a "qualified institutional buyer"

as defined in Rule 144A (a) (1) under the Securities Act

of 1933, as amended ("Rule 144A" and the "Securities

ActN, respectively), or an international organization

excluded from the definition of "U.S. person" in Rule 902(0) (7) of Regulation S under the Securities Act, and (b) it must have had prior actual experience with traded options in the United States options market (and, therefore, would have received the disclosure document for U.S. standardized options called for by Rule 9b-1 under the Exchange Act). MONEP Members will be required to take reasonable steps to assure themselves, before effecting any MONEP Equity or Index Option transaction for or with a customer located in the United States, that the customer is an Eligible Broker-Dealer or an Eligible Institution, that the customer is acting for its own account or the account of another Eligible Broker￾Dealer or Eligible Institution or the managed account of a non-U.S. person (within the meaning of Rule 902(0) (2) under the Securities Act), and that the customer has received the MONEP disclosure document referred to below. The SCMC will advise MONEP Members that it has been advised that, under U.S. law, MONEP Members which are not U.S. registered broker￾dealers may deal with Eligible Institutions only in accordance with Rule 15a-6 under the Exchange Act, principally through U.S. registered broker-dealers as provided in such Rule. The SCMC will institute rules requiring MONEP Members to furnish to Eiigible Broker-Dealers and Eligible Institutions a MONEP disclosure document before accepting an order from such entity to purchase or sell MONEP Options. The rules will also require that MONEP Members obtain written representations from any Eligible Broker-Dealer or Eligible Institution, signed by an appropriate officer, to the following effect:

1. it is an Eligible Broker-Dealer or Eligible
   Institution, and as such it (i) owns and invests on a discretionary basis a specified amount of eligible securities sufficient to be a qualified institutional buyer under Rule 144A (and if a bank, S&L, or other thrift institution, has a net worth meeting the requirements of Rule 144A), and (ii) has had prior actual experience in the U.S. standardized options markets and as a result thereof has received the options disclosure document entitled "Understanding the Risks and Uses of Listed OptionsM that is prepared by the Options Clearing Corporation and U.S. options exchanges;

2. it has received the MONEP disclosure document;

3. its transactions in MONEP Equity or Index Options

will be for its own account or for the account of another

Eligible Broker-Dealer or Eligible Institution or for the

managed account of a non-U.S. person within the meaning of

Rule 902(0) (2) under the Securities Act;

4. it will not transfer any interest or participation

in a MONEP Equity or Index Option it has purchased or written

to any other U.S. person, or to any person in the U.S., who

is not an Eligible Broker-Dealer or Eligible Institution;

5. it will cause any disposition of a MONEP Option

that it has purchased or written to be effected only on the

MONEP and to be settled on the MONEP in Paris, and it

understands that any required payments for premium,

settlement, exercise or closing of any MONEP Option in

respect of which it has a contract with the MONEP Member must

be made in Paris and in French francs. It also understands

that, if in relation to a MONEP Option it has a contract as a

writer with the MONEP Member, margin must be provided to the

MONEP Member, and maintained, measured and deposited in

French francs or any other instrument approved by the SBF;

6. if it is an Eligible Broker-Dealer or Eligible

Institution acting on behalf of another Eligible Broker-

Dealer or Eligible Institution that is not a managed account,

it has obtained from the other a written representation to

the same effect as the foregoing and will provide it-to the

MONEP Member upon demand; and

7. it will notify the MONEP Member of any change in

the foregoing representations prior to placing any future

order, and the foregoing representations will be deemed to be

made with respect to each order it gives to the MONEP Member.

A MONEP disclosure document, in the form submitted

to and reviewed by the Division (Exhibit A hereto), will be

provided only to Eligible Broker-Dealers and Eligible

Institutions. The disclosure document provides an overview

of the MONEP and the MONEP1s Equity and Index Options, with

attention to significant differences from standardized

options in the U.S. domestic options market, and sets forth

special factors relevant to U.S. entities transacting in

MONEP Equity and Index Options.

The SCMC will not engage in any general

advertisement concerning MONEP Equity or Index Options in the

United States.