Federal Register / Vol. 75, No. 179 / Thursday, September 16, 2010 / Notices 56631 

8 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. 3The Securities Committee is comprised of one 

designated representative of each participant 

exchange and the Chairman of OCC or his designee. 

The OCC representative is not a voting member of 

the Committee except in cases of tie votes. Article 

VI, Section 11(c) of OCC’s By-Laws. 

4 Generally speaking, a cash dividend or 

distribution would be deemed to be ‘‘ordinary’’ if it 

is declared pursuant to a policy or practice of 

paying such dividends on a quarterly or other 

regular basis. Dividends paid outside such practice 

would be considered ‘‘non-ordinary.’’ Non-ordinary 

cash dividends usually would trigger an adjustment 

to options contracts subject to the minimum size 

requirement. Article VI, Section 11A, Interpretation 

and Policy .01 of OCC’s By-Laws. See Securities 

Exchange Act Release No. 55258 (February 8, 2007). 

5Stock futures likewise are adjusted in response 

to non-ordinary cash dividends or distributions. See 

Continued 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

The Exchange neither solicited nor 

received comments on the proposal. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

such proposed rule change, or 

(B) Institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

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 rulecomments@sec.gov. Please include File 

Number SR–CBOE–2010–080 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–CBOE–2010–080. 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 Web site 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 

a.m. and 3 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; 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–CBOE– 

2010–080 and should be submitted on 

or before October 7, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.8

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2010–23107 Filed 9–15–10; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–62879; File No. SR–OCC– 

2010–15] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change To Interpret 

By-Laws as to Dividend Adjustments 

September 9, 2010. 

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

Securities Exchange Act of 1934 

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

August 31, 2010, The Options Clearing 

Corporation (‘‘OCC’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change described in Items I and II 

below, which items have been prepared 

primarily by OCC. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested parties. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The purpose of the proposed rule 

change is to amend Interpretation and 

Policy .01 under Article VI, Section 11A 

of OCC’s By-Laws to allow the 

Securities Committee under certain 

conditions to cease adjusting for 

recurring cash dividends previously 

deemed to be non-ordinary dividends. 

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 principal purpose of this rule 

change is to amend Interpretation and 

Policy .01 under Article VI, Section 11A 

of OCC’s By-Laws. Under that 

Interpretation, cash dividends or 

distributions of an issuer which are 

deemed by the Securities Committee 3 to 

be non-ordinary will usually result in an 

adjustment to the terms of listed stock 

options.4

OCC is proposing to amend 

Interpretation .01 to allow the Securities 

Committee under certain conditions to 

cease adjusting for recurring cash 

dividends previously deemed to be nonordinary dividends. Interpretation .01 

under Section 3 of Article XII of OCC’s 

By-Laws, which provides that nonordinary (as determined by OCC) cash 

dividends or distributions of an issuer 

will usually occasion an adjustment to 

the terms of listed stock futures, would 

similarly be amended. The discussion 

below addresses the proposed 

amendments to Interpretation .01 of 

Section 11A of Article VI, but the 

purpose behind those changes is equally 

applicable to the changes proposed to 

Interpretation .01 of Section 3 of Article 

XII.5

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56632 Federal Register / Vol. 75, No. 179 / Thursday, September 16, 2010 / Notices 

Article XII, Section 3, Interpretation and Policy .01, 

of OCC’s By-Laws. See Securities Exchange Act 

Release No. 46595 (October 3, 2002). 

6 In like manner, options on Oil Service HLDRS 

Trust (OIH) which contain DO as a component 

security and make pro-rata distributions in response 

to DO dividends, were also adjusted. 

7The standard method of adjustment is to reduce 

strike prices by the amount of the dividend. 

Options with ‘‘standard’’ strike prices are then 

reintroduced by the listing option exchange(s). With 

each successive adjustment, this process is 

repeated, proliferating strike prices. Liquidity 

naturally gravitates to the options with standard 

strike prices at the expense of liquidity for options 

with non-standard strikes. 

8The OCC Roundtable is an OCC sponsored 

advisory group comprised of representatives from 

OCC’s participant exchanges, OCC, a cross-section 

of OCC clearing members, and industry service 

bureaus. The Roundtable considers operational 

improvements that may be made to increase 

efficiencies and lower costs in the options industry. 

9These same factors would be used by OCC to 

reclassify a recurrent non-ordinary dividend as 

‘‘ordinary’’ with respect to its determination to 

adjust stock futures. 

10OCC will follow a similar practice with respect 

to stock futures. 

11Securities Exchange Act Release Nos. 58059 

(June 30, 2008) and 59442 (February 24, 2009). 

Consistent with past practice, the interpretative 

guidance will be available on OCC’s public Web site 

but not incorporated into OCC’s By-Laws and Rules. 

Other technical or clarifying changes have also been 

made to update the guidance. For example, the use 

of the term ‘‘special dividend’’ has been removed in 

favor of the term ‘‘non-ordinary.’’ 

12For consistency, the changes to the 

Interpretation relating to stock futures also will not 

be effective until February 1, 2012. 

13 15 U.S.C. 78q–1. 

14 15 U.S.C. 78s(b)(3)(A)(i). 

15 17 CFR 240.19b–4(f)(1). 

The amendment was prompted by a 

series of cash dividends declared by 

Diamond Offshore Corporation (‘‘DO’’). 

DO characterized these dividends as 

‘‘special’’ and differentiated them from 

the company’s ‘‘regular’’ cash dividends. 

These ‘‘special’’ and ‘‘regular’’ DO 

dividends have customarily gone ‘‘exdistribution’’ on the same date. Initially, 

the Securities Committee deemed these 

‘‘special’’ dividends to be non-ordinary 

under Interpretation .01 and 

appropriately adjusted listed options in 

response.6 Since Interpretation .01 was 

revised effective February 1, 2009, DO 

options have been adjusted for five 

successive quarterly ‘‘special’’ 

dividends. Notwithstanding that these 

dividends were characterized by DO as 

‘‘special’’ dividends and clearly 

differentiated from the company’s 

‘‘regular’’ dividends, OCC and the 

options exchanges have received strong 

feedback from investors that such 

dividends have been declared so 

consistently and thereby have achieved 

such predictability that they should no 

longer be considered ‘‘non-ordinary’’ for 

adjustment purposes. Furthermore, the 

options exchanges and many OCC 

clearing member firms believe that the 

proliferation of option strikes caused by 

successive quarterly adjustments will 

have an adverse affect on liquidity and 

occasion other adverse operational 

effects.7 The Securities Committee also 

solicited the opinion of participant 

members of the OCC Clearing Member 

Roundtable regarding this issue.8 The 

Roundtable strongly supported 

authorizing the Securities Committee to 

cease adjusting for ‘‘special’’ cash 

dividends whose consistency and 

predictability of payment have been 

demonstrated. 

The proposed amended Interpretation 

.01 enumerates factors that the 

Securities Committee may take into 

account in determining whether a 

dividend is ‘‘ordinary.’’ Importantly, it 

allows the Securities Committee to 

reclassify as ‘‘ordinary’’ dividends 

previously deemed ‘‘non-ordinary.’’ The 

conditions under which this may occur 

are as follows: (1) The issuer discloses 

that it intends to pay such dividends or 

distributions on a quarterly or other 

regular basis, (2) the issuer has paid 

such dividends or distributions for four 

or more consecutive months or quarters 

or two or more years after the initial 

payment, whether or not the amounts 

paid were the same from period to 

period, or (3) the Securities Committee 

determines for other reasons that the 

issuer has a policy or practice of paying 

such dividends or distributions on a 

quarterly or other regular basis.9

It is the intent of the Securities 

Committee that any such 

recharacterization of a dividend as 

‘‘ordinary’’ would be announced in 

advance to investors. For example, after 

adjusting for a given dividend, OCC 

would announce that subsequent 

dividends of the same nature would no 

longer occasion adjustment.10 A 

discussion of the new adjustment 

approach also will be included in 

published interpretative guidance.11

Clean and marked copies of the 

interpretative guidance are attached as 

Exhibit 5 to the OCC filing of the 

proposed rule change. The marked copy 

shows changes from the current 

language. 

In fairness to existing holders of open 

interest (especially DO and OIH) who 

may have assumed option positions 

with the belief that OCC would continue 

to adjust for recurring ‘‘special’’ 

dividends, OCC has determined that the 

portion of Interpretation .01, which 

allows recharacterization of dividends 

as ordinary will be effective only for 

dividends and distributions announced 

after February 1, 2012. This date is 

chosen because it occurs after the latest 

expiration of all existing open interest 

in DO and OIH options (inclusive of 

LEAPS options). All existing open 

interest and any positions created with 

new expiration dates occurring before 

February 1, 2012, will thus be 

‘‘grandfathered’’ under the current 

adjustment approach for these 

dividends.12

OCC believes that the proposed rule 

change is consistent with the 

requirements of Section 17A of the 

Act 13 and the rules and regulations 

thereunder applicable to OCC because it 

provides for the prompt and accurate 

clearance and settlement of securities 

transactions, ensures the protection of 

investors and reduces unnecessary costs 

and burdens on them and persons 

facilitating transactions on their behalf. 

It does so by responding to strong 

investor feedback regarding the need to 

cease treating certain cash dividends or 

distributions as ‘‘non-ordinary’’ for 

adjustment purposes based on the 

consistent declaration of such 

dividends, by publishing information 

regarding those factors which would 

lead OCC to make such a determination, 

and by reducing the likelihood of series 

proliferation in the case of options 

contracts. The proposed rule change is 

not inconsistent with the existing rules 

of OCC, including any other rules 

proposed to be amended. 

(B) Self-Regulatory Organization’s 

Statement on Burden on Competition 

OCC does not believe that the 

proposed rule change will have any 

impact on or impose any burden on 

competition. 

(C) Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments relating to the 

proposed rule change have been 

solicited or received. OCC will notify 

the Commission of any written 

comments received by OCC. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective upon filing pursuant to Section 

19(b)(3)(A)(i) of the Act 14 and Rule 19b– 

4(f)(1) 15 thereunder because the 

proposed rule constitutes an 

interpretation with respect to the 

meaning, administration, or 

enforcement of an existing rule. At any 

time within sixty days of the filing of 

such rule change, the Commission 

summarily may temporarily suspend 

such rule change if it appears to the 

Commission that such action is 

mstockstill on DSKH9S0YB1PROD with NOTICES

Federal Register / Vol. 75, No. 179 / Thursday, September 16, 2010 / Notices 56633 

16 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 62519 

(July 16, 2010), 75 FR 43597 (‘‘Notice’’). 

4Amendment No. 1 clarifies that the proposal to 

accept orders routed by Nasdaq Execution Services, 

LLC to the Exchange on a one-year pilot basis is 

made by the Exchange, rather than by The 

NASDAQ Stock Market, LLC (‘‘Nasdaq’’). This is a 

technical amendment and is not subject to notice 

and comment. 

5The Exchange previously operated an electronic 

trading facility, XLE, for the trading of cash equity 

securities. XLE ceased its operations in October 

2008 following the acquisition of the Exchange by 

The NASDAQ OMX Group, Inc. (‘‘NASDAQ OMX’’), 

the parent corporation of Nasdaq. See Securities 

Exchange Act Release No. 58613 (September 22, 

2008), 73 FR 57181 (October 1, 2008) (SR–Phlx2008–65). Since ceasing operations of XLE, the 

Exchange has solely operated an options market. 

6Unlike Nasdaq, PSX will not route orders to 

other exchanges and will not have market makers. 

As a result, the PSX rules do not contain provisions 

related to outbound routing or market makers that 

are found in Nasdaq’s rules. 

7The Exchange also proposes to delete two 

existing PHLX Rules relating to XLE, PHLX Rule 

160 (NMS Stock Execution on the Exchange) and 

PHLX Rule 188 (Trade Execution and Reporting), 

and to move their content to the proposed rules 

governing PSX. See proposed PHLX Rules 3301(a), 

3305(a)(1) and 3309). 

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 rulecomments@sec.gov. Please include File 

Number SR–OCC–2010–15 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–OCC–2010–15. 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 

changes 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 filings 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– 

2010–15 and should be submitted on or 

before October 7, 2010. 

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.16

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2010–23106 Filed 9–15–10; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–62877; File No. SR–PHLX– 

2010–79] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX, Inc.; Order 

Approving a Proposed Rule Change, 

as Modified by Amendment No. 1, 

Relating to the Establishment of 

NASDAQ OMX PSX as a Platform for 

Trading NMS Stocks 

September 9, 2010. 

I. Introduction 

On June 8, 2010, NASDAQ OMX 

PHLX, Inc. (‘‘PHLX’’ or ‘‘Exchange’’), 

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

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

Exchange Act of 1934 (‘‘Act’’),1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to establish NASDAQ OMX PSX 

as a new electronic platform for trading 

NMS stocks. The proposed rule change 

was published for comment in the 

Federal Register on July 26, 2010.3 On 

August 5, 2010, the Exchange filed 

Amendment No. 1 to the proposed rule 

change.4 The Commission received no 

comment letters regarding the proposed 

rule change. This order approves the 

proposed rule change, as modified by 

Amendment No. 1. 

II. Background 

The Exchange proposes to establish a 

new cash equities trading platform, to 

be called NASDAQ OMX PSX (‘‘PSX or 

‘‘System’’).5 The System will be an openaccess fully electronic integrated order 

display and execution system for NMS 

stocks. PSX will not list securities, but 

rather will trade NMS stocks listed on 

other exchanges on an unlisted trading 

privileges basis. 

The System will allow PSX 

participants to enter orders at multiple 

price levels. Orders will be integrated 

and displayed via data feeds to 

participants and other data subscribers. 

PSX participants will be able to access 

the aggregated trading interest of all 

other PSX participants in accordance 

with non-discretionary order execution 

algorithms. The System will not route 

orders to other market centers. 

In contrast with most markets, which 

employ a price/time execution priority 

system (where the displayed order on 

the book that is first in time at the best 

price is satisfied fully, then the next in 

time at that price, and so on), PSX will 

use a price/pro rata execution priority 

system,with displayed orders receiving 

priority over non-displayed orders. 

Specifically, multiple orders displayed 

on the PSX book at the best price would 

be allocated shares of an incoming order 

pro rata based on the proportion of the 

size of the displayed order to the total 

size of all displayed orders at that price. 

Once all displayed size at any price 

level is exhausted, the same pro rata 

logic would apply to non-displayed 

orders at that price level. 

The Exchange proposes to adopt new 

rules governing trading on the System. 

The proposed new rules are based to a 

substantial extent on the rules of 

Nasdaq 6 and NASDAQ OMX BX, Inc. 

(‘‘BX’’). In addition, the Exchanges 

proposes to apply the PHLX rules listed 

in proposed PHLX Rule 3202, including 

certain rules that governed XLE when it 

was operational, to PHLX members with 

respect to their activities on the 

System.7 The Exchange also proposes to 

amend PHLX Rule 803 (Criteria For 

Listing—Tier I) to support unlisted 

trading privileges for NMS stocks on 

PSX and PHLX Rule 985 (Affiliate and 

Ownership Restrictions) to address 

potential competitive advantage and 

conflict of interest concerns regarding 

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