Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Notices 30531 

of the proposed rule change, or such shorter time 

as designated by the Commission. The Exchange 

has satisfied this requirement. 

34 17 CFR 240.19b–4(f)(6)(iii). 

35See supra notes 9 and 10. 

36For purposes only of waiving the 30-day 

operative delay, the Commission has also 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 37 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Notice of Filing infra note 4, 87 FR at 19566. 

4Securities Exchange Act Release No. 94542 

(Mar. 29, 2022), 87 FR 19566 (Apr. 4, 2022) (File 

No. SR–OCC–2022–003) (‘‘Notice of Filing’’). 

5The Commission received one comment letter 

that addressed market conduct generally; however, 

additional discussion is unnecessary because the 

comment letter does not bear on the purpose or 

legal basis of the Proposed Rule Change. The 

comment on the Proposed Rule Change is available 

at https://www.sec.gov/comments/sr-occ-2022-003/ 

srocc2022003.htm. 

6Capitalized terms used but not defined herein 

have the meanings specified in OCC’s Rules and ByLaws, available at https://www.theocc.com/about/ 

publications/bylaws.jsp. 

7Securities Exchange Act Release No. 88131 (Feb. 

5, 2020), 85 FR 7806 (Feb. 11, 2020) (File No. SR– 

NYSEAmer–2019–038). 

8See OCC By-Laws Article VI, Section 11A, 

Interpretations and Policies .05. 

A proposed rule change filed 

pursuant to Rule 19b–4(f)(6) under the 

Act normally does not become operative 

for 30 days after the date of its filing. 

However, Rule 19b–4(f)(6)(iii) 34 permits 

the Commission to designate a shorter 

time if such action is consistent with the 

protection of investors and the public 

interest. The Exchange has requested 

that the Commission waive the 30-day 

operative delay so that the proposal may 

become operative immediately upon 

filing. The Exchange notes that the 

Commission has approved and noticed 

for immediate effectiveness proposed 

rule changes to permit listing and 

trading on the Exchange of Active Proxy 

Portfolio Shares similar to the Fund.35

The proposed listing rule for the Fund 

raises no novel legal or regulatory 

issues. Thus, the Commission believes 

that waiver of the 30-day operative 

delay is consistent with the protection 

of investors and the public interest. 

Accordingly, the Commission hereby 

waives the 30-day operative delay and 

designates the proposed rule change 

operative upon filing.36

At any time within 60 days of the 

filing of such proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NYSEArca–2022–28 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to: Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NYSEArca–2022–28. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–NYSEArca–2022–28 and 

should be submitted on or before June 

9, 2022. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.37

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–10734 Filed 5–18–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94910; File No. SR–OCC– 

2022–003] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Order 

Granting Approval of Proposed Rule 

Change by The Options Clearing 

Corporation Concerning Cash-Settled 

FLEX ETF Options 

May 13, 2022. 

I. Introduction 

On March 16, 2022, the Options 

Clearing Corporation (‘‘OCC’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change SR–OCC–2022– 

003 (‘‘Proposed Rule Change’’) pursuant 

to Section 19(b) of the Securities 

Exchange Act of 1934 (‘‘Exchange 

Act’’) 1 and Rule 19b–4 2 thereunder to 

amend various provisions of the OCC 

By-Laws and Rules to accommodate the 

issuance, clearance and settlement of 

flexibly structured options on exchangetraded funds (‘‘fund shares’’ or ‘‘ETFs’’) 

that are cash-settled (‘‘Cash-Settled Flex 

ETF Options’’).3 The Proposed Rule 

Change was published for public 

comment in the Federal Register on 

April 4, 2022.4 The Commission 

received no comments regarding the 

substance of the Proposed Rule 

Change.5 This order approves the 

Proposed Rule Change. 

II. Background 6

The NYSE American Exchange 

(‘‘NYSE American’’) received approval 

to list Cash-Settled Flex ETF Options as 

a variation of the currently-traded, 

physically-settled equity flex options.7

Cash-Settled Flex ETF Options generally 

have the same characteristics as 

physically-settled equity flex options, 

except Cash-Settled Flex ETF Options 

are cash-settled, not physically-settled, 

with a settlement amount based on the 

difference between the price of the 

underlying security on the date of 

exercise and the strike price of the 

exercised option. 

OCC submitted the Proposed Rule 

Change because its rules do not allow 

for the settlement of equity options in 

cash, except in two specific 

circumstances: (i) The underlying 

security undergoes a corporate action 

resulting in the conversion of the option 

deliverable to only cash,8 or (ii) the 

underlying security is otherwise 


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30532 Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Notices 

9See OCC By-Laws Article VI, Section 19(c). 10See Notice of Filing, supra note 4, at 19567. 

11OCC would, however, allow escrow deposits to 

be made for Cash-Settled Flex ETF Options. 

unavailable for delivery.9 Within the 

By-Laws and Rules, certain provisions 

apply to physically-settled options and 

certain provisions apply to cash-settled 

options. To accommodate the CashSettled Flex ETF Option product, OCC 

proposes to revise its By-Laws and 

Rules to do the following: (i) Make 

distinctions between Cash-Settled Flex 

ETF Options and physically-settled 

options on the same underlying 

security; (ii) clarify that certain 

provisions that currently apply only to 

physically-settled options will also 

apply to Cash-Settled Flex ETF Options; 

and (iii) exclude application of certain 

provisions to Cash-Settled Flex ETF 

Options that otherwise would apply to 

all cash-settled options. 

OCC proposes the following 

modifications to its By-Laws to 

distinguish physically-settled flexibly 

structured options from Cash-Settled 

Flex ETF Options: 

• In Article I (Definitions), Section 

1(F)(8), OCC proposes to revise the 

definition of ‘‘Flexibly Structured 

Option’’ to (i) allow such options to be 

physically-settled or cash-settled 

depending on the listing exchange’s 

rules, and (ii) state that Cash-Settled 

Flex ETF Options would not be fungible 

with physically-settled flexibly 

structured options and would not be 

consolidated with standard options 

listed after a flexibly-structured option 

with the same strike, expiration date, 

and underlying security, as is the case 

with a physically-settled flexibly 

structured option that is fungible. 

• In Article I (Definitions), Section 

1(S)(12), OCC proposes to revise the 

definition of ‘‘Series’’ to state that the 

options of the same series have the same 

settlement method. 

• In Article I (Definitions), Section 

1(V)(1), OCC proposes to revise the 

definition of ‘‘Variable Terms’’ to 

recognize that in addition to the variable 

terms itemized in the definition, 

flexibly-structured options on fund 

shares may be either physically- or cashsettled. 

• In Article XVII (Index Options and 

Certain Other Cash-Settled Options), 

Introduction, OCC proposes to revise 

the introduction to add flexiblystructured options that cash-settle to the 

list of options for which Article XVII of 

the By-Laws applies. 

• In Article XVII (Index Options and 

Certain Other Cash-Settled Options), 

Section 1(C)(4), OCC proposes to revise 

the definition of ‘‘Class of Options’’ to 

state that flexibly-structured options 

that cash-settle shall constitute a 

different class of options from 

physically-settled options on the same 

underlying interest. 

OCC also proposes the following 

modifications to its By-Laws and Rules 

to require the application of certain 

provisions to Cash-Settled Flex ETF 

Options that otherwise would apply 

only to physically-settled options, and 

to exclude Cash-Settled Flex ETF 

Options from certain provisions that 

otherwise would apply to all cashsettled options: 

• In Article I (Definitions), Section 

1(C)(15), OCC proposes to revise the 

definition of ‘‘Clearing Member’’ to state 

that a Clearing Member is not an ‘‘Index 

Clearing Member’’ solely by virtue of 

being approved to clear Cash-Settled 

Flex ETF Options. 

• In Article I (Definitions), Section 

1(R)(5), OCC currently defines 

‘‘Reporting Authority’’ when used with 

respect of any cash-settled contract to 

mean the source that OCC uses as the 

official source for the current price or 

value of the underlying interest. OCC 

proposes to revise this definition to state 

that the reporting for Cash-Settled Flex 

ETF Options will be the same source 

used by OCC for physically-settled 

equity options with the same underlying 

interest. According to OCC, this change 

is designed to facilitate the use of the 

same closing price for automatic 

exercise determinations on both 

physically- and cash-settled options 

with the same underlying security, 

thereby ensuring that expiration 

processing for a Cash-Settled Flex ETF 

Option will align with expiration 

processing for a physically-settled 

product on the same underlying 

security.10

• In Article XVII (Index Options and 

Certain Other Cash-Settled Options), 

Section 1(R)(3), defines ‘‘Reporting 

Authority’’ specifically in the context of 

index options and certain other cashsettled options. OCC proposes to revise 

this definition to explicitly exclude 

Cash-Settled Flex ETF Options and to 

state that the reporting authority for 

Cash-Settled Flex ETF Options is the 

same source used by OCC for 

physically-settled equity options. 

• Article XVII (Index Options and 

Certain Other Cash-Settled Options), 

Sections 3(a) and 3(h) currently state 

that the adjustment provisions of Article 

VI, Section 11A do not apply to cashsettled equity contracts. To ensure that 

adjustment decisions for Cash-Settled 

Flex ETF Options and physically-settled 

options on the same underlying are the 

same, OCC is proposing to add language 

to this section to state that Article VI, 

Section 11A of the By-Laws applies to 

Cash-Settled Flex ETF Options. 

• Article XVII (Index Options and 

Certain Other Cash-Settled Options), 

Section 4(a)(2) states the method by 

which the exercise settlement amount 

for exercised contracts of an affected 

series is fixed for index options and 

certain other cash-settled options. OCC 

proposes to amend this provision to 

state that the exercise settlement 

amount for Cash-Settled Flex ETF 

Options shall be determined by using 

the last reported sale price for the 

underlying security during regular 

trading hours, which is consistent with 

the expiration closing price 

determination for physically-settled 

options under OCC’s Rule 805(j). 

• Chapter VI (Margins), Rule 610 

(Deposits in Lieu of Margin) allows 

Clearing Members to use specific 

deposits of the underlying security as 

collateral to cover short customer 

positions on call options. Specific 

deposits fully cover a short call position 

because the Clearing Member pledges 

the security, in the appropriate amount, 

that must be delivered if the call option 

writer is assigned. OCC proposes to 

modify Rule 610 to disallow specific 

deposits for Cash-Settled Flex ETF 

Options because such options do not 

require delivery of the underlying 

security upon assignment.11

• Chapter VIII (Exercise and 

Assignment), Rule 805(j) (Expiration 

Exercise Procedure) states that the 

‘‘closing price’’ used for any underlying 

security in Rule 805 is the last reported 

sale price for the underlying security 

during regular trading hours (as 

determined by OCC) on the trading day 

immediately preceding the expiration 

date, or on the expiration date if the 

expiration date is a trading day, on such 

national securities exchange or other 

domestic securities market as OCC shall 

determine. OCC proposes to revise Rule 

805(j) to state explicitly that the same 

definition of ‘‘closing price’’ applies to 

underlying securities for Cash-Settled 

Flex ETF Options. 

• Chapter XVIII (Index Options and 

Certain Other Cash Settled Options), 

Rule 1804(a) (Expiration Exercise 

Procedure for Cash-Settled Options) 

generally provides for the expiration 

exercise procedure for cash-settled 

options. OCC is proposing to add an 

interpretation and policy to Rule 1804 

to clarify that, notwithstanding its 

general application to cash-settled 

options, the determination of the closing 

price for an underlying security of a 

flexibly-structured cash-settled equity 


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Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Notices 30533 

12See Notice of Filing, supra note 4, at 19568. 

13 15 U.S.C. 78s(b)(2)(C). 

14 15 U.S.C. 78q–1(b)(3)(F). 

15 Id. 

16 15 U.S.C. 78q–1(b)(3)(F). 

17 In approving this Proposed Rule Change, the 

Commission has considered the proposed rules’ 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

18 15 U.S.C. 78s(b)(2). 

19 17 CFR 200.30–3(a)(12). 

option is the same as the determination 

of the closing price per Rule 805(j). 

• In Chapter XVIII (Index Options 

and Certain Other Cash Settled 

Options), Rule 1804 (Expiration 

Exercise Procedure for Cash Settled 

Options), OCC proposes to revise Rule 

1804(a) and Rule 1804(b) to state that 

Cash-Settled Flex ETF Options will be 

deemed exercised on expiration if the 

strike price is $0.01 or more in-themoney in accordance with the 

provisions of Rule 805(d). The change 

would set the threshold for automatic 

exercise of Cash-Settled Flex ETF 

Options at the threshold established for 

physically-settled equity options rather 

than the $1.00 per contract threshold 

established in Rule 1804. 

• In Chapter VIII (Exercise and 

Assignment), Rule 805 (Expiration 

Exercise Procedure), Interpretation and 

Policy .03 states that the exercise 

procedures set forth in Rule 805 apply 

to flexibly-structured equity options. 

OCC proposes to add language 

excepting from application of Rule 

805(d) American-style Cash-Settled Flex 

ETF Options subject to delayed 

settlement for any deliverable 

component. Similarly, in Chapter XVIII 

(Index Options and Certain Other Cash 

Settled Options), Rule 1804 (Expiration 

Exercise Procedure for Cash Settled 

Options), OCC is proposing to add 

language to Rule 1804(a) to state 

explicitly that Rule 805(d) does not 

apply to American-style Cash-Settled 

Flex ETF Options that have a 

deliverable component subject to 

delayed settlement. OCC states that the 

changes are necessary because any such 

option with a pended delivery 

component on its expiration date should 

not be automatically exercised, as the 

total value of the option deliverable can 

only be estimated.12 OCC anticipates 

this outcome would be rare, and likely 

the result of a contract adjustment that 

involves cash in lieu of fractional shares 

that have yet to be finalized on an 

option’s expiration date. 

III. Discussion and Commission 

Findings 

Section 19(b)(2)(C) of the Exchange 

Act directs the Commission to approve 

a proposed rule change of a selfregulatory organization if it finds that 

such proposed rule change is consistent 

with the requirements of the Exchange 

Act and the rules and regulations 

thereunder applicable to such 

organization.13 After carefully 

considering the Proposed Rule Change, 

the Commission finds that the proposal 

is consistent with the requirements of 

the Exchange Act and the rules and 

regulations thereunder applicable to 

OCC. More specifically, the Commission 

finds that the Proposed Rule Change is 

consistent with Section 17A(b)(3)(F) of 

the Exchange Act 14 as described in 

detail below. 

Section 17A(b)(3)(F) of the Exchange 

Act requires, among other things, that a 

clearing agency’s rules are designed to 

promote the prompt and accurate 

clearance and settlement of securities 

transactions and, to the extent 

applicable, derivative agreements, 

contracts, and transactions.15 Based on 

its review of the record, and for the 

reasons described below, the 

Commission believes that the proposed 

changes to its By-Laws and Rules are 

reasonably designed to be consistent 

with the prompt and accurate clearance 

and settlement of securities transactions 

and derivative agreements, contracts, 

and transactions for which OCC is 

responsible. 

The Proposed Rule Change would 

amend the By-Laws and Rules to 

maintain consistency between OCC’s 

By-Laws and Rules and NYSE 

American’s rules as applied to the 

clearance and settlement of Cash-Settled 

Flex ETF Options. To maintain 

consistency with NYSE American’s 

rules, the Proposed Rule Change ensures 

that OCC is able to provide two different 

types of settlement methods for flexiblystructured ETF options, in order to 

accommodate the clearance and 

settlement of Cash-Settled Flex ETF 

Options in addition to physically-settled 

options. Maintaining this congruence 

between OCC and NYSE American’s 

rules provides assurance to market 

participants that the two self-regulatory 

organizations are treating the clearance 

and settlement processes of the CashSettled Flex ETF Option product in the 

same manner. This is consistent with 

facilitating the prompt and accurate 

clearance and settlement of these 

products. 

OCC proposes numerous By-Law and 

Rule changes to distinguish between 

physically-settled flexibly structured 

options and Cash-Settled Flex ETF 

Options. The Commission believes that 

these changes will make clear to market 

participants that, despite certain 

similarities, these two products are 

entirely distinct and should be treated 

as such for clearance and settlement 

purposes. In particular, the Proposed 

Rule Change states that Cash-Settled 

Flex ETF Options are not fungible with 

physically-settled flexibly structured 

options, and that the two products are 

not to be consolidated even if they have 

the same strike, expiration date, and 

underlying security. As such, the 

proposed changes provide unambiguous 

requirements for clearing and settling 

such transactions, and the Commission 

believes that the resulting clarity may 

facilitate prompt and accurate clearance 

and settlement by avoiding confusion or 

errors. 

Additionally, OCC proposes 

numerous By-Law and Rule changes to 

state that certain provisions that 

currently apply only to physicallysettled options will also apply to CashSettled Flex ETF Options, while other 

provisions that currently apply to all 

cash-settled options will not apply to 

Cash-Settled Flex ETF Options. The 

proposed changes are designed to treat 

the Cash-Settled Flex ETF Options like 

all other Flex ETF options instead of as 

cash-settled options generally, given the 

difference in the form of settlement and 

the lack of fungibility. Accordingly, the 

changes to OCC’s By-Laws and Rules 

facilitate the prompt and accurate 

clearance and settlement of these 

transactions. 

The Commission believes, therefore, 

that the proposal to revise OCC’s ByLaws and Rules to accommodate the 

clearance and settlement of Cash-Settled 

Flex ETF Options is consistent with the 

requirements of Section 17A(b)(3)(F) 

under the Exchange Act.16

IV. Conclusion 

On the basis of the foregoing, the 

Commission finds that the Proposed 

Rule Change is consistent with the 

requirements of the Exchange Act, and 

in particular, the requirements of 

Section 17A of the Exchange Act 17 and 

the rules and regulations thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act,18

that the Proposed Rule Change (SR– 

OCC–2022–003) be, and hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–10735 Filed 5–18–22; 8:45 am] 

BILLING CODE 8011–01–P 


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