Federal Register / Vol. 79, No. 211 / Friday, October 31, 2014 / Notices 64843 

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

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 72677 (July 

25, 2014), 79 FR 44480 (July 31, 2014). 

4See letters from Suzanne Shatto, dated August 

18, 2014 (‘‘Shatto Letter’’); Robert P. Bramnik, 

Duane Morris, LLP, and James D. Van De Graaf, 

Katten Muchin Rosenman LLP, on behalf of 

Bedrock Trading LP, Elm Trading LP, First 

Derivative Traders LP, Keystone Trading Partners, 

and Largo Trading LP (‘‘Duane Morris’’), dated 

August 19, 2014 (‘‘Duane Morris Letter’’); Elle 

Greene, Vice President, Securities Industry and 

Financial Markets Association (‘‘SIFMA’’), dated 

August 21, 2014 (‘‘SIFMA Letter’’); Abraham 

Kohen, President, AK FE Consultants LLC, dated 

August 24, 2014 (‘‘Kohen Letter’’); James E. Brown, 

Executive Vice President, General Counsel and 

Secretary, OCC, dated September 9, 2014 (‘‘OCC 

Letter’’). 

5See OCC Letter citing to Letter from Ellen 

Greene, Vice President of SIFMA, to Wayne P. 

Luthringshausen, Chairman and Chief Executive 

Officer of OCC (December 3, 2012) available at 

http://www.sifma.org/issues/

item.aspx?id=8589942317. 

6According to OCC, accounts that are carried on 

a gross basis can be both long and short the same 

series. This means that trades must be coded as 

opening or closing transactions. 

7 ‘‘Market Maker Account’’ is a defined term in 

Article I of OCC’s By Laws. Because the definition 

of ‘‘Market-Maker Account’’ in Article 1 of OCC’s 

By-Laws includes a JBO Participants’ account, the 

interpretation and policy clarifies that this netting 

will not be applied to a JBO Participants’ account 

until such time as OCC determines on not less than 

30 days’ notice to clearing members that OCC is 

able to identify, on a subaccount basis, the 

transactions of a JBO Participant within a JBO 

Participants’ account, in which case a JBO 

Participants’ account shall be considered a MarketMaker Account. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73438; File No. SR–OCC– 

2014–15] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Order 

Approving Proposed Rule Change To 

Process All Sell Transactions Prior to 

the Exercise of Long Options in 

Market-Maker Accounts To Ensure 

That Only Net Long Positions May Be 

Exercised 

October 27, 2014. 

I. Introduction 

On July 17, 2014, The Options 

Clearing Corporation (‘‘OCC’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change SR–OCC–2014–15 

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

Securities Exchange Act of 1934 

(‘‘Exchange Act’’ or ‘‘Act’’) 1 and Rule 

19b–4 thereunder.2 The proposed rule 

change was published for comment in 

the Federal Register on July 31, 2014.3

The Commission received five comment 

letters on the proposal.4 On September 

4, 2014, OCC extended the time for 

Commission action on the proposed rule 

change to October 27, 2014. For the 

reasons discussed below, the 

Commission is granting approval of the 

rule change, as proposed. 

II. Description 

Background 

According to OCC, the purpose of the 

dividend play trading strategy is to 

capture the dividend income of a stock 

through the exercise of in-the-money 

call options on the day prior to the 

stock’s ‘‘ex-dividend’’ date, which is the 

date that determines whether the holder 

of a stock is entitled to the stock’s 

dividend. Where stock is transferred 

before the ex-dividend date, the new 

owner of the stock is entitled to the 

dividend. In order to capture this 

dividend income, a trader will buy a 

large number of call options of the same 

series on a stock on the day prior to the 

stock’s ex-dividend date and then write 

an offsetting number of call options of 

the same series on the same stock at the 

same price. Because the two 

transactions are exactly offsetting and 

executed at the same price, the trader’s 

position in the call options is net 

neutral and has limited market risk. At 

the end of the day, the trader then 

exercises all of its long call options even 

though the trader’s net position is 

neutral. 

OCC, using its current standard 

assignment process, assigns all of that 

day’s exercised long call options of the 

same series across all options writers. 

OCC processes exercises after option 

purchases but before options sales. This 

processing sequence permits a marketmaker executing a dividend play to buy 

and sell equal quantities of call options 

of a given series and exercise the 

purchased call options even though the 

market-maker’s position is neutral. OCC 

believes this would make the 

conventional dividend play impossible. 

OCC currently processes exercises 

before sales in order to reduce 

operational risk for clearing members 

clearing options transactions in 

accounts other than market-makers. 

In December 2012, the Securities 

Industry and Financial Markets 

Association’s (‘‘SIFMA’’) Listed Options 

Trading Committee requested that OCC 

formally review dividend plays.5

According to OCC, SIFMA expressed a 

concern that OCC could suffer losses as 

a result of an operational error in 

processing dividend plays. Because 

successful dividend plays rely in part 

on the dividend trader’s having a large 

position compared to the pre-existing 

open interest in the series of options 

subject to the dividend play, SIFMA 

believed that an operational error in 

processing dividend trades could result 

in a clearing member being liable for a 

settlement amount that could place the 

clearing member in financial peril and 

potentially exceed the collateral 

deposited by the clearing member with 

OCC. 

Following receipt of the SIFMA letter, 

OCC initiated a review of dividend 

plays. Upon completion of a 

comprehensive review, OCC noted that 

dividend plays generally may be 

perceived negatively in the marketplace 

and have been criticized as unfair to 

retail investors and as distorting options 

transactions volume. OCC determined 

that while it should not take action to 

eliminate or restrict dividend plays 

based on these factors, nor should it 

facilitate these transactions. OCC’s 

processing sequence, under which sale 

transactions are processed after 

exercises, was designed to reduce the 

operational risk to clearing members 

that results from potential miscoding of, 

for example, an opening trade for the 

account of one clearing member 

customer as a closing trade for the 

account of another clearing member 

customer in accounts that are carried on 

a gross basis.6 However, this coding risk 

does not exist with respect to marketmaker accounts, where positions are 

carried on a net basis. Accordingly, OCC 

concluded that its processing sequence 

unnecessarily allowed certain marketmakers to execute dividend plays and, 

therefore, proposed to change the 

processing sequence so that for these 

accounts sale transactions are processed 

before exercises. OCC believes that the 

change would have the effect of 

significantly restricting dividend plays 

because large long positions that would 

otherwise be exercised would be offset 

by sale transactions. 

Proposed Amendment 

OCC is proposing to amend its rules 

to add an interpretation and policy to 

Rule 801 and to Rule 805 to state that, 

with respect to Market-Maker 

Accounts,7 sell transactions will be 

processed before exercises. If OCC 

processed sales before exercises, marketmakers’ purchases and sales on a given 

day would offset each other, and when 

OCC processed the exercises, there 

would be no net long call positions to 

exercise. OCC is also proposing to 

modify its systems to make a 

corresponding change in the processing 

sequence. According to OCC, this 

change in the processing sequence 

would only apply to Market-Maker 

Accounts (and, potentially subaccounts 

in JBO Participants’ accounts), and 

would not change the processing 


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8See Shatto Letter and SIFMA Letter. 

9See Kohen Letter. 

10See Duane Morris Letter. 

11See OCC Letter. 

12See Shatto Letter and SIFMA Letter. 

13 15 U.S.C. 78q–1(a)(2)(A). 

14 15 U.S.C. 78q–1(A)(2)(A). 

15 15 U.S.C. 78q–1(b). 

16 15 U.S.C. 78q–1(b)(3)(F). 

17 17 CFR 240.17Ad–22(d)(4). 

18 15 U.S.C. 78q–1(b)(3)(F). 

19 17 CFR 240.17Ad–22(d)(4). 

20OCC asserted that it is not aware of any 

exchange rules that specifically address dividend 

plays. According to OCC, the rules cited in the 

Duane Morris Letter concerning ‘‘opening’’ and 

‘‘closing’’ transactions are relevant for many other 

purposes other than exercises, and, therefore, are 

not negated by the proposed rule change. 

21 15 U.S.C. 78q–1(b)(3)(F). 

22 17 CFR 240.17Ad–22(d)(4). 

sequence applicable to clearing member 

accounts other than Market-Maker 

Accounts. 

III. Summary of Comments Received 

and OCC’s Responses 

The Commission received five 

comment letters in response to the 

proposed rule change; two comment 

letters supporting the proposal,8 one 

comment letter suggesting a possible 

alternative to the proposal,9 one 

comment letter opposing the proposal,10

and one comment letter responding to 

the comment letter opposing the 

proposal.11 The Commission has 

reviewed and taken into full 

consideration all of the comments 

received. 

The Shatto Letter and SIFMA Letter, 

express support for the proposed rule 

change.12 The Shatto Letter notes that 

the proposal will provide clarity to the 

process and reduce risk for all parties. 

The SIFMA Letter supports the proposal 

because it believes the risk of engaging 

in dividend trade strategies outweighs 

any potential profit for those who 

participate in such a strategy. Further, 

the SIFMA Letter ‘‘applauded’’ the 

rigorous approach taken by OCC to 

evaluate the risks and other factors 

associated with dividend trade 

strategies and evaluate whether any 

issues or unintended consequences 

would occur as a result of changing the 

processing sequence for market makers. 

The SIFMA Letter recommends that 

OCC continue its efforts to prevent and 

eliminate the dividend play trading 

strategy. The Kohen Letter does not 

express support or opposition to OCC’s 

proposal, but rather proposes an 

alternative proposal that would require 

market-makers to mark all their 

transactions as opening or closing and 

process trades and exercises notices in 

the same manner OCC processes 

transactions in non-market-maker 

accounts. 

The Duane Morris Letter, representing 

five market-makers, opposes OCC’s 

proposal and advocates the Commission 

disapprove the proposed rule change. 

Below is a discussion of the issues 

raised by Duane Morris and OCC’s 

response to those concerns. 

A. The Proposed Rule Change Is Not 

Grounded in the Exchange Act 

The Duane Morris Letter contends 

that the proposed rule change is not 

consistent with Section 17A(a)(2)(A) of 

the Exchange Act 13 because it does not 

display ‘‘due regard’’ for the 

maintenance of fair competition among 

brokers and dealers, and asserts that the 

‘‘true’’ purpose of the proposed rule 

change is to eliminate a specific trading 

practice at the expense of, and 

detriment to, certain market makers. 

Additionally, the Duane Morris Letter 

argues that SRO rules relating to trades 

and trading practices are the province of 

national securities exchanges and that it 

is beyond the jurisdiction of a clearing 

agency to neutralize trading and a 

trading strategy effected on a national 

securities exchange simply because a 

clearing broker may make an 

operational error. The Duane Morris 

Letter also contends that the proposed 

rule change, if approved, would 

essentially negate the rules of various 

options exchanges concerning opening 

and closing transactions without any 

statutory or regulatory authority to do 

so. 

The Duane Morris Letter further 

contends that OCC’s statutory basis for 

the proposed rule change was not valid. 

Specifically, the Duane Morris Letter 

asserted that OCC concedes that any 

potential operational risk posed by 

dividend plays is at most ‘‘de minimis’’ 

since OCC acknowledges in the 

proposed rule change that dividend 

plays represent only a small number of 

OCC cleared options, the majority of 

which are cleared through two large and 

well-capitalized clearing members that 

have a robust risk management process. 

In response, OCC contends that 

Section 17A(a)(2)(A) of the Exchange 

Act 14 does not set forth the standards 

specifically applicable to registered 

clearing agency rule changes, which are 

instead contained in Section 17A(b) of 

the Exchange Act.15

Further, OCC claims that it has the 

authority under Section 17A(b)(3)(F) of 

the Exchange Act 16 and Rule 17Ad– 

22(d)(4) 17 to implement a policy that 

has been approved by OCC’s Board of 

Directors . Specifically, OCC cites to 

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

Act,18 which requires registered clearing 

agencies to have rules designed to 

promote the prompt and accurate 

clearance and settlement of securities 

transactions and, in general, to protect 

investors and the public interest. OCC 

further cites to Rule 17Ad–22(d)(4),19

which requires registered clearing 

agencies to identify sources of 

operational risk and to develop 

appropriate systems, controls, and 

procedures to minimize those sources. 

OCC also emphasizes that it does not 

seek to police registered national 

securities exchanges or broker-dealers 

trading options on such exchanges.20

OCC notes that it began investigating the 

potential risks that dividend plays 

posed to OCC and market participants 

following a well-publicized trading 

error and approximately $10 million 

loss, which OCC believed to be related 

to the dividend trading strategy. OCC 

further notes that market participants 

through SIFMA also requested that it 

investigate the dividend trading strategy 

in light of its negative perception in the 

marketplace and criticism that it is 

unfair to retail investors and distorts 

options transactions volume. 

OCC also contends that its trade 

processing sequence, in which sales are 

processed after exercises, is the primary 

reason why dividend plays are even 

possible. According to OCC, it has 

historically used such a sequence to 

address a potential miscoding of 

opening and closing transactions—a risk 

not applicable to market-maker 

accounts—and that it did not anticipate 

that certain market-makers would use 

this sequence to execute net neural 

transactions with limited market risk, 

resulting in a reallocation of unassigned 

short positions from retail investors to 

market-makers executing the trading 

strategy. As originally expressed in the 

rule change, as proposed, OCC reiterates 

that while it should not act to eliminate 

or restrict dividend plays based on 

negative perception and the abuse of 

retail investors, neither should it 

facilitate these transactions. Thus, 

according to OCC, upon the urging of 

market participants and after a 

comprehensive review of the trading 

strategy, OCC decided to adopt a policy 

of not facilitating dividend plays, which 

are made possible primary by OCC’s 

legacy choice of a particular processing 

sequence. 

Finally, OCC also contends that it has 

a valid statutory basis supporting the 

proposed rule change to curtail the use 

of dividend plays. OCC asserts that 

neither Section 17A(b)(3)(F) of the 

Exchange Act 21 or Rule 17Ad– 

22(d)(4) 22 limit OCC to only addressing 


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23The Duane Morris Letter further claims that 

there is no underlying statutory basis for the 

proposal’s net long requirement and market 

efficiency is not advanced by such a requirement. 

The Duane Morris Letter appears to base its claim 

on an alleged securities laws’ requirement that an 

options holder must carry a net long position to act 

with respect to its position has been grounded in 

concerns of fraud and manipulation and that no 

harm is imposed on public investors by dividend 

play transactions. OCC characterizes this argument 

as a ‘‘red herring.’’ Moreover, OCC asserts that it is 

not relying on the narrow statutory basis that a 

market participant must be net long to take certain 

action, and that it has ample statutory authority 

under Section 17A(b)(3)(F) of the Exchange Act. 

24 15 U.S.C. 78s(b)(2)(C). 

25 15 U.S.C. 78q–1(b)(3)(F). 

26 17 CFR. 240.17Ad–22(d)(1). 

27 17 CFR 240.17Ad–22(d)(4). 

risks that are posed to itself. Rather, 

OCC notes its belief that it is fully 

within its statutory authority to address 

risks to clearing members that, although 

may not pose a material risk to OCC, 

may pose a risk to an individual 

clearing member that could have 

adverse effects on other clearing 

members, such as a sudden shift in a 

clearing member’s market practices. 

While OCC concedes that dividend 

plays currently do not present a material 

risk to OCC, OCC maintained that this 

may not always be the case and that 

OCC’s rules and by-laws do not limit the 

clearing of dividend plays to firms that 

are well-capitalized. 

B. The Proposed Rule Change Is Per Se 

Anticompetitive and Favors One Group 

of Brokers-Dealers Over Another Group 

of Broker-Dealers 

The Duane Morris Letter asserts that 

the proposed rule change is per se 

anticompetitive because it would only 

affect trading in market-maker accounts. 

The Duane Morris Letter contends that 

OCC’s revision of its rules to preclude 

the acceptance of exercise notices on 

new long options positions on an intraday basis would effectively nullify OCC 

Rule 801(c) solely for the accounts of 

market-makers. 

In response, OCC contends that the 

proposed rule change is not intended to 

address competitive issues nor does it 

have the effect of eliminating or 

reducing competition. OCC states that 

all market-makers holding options 

positions established on national 

securities exchanges would be subject to 

the same processing sequence. 

Furthermore, according to OCC, a 

market-maker would still be able to 

participate in the capturing of a 

dividend, just like any other market 

participant that seeks to exercise a long 

in-the-money call option on the day 

prior to the ex-dividend date, so long as 

its long positions are not fully offset 

with short position at the end of the 

trading day. 

C. The Proposed Rule Change is Per Se 

Anticompetitive and Favors Certain 

National Securities Exchanges Over 

Others 

The Duane Morris Letter asserts that 

the purpose and intent of the proposed 

rule change is to reduce trade volume 

reported by NASDAQ OMX PHLX, so as 

to artificially increase the relative 

market share reported on other 

exchanges particularly the International 

Stock Exchange (‘‘ISE’’). 

In response, OCC contends that this 

particular assertion is ‘‘unsupported.’’ 

OCC alleges that the composition of its 

Board of Directors, which is composed 

of two management directors, three 

public directors, nine clearing member 

directors and five exchange directors, 

makes it impossible that a limited 

number of exchanges, let alone one 

exchange, could have caused the 

proposal to be approved for an improper 

purpose. Additionally, OCC cites to the 

fact that various market participants 

through SIFMA encouraged OCC to 

initiate the inquiry into dividend plays. 

D. The Proposed Rule Change Would 

Artificially Reduce Market Efficiency, 

Decrease Liquidity and Increase 

Volatility 

The Duane Morris Letter asserts that 

market participants may have differing 

reasons, methodologies and strategies in 

connection with their options trading, 

which, according to Duane Morris, 

explains why occasionally the holder of 

an in-the-money call position will not 

exercise before the ex-dividend date. If 

OCC curtails dividend plays, Duane 

Morris contends, options pricing will 

become less stable and predictive, 

resulting in less liquidity and depth in 

the options market.23 Duane Morris 

further contends that dividend plays 

serves a public purpose as it alerts 

public customers to the ex-dividend 

date and highlights the need for public 

customers to consider whether it is in 

their interests to adjust their positions. 

In response, OCC contends that the 

proposed rule change is not targeting 

market participants based on whether or 

not they exercise call options. OCC 

characterizes the Duane Morris assertion 

concerning the proposal’s effect on 

options pricing as ‘‘speculation’’ that is 

unlikely to match the actual outcome. 

The notion that dividend plays add 

liquidity and stability to the options 

market is, OCC notes, ‘‘questionable at 

best’’ since, according to OCC, the 

majority of these trades are prearranged 

between market makers and executed at 

the end of a trading day using a floor 

broker instead of an electronic system 

open to all market participants. 

In addition, OCC disputes the Duane 

Morris assertion that dividend plays 

pose no harm public investors. OCC 

states that dividend plays are only 

profitable because the strategy results in 

a larger share of unassigned short 

positions being allocated away from 

market participants, including public 

investors, to dividend play traders. 

Furthermore, according to OCC, the 

timing (i.e., end of trading day) and 

manner (i.e., through a floor broker) in 

which dividend plays are executed cuts 

against Duane Morris’s public purpose 

argument. 

IV. 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 

the proposed rule change is consistent 

with the requirements of the Act and the 

rules and regulations thereunder 

applicable to such organization. 24

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

Act requires that the rules of a clearing 

agency be designed to promote the 

prompt and accurate clearance and 

settlement of securities transactions, to 

foster cooperation and coordination 

with persons engaged in the clearance 

and settlement of securities 

transactions, to remove impediment to 

and perfect the mechanism of a national 

system for the prompt and accurate 

clearance and settlement of securities 

transactions, and in general, to protect 

investors and the public interest.25 Rule 

17Ad–22(d) requires a registered 

clearing agency to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

provide for a well-founded, transparent 

and enforceable legal framework for 

each aspect of its activities in all 

relevant jurisdictions 26 and to identify 

sources of operational risk and 

minimize them through the 

development of appropriate systems, 

controls, and procedures.27

After careful review of the proposal 

and the comment letters and the 

comment letters in response thereto, as 

described above and below, the 

Commission finds that OCC’s rule 

change, as proposed, is consistent with 

the requirements of the Exchange Act 

and the rules and regulations 

thereunder applicable to a registered 

clearing agency. In particular, the 

Commission believes that OCC has the 

authority under the Exchange Act and 

the rules and regulations thereunder to 

adopt or amend existing rules to change 

its processing sequence to curtail or 


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28 15 U.S.C. 78q–1(b)(3)(I). 

29Any additional proposed rule change by OCC 

expected to have the effect of eliminating the use 

of dividend play trades would also have to be 

presented to the Commission for consideration 

prior to taking effect. Points such as those made in 

the Duane Morris Letter regarding expected effects 

on competition and other consequences resulting 

from such a proposed change would necessarily be 

reconsidered by the Commission in light of the 

rationales presented by OCC at that time. 

30 15 U.S.C. 78c(f). 

31 15 U.S.C. 78q–1. 

32 15 U.S.C. 78s(b)(2). 

33 In approving the proposed rule change, the 

Commission considered the proposal’s impact on 

efficiency, competition, and capital formation. 15 

U.S.C. 78c(f). 

34 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

eliminate the use of dividend plays in 

the accounts of market-makers in light 

of the identifiable improvements in the 

safety of its processes that are expected 

to result from the changes. 

Through its internal governance 

process, OCC has determined that 

dividend play trades have the potential 

to pose certain risks to market 

participants, including OCC clearing 

members, and, in general, are not in the 

public interest. In making such a 

determination, OCC’s proposed rule 

change will limit the use of dividend 

plays through the modification of the 

processing sequence by which these 

trades are cleared and settled at OCC. 

While the Commission acknowledges 

the point raised by Duane Morris and 

confirmed by OCC in its proposal, that 

dividend play trading does not present 

any current operational risk to OCC, the 

Commission believes that neither 

Section 17A of the Exchange Act nor 

Rule 17Ad–22 limit OCC to exclusively 

addressing risks that are currently 

present for the clearing agency alone. 

Given its important role in the national 

clearance and settlement system and its 

designation as a systemically important 

financial market utility by the Financial 

Stability Oversight Council in 2012, the 

Commission believes OCC is entitled 

under the Exchange Act to take into 

account the interests of its clearing 

members, as well as foreseeable effects 

of its actions on the financial system 

more generally, when reviewing and 

considering changes to its operational 

practices. There is a clearly articulated 

basis for believing the proposed action 

by OCC will improve the national 

clearance and settlement system by 

increasing the safety of the system in 

identifiable ways for at least a portion 

of OCC’s membership as reflected in 

OCC’s proposal and in the comment 

letters received, and the Commission 

believes such improvements are 

consistent with the relevant 

requirements of the Exchange Act. In 

particular, since the clearing of 

dividend play trades is not restricted 

based on clearing member capitalization 

and risk-management processes, the 

proposal serves to mitigate a foreseeable 

source of operational risk by precluding 

clearing members with less robust risk 

management processes from clearing 

such dividend trades in the future. 

The Commission also finds that the 

proposal does not impose any burden 

on competition that is not necessary or 

appropriate in furtherance of the 

Exchange Act. The appropriate 

standard, as set forth in Section 

17A(b)(3)(I) of the Exchange Act, 

requires that the rules of the clearing 

agency do not impose any burden on 

competition not necessary or 

appropriate in furtherance of the 

Exchange Act.28 The Commission 

believes that the proposed rule change 

does not impose a burden on 

competition that is not necessary or 

appropriate in furtherance of 

minimizing potential sources of 

operational risk and promoting the 

prompt and accurate clearance and 

settlement of securities transactions. 

Moreover, since the majority of 

dividend plays occur in market-maker 

accounts, there is a reasonable basis for 

OCC to believe it is prudent risk 

management to start curtailing dividend 

play trading in the types of accounts in 

which it primarily occurs. Furthermore, 

the Commission notes that the proposed 

changes by OCC would not have the 

effects of ending dividend plays entirely 

for market-makers or any other 

participants in the options market. A 

market-maker, for example, will still 

have the ability to participate in the 

capturing of dividend after the 

operational changes proposed by OCC 

are in effect by exercising long in-themoney call options on the day prior to 

the ex-dividend date, so long as its 

position in the particular option is net 

long. While some consequential effects 

would necessarily follow from OCC 

implementing the proposed changes in 

its operational practices, absent action 

to eliminate dividend plays entirely, at 

this time the Commission believes 

OCC’s choice to consider the beneficial 

effects of its operational changes 

outweigh any negative effects to be 

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

the Exchange Act.29

Pursuant to Section 3(f) of the 

Exchange Act, in the review of a rule of 

a self-regulatory organization, the 

Commission shall consider whether the 

action will promote efficiency, 

competition, and capital formation.30 As 

described above, Duane Morris argues 

that market efficiency is not advanced 

by the net long requirement for the 

processing of call options in MarketMaker accounts. Duane Morris appears 

to base its assertion on its belief that 

fraud and/or manipulation are not 

concerns with dividend play 

transactions, and that such trading 

imposes no harm to public investors. 

The Commission believes that Duane 

Morris has not provided ample evidence 

to support the assertion that the 

proposed rule change does not advance 

market efficiency. 

V. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposal is 

consistent with the requirements of the 

Act and in particular with the 

requirements of Section 17A of the 

Act 31 and the rules and regulations 

thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act,32

that the proposed rule change (File No. 

SR–OCC–2014–15) be and hereby is 

approved.33

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.34

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–25879 Filed 10–30–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73439; File No. SR–CBOE– 

2014–082] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change Relating to the CBOE 

Trade Match System 

October 27, 2014. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on October 

24, 2014, Chicago Board Options 

Exchange, Incorporated (the ‘‘Exchange’’ 

or ‘‘CBOE’’) filed with the Securities 

and Exchange Commission (the 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 


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