Federal Register / Vol. 73, No. 161 / Tuesday, August 19, 2008 / Notices 48421 

6 15 U.S.C. 78s(b)(3)(A). 

7 17 CFR 240.19b–4(f)(1). 

8 17 CFR 200.30–3(a)(12). 

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

option is in the money. The present rule 

filing addresses two unrelated points 

concerning ‘‘other binary options.’’

The first issue addressed in this filing 

relates to the description of the fixed 

exercise settlement amount. CBOE’s 

proposed rules for binary options on 

broad-based indexes define the fixed 

exercise settlement amount as the 

product of the multiplier for that option 

and another fixed value, both 

established by CBOE at or before the 

opening of trading in a series of binary 

options. In contrast, the fixed exercise 

settlement amount for binary options 

currently traded on Amex is defined 

without reference to a multiplier. Since 

‘‘multiplier’’ is defined in Section I of 

Article XIV of OCC’s By-Laws only with 

respect to premiums and not exercise 

settlement amounts, OCC wishes to 

clarify through a new interpretation to 

Article XIV, Section 2B of OCC’s ByLaws that some exchanges are permitted 

to describe the fixed exercise settlement 

amount as being the product of a 

multiplier times another fixed value. 

Secondly, OCC proposes to clarify 

through an amendment to Rule 1506 

that escrow deposits, like other deposits 

in lieu of margin, are not permitted with 

respect to binary options. The 

clarification will state that neither Rule 

610 and Rule 613 shall not apply to 

binary options. 

OCC states that the proposed rule 

change is consistent with the 

requirements of Section 17A of the Act 5

because it will promote the prompt and 

accurate clearance and settlement of 

transactions in binary options by 

clarifying the consistent application of 

OCC’s By-Laws and Rules to binary 

options notwithstanding differences in 

the manner in which different listing 

exchanges define the exercise settlement 

amount for these options. OCC further 

states that the proposed rule change is 

not inconsistent with the rules of OCC, 

including those proposed to be 

amended. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

OCC does not believe that the 

proposed rule change would impose any 

burdenon competition. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

OCC did not solicit or receive written 

comments with respect to the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 19(b)(3)(A) 

of the Act 6 and Rule 19b–4(f)(1) 7

thereunder because it constitutes a 

stated policy, practice, or interpretation 

with respect to the meaning, 

administration, or enforcement of an 

existing rule. At any time within sixty 

days of the filing of such proposed rule 

change, the Commission may summarily 

abrogate 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 e-mail to rulecomment@sec.gov. Please include File 

No. SR–OCC–2008–15 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 No. 

SR–OCC–2008–15. This file number 

should be included on the subject line 

if e-mail 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 Web site (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 inspection and copying in 

the Commission’s Public Reference 

Room, 100 F Street, NE., Washington, 

DC 20549, on official business days 

between the hours of 10 a.m. to 3 p.m. 

Copies of such filing also will be 

available for inspection and copying at 

OCC’s principal office and on OCC’s 

Web site at http://www.theocc.com/ 

publications/rules/proposed_changes/ 

proposed_changes.jsp . All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File No. OCC–2008–15 

and should be submitted on or before 

September 9, 2008. 

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.8

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–19129 Filed 8–18–08; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58352; File No. SR–OCC–

2008–17] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing and Order Granting 

Accelerated Approval of Proposed 

Rule Change To Permit the Clearance 

and Settlement of Options on the 

Realized Variance and Realized 

Volatility of an Index 

August 13, 2008. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 notice is hereby given that on 

July 30, 2008, The Options Clearing 

Corporation (‘‘OCC’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which items have been prepared 

by OCC. The Commission is publishing 

this notice and order to solicit 

comments from interested persons and 

to grant accelerated approval of the 

proposed rule change from interested 

parties. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

OCC is seeking to clear and settle 

options on the realized variance and 

realized volatility of an index. 


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48422 Federal Register / Vol. 73, No. 161 / Tuesday, August 19, 2008 / Notices 

2The Commission has modified the text of the 

summaries prepared by OCC. 

3Securities Exchange Act Release No. 58171 (July 

16, 2008), 73 FR 42841 (July 23, 2008) [SR–CBOE–

2008–31]. 

4A comparable change is being made to Section 

4(a) of Article XVII. In this instance, however, 

‘‘index securities’’ is used instead of ‘‘component 

securities’’ of an index. 

5 15 U.S.C. 78q–1. 

6 15 U.S.C. 78q–1(b)(3)(F). 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

OCC included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. OCC has prepared 

summaries, set forth in sections (A), (B), 

and (C) below, of the most significant 

aspects of these statements.2

(A) Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

The purpose of proposed rule change 

is to permit OCC to clear and settle 

options on the realized variance and 

realized volatility of an index. Such 

options are referred to respectively as 

‘‘realized variance options’’ and 

‘‘realized volatility options,’’ and 

collectively as ‘‘realized variance/ 

volatility options.’’ The Chicago Board 

Options Exchange (‘‘CBOE’’) has 

received Commission approval to trade 

realized variance/volatility options on 

the S&P 500.3 This rule change will 

permit OCC to clear these options as 

well as any other realized variance/ 

volatility options proposed to be traded 

by an exchange for which OCC provides 

clearing services. 

OCC currently clears options traded 

by CBOE on the CBOE S&P 500 

Volatility Index, the CBOE Nasdaq 100 

Volatility Index, the CBOE Dow Jones 

Industrial Volatility Index, and the 

CBOE Russell 2000 Volatility Index, 

each of which measures the implied 

volatility of the applicable stock index 

by deriving implied volatilities using 

real-time bid/ask quotations for options 

on the reference index. These indexes 

measure the predicted future volatility 

of the reference index. The underlying 

index for a realized variance/volatility 

option, in contrast, measures the actual 

historical variability of an index for a 

specified period. 

The realized volatility/variance 

options described herein would be 

cleared by OCC under the same basic 

rules that apply to other index options. 

For purposes of the clearing process, the 

nature of the underlying index is largely 

irrelevant because the same basic 

procedures are applicable to clearance 

and settlement of all index options. The 

rule changes proposed in this filing 

would add additional terms specifically 

applicable to realized volatility/variance 

options and clarify how certain 

provisions would be applied to such 

options. In addition, the proposed rule 

changes are intended to provide 

guidance as to which options products 

are subject to the provisions of Article 

XVII of the By-Laws and Chapter XVIII 

(Index Options) of the Rules and to 

create greater consistency in the use of 

defined terms. 

By-Law Amendments Applicable to 

Realized Variance/Volatility Options 

In order to alleviate any confusion 

regarding what types of products are 

covered by Article XVII of OCC’s ByLaws and Chapter XVIII of OCC’s Rules, 

OCC proposes to add language to the 

introductory paragraph of Article XVII 

explicitly stating that it and Chapter 

XVIII of the Rules are applicable to 

options on stock indexes; indexes 

measuring the realized or predicted 

volatility or variance of a ‘‘reference 

index;’’ and indexes measuring the 

return of an investment strategy such as 

a buy-write index. To accommodate 

realized variance/volatility options, 

OCC proposes to add a defined term 

‘‘reference index,’’ which is used to 

refer to the index whose volatility or 

variance is measured by the underlying 

variance or volatility index. The new 

term is defined by cross-reference to the 

more general term ‘‘reference variable’’

that is defined in Article I of the ByLaws. OCC proposes to amend the 

definition of ‘‘index security’’ in Article 

XVII, Section 1 of the By-Laws to 

include securities included in a 

reference index, as well as securities 

included in an underlying index. The 

term ‘‘reporting authority’’ would also 

be amended to encompass the official 

source for a reference index. 

Article XVII, Section 3(b) would be 

amended to replace the term 

‘‘underlying securities’’ with the 

defined term ‘‘index securities’’ in two 

places in order to improve the 

consistency of terminology within the 

By-Laws and Rules. For the same 

reason, the term ‘‘index group’’ would 

be deleted from the Introduction, 

Section 3(b), and Section 5(a), as it is 

not used elsewhere in Article XVII. 

Similarly, OCC is proposing to amend 

Section 3(c) of Article XVII of the ByLaws to use the defined term ‘‘index 

securities’’ rather than the undefined 

term ‘‘constituent securities.’’ 4 The term 

‘‘reference index’’ is also included in 

this paragraph to clarify that OCC has 

the ability to modify outstanding index 

options if the index securities of either 

the underlying index or the reference 

index are changed in a manner which 

creates a discontinuity in the underlying 

index. OCC is also proposing to modify 

Article XVII, Section 3(d) of the ByLaws to provide that OCC has the 

authority to substitute a successor index 

for a reference index under the same 

circumstances under which it may 

substitute a successor index for an 

underlying index. 

OCC believes that the proposed rule 

change is consistent with the 

requirements of Section 17A of the Act 5

and the rules and regulations 

thereunder applicable to OCC because it 

is designed to promote the prompt and 

accurate clearance and settlement of 

transactions in, including exercises of, 

realized variance/volatility options, and 

to foster cooperation and coordination 

with persons engaged in the clearance 

and settlement of such transactions, to 

remove impediments to and perfect the 

mechanism of a national system for the 

prompt and accurate clearance and 

settlement of such transactions, and, in 

general, to protect investors and the 

public interest. The proposed rule 

change accomplishes this by applying 

substantially the same rules and 

procedures to these transactions in 

variance/volatility options as OCC 

applies to similar transactions in other 

index options. 

(B) Self-Regulatory Organization’s 

Statement on Burden on Competition 

OCC does not believe that the 

proposed rule change would impose any 

burden on competition. 

(C) Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

Written comments were not and are 

not intended to be solicited with respect 

to the proposed rule change, and none 

have been received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

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

requires that the rules of a clearing 

agency be designed to promote the 

prompt and accurate clearance and 

settlement of securities transactions.6

The Commission finds that OCC’s 


ebenthall on PRODPC60 with NOTICES
Federal Register / Vol. 73, No. 161 / Tuesday, August 19, 2008 / Notices 48423 

7 In approving the proposed rule change, the 

Commission considered the proposal’s impact on 

efficiency, competition, and capital formation. 

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

9 17 CFR 200.30–3(a)(12). 

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

2The Commission has modified the text of the 

summaries prepared by OCC. 

3Securities Exchange Act Release No. 55258 

(February 8, 2007), 72 FR 7701 (February 16, 2007). 

proposed rule change is consistent with 

this obligation under the Act because it 

designed to promote the prompt and 

accurate clearance and settlement of 

transactions in realized variance/ 

volatility options by applying 

substantially the same rules and 

procedures to these transactions as OCC 

applies to similar transactions in other 

index options. 

OCC has requested that the 

Commission approve the proposed rule 

change prior to the thirtieth day after 

publication of the notice of filing. The 

Commission finds good cause for 

approving the proposed rule change 

prior to the thirtieth day after 

publication because CBOE’s rule filing 

for realized variance/volatility options 

has been approved by the Commission, 

but CBOE will not be able to commence 

trading realized variance/volatility 

options until OCC’s rule change is 

approved.7 However, OCC will delay 

implementation of this rule change until 

distribution of a supplement addressing 

realized/variance volatility options to 

the options disclosure document, 

Characteristics and Risks of 

Standardized Options, is distributed. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change, as amended, 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 e-mail to rulecomments@sec.gov. Please include File 

Number SR–OCC–2008–17 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–OCC–2008–17. This file 

number should be included on the 

subject line if e-mail 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 Web site (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 inspection and copying in 

the Commission’s Public Reference 

Section, 100 F Street, NE., Washington, 

DC 20549 on official business days 

between the hours of 10 a.m. and 3 p.m. 

Copies of such filing also will be 

available for inspection and copying at 

the principal office of OCC and on 

OCC’s Web site at http:// 

www.theocc.com. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–OCC–

2008–17 and should be submitted on or 

before September 9, 2008. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,8 that the 

proposed rule change (File No. SR–

OCC–2008–17) be and hereby is 

approved on an accelerated basis. 

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.9

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–19131 Filed 8–18–08; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58353; File No. SR–OCC–

2008–16] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of a Proposed Rule Change 

Relating to the Cash Dividend 

Threshold 

August 13, 2008. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 notice is hereby given that on 

July 24, 2008, The Options Clearing 

Corporation (‘‘OCC’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change described in Items I, II, and III 

below, which items have been prepared 

primarily by OCC. The Commission is 

publishing this notice to solicit 

comments from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The proposed rule change would 

mitigate inconsistencies that may result 

under the current policy for adjusting 

stock option contracts. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

OCC included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. OCC has prepared 

summaries, set forth in sections (A), (B), 

and (C) below, of the most significant 

aspects of these statements.2

(A) Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

The purpose of the proposed rule 

change is to mitigate inconsistencies 

that may result under the current policy 

for adjusting stock option contracts. In 

February 2007, the Commission 

approved rule change SR–OCC–2006–

01, which amended Section 11A of 

Article VI of the OCC By-Laws 

governing adjustments to options in 

response to cash dividends or 

distributions.3 Under the new 

adjustment policy, cash dividends paid 

by a company otherwise than pursuant 

to a policy or practice of paying 

dividends on a quarterly or other regular 

basis would be deemed ‘‘special’’ and 

would normally trigger a contract 

adjustment provided the value of the 

adjustment is at least $12.50 per option 

contract. This new adjustment policy 

will become effective for cash dividends 

announced on or after February 1, 2009. 

However, certain inconsistencies may 

result when the threshold of ‘‘$12.50 per 

option contract’’ is applied to all 

options on the affected underlying 

security. For example, if a $.10 special 

cash dividend is declared, the standardsize 100 share option would not be 

adjusted (because the value is less than 

$12.50). However, a previously adjusted 

150 share option (reflecting a 3 for 2 


ebenthall on PRODPC60 with NOTICES