228 Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / Rules and Regulations 

1 17 CFR 230.135b.

2 15 U.S.C. 77a et seq.

3Release No. 33–7550 (July 1, 1998) [63 FR 

36136].

4Release No. 33–6426 (Sept. 16, 1982) [47 FR 

41950]. Rule 9b–1(a)(4) [17 CFR 240.9b–1(a)(4)] 

under the Securities Exchange Act of 1934 [15 

U.S.C. 78a et seq.] defines standardized options as 

‘‘options contracts trading on a national securities 

exchange, an automated quotations system of a 

registered securities association, or a foreign 

securities exchange which relate to options classes 

the terms of which are limited to specific expiration 

dates and exercise prices, or such other securities 

as the Commission may, by order, designate.’’ 5 17 CFR 239.20.

6Rule 153b [17 CFR 230.153b] allows the issuer 

to satisfy its Securities Act Section 5(b)(2) [15 

U.S.C. 77e(b)(2)] prospectus delivery requirement 

by delivering copies of the prospectus to each 

exchange on which the options are traded. The 

exchange then must deliver the prospectus to 

options customers upon request. 7See Release No. 34–43461 (Oct. 19, 2000) [65 FR 

64137]. 8Release No. 33–6426, see note 3 above; see also 

Release No. 33–6494, n.2 (Oct. 27, 1983) [48 FR 

51328] (discussing the Commission’s 1979 Special 

Study of the Options Market, recommending the 

simplified registration and disclosure scheme). 9 15 U.S.C. 77e. However, as stated in the release 

proposing Rule 135b, the ODD is subject to liability 

under the antifraud provisions of the federal 

securities laws. See Release No. 33–6411 (June 24, 

1982) [47 FR 28688].

10Release No. 33–6426, see note 3 above.

11Release No. 33–6426, see note 3 above. Because 

Rule 135b states that Section 5 does not apply to 

distribution of the ODD, it is clear that Section 

12(a)(1) liability is inapplicable because that section 

provides recourse only for offers or sales made in 

violation of Section 5. See 15 U.S.C. 77l(a)(1).

12Section 12(a)(2) also imposes civil liability for 

oral communications containing material 

misstatements or omissions. 15 U.S.C. 77l(a)(2).

13Letter dated September 23, 1982, from then 

Division of Corporation Finance Director, Lee B. 

Spencer, Jr. to Marc L. Berman, then Senior Vice 

President and General Counsel, of the Options 

Clearing Corporation. On its face, the text of Rule 

135b does not address the applicability of Section 

12 liability. In its interpretive letter, the Division 

noted that the limiting language ‘‘for purposes only 

of Section 5 of the Act’’ appearing in Rule 135b is 

intended to clarify that the ODD would be subject 

to the antifraud provisions of Section 17(a) of the 

Securities Act [15 U.S.C. 77q(a)] and Section 10(b) 

of the Exchange Act [15 U.S.C. 78j(b)], but is not 

intended to suggest that the ODD remains subject 

to Section 12(a)(2) liability.

14Release No. 33–7550 (July 1, 1998) [63 FR 

36136].

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Part 230 

[Release No. 33–8049; File No. S7–19–98] 

RIN 3235–AH31 

Options Disclosure Document

AGENCY: Securities and Exchange 

Commission.

ACTION: Final rule.

SUMMARY: We are adopting a revision to 

a rule under the Securities Act of 1933 

to clarify that an options disclosure 

document prepared in accordance with 

our rules under the Securities Exchange 

Act of 1934 is not a prospectus and is 

not subject to civil liability under 

Section 12(a)(2) of the Securities Act. 

This amendment codifies a longstanding interpretive position taken by 

the Division of Corporation Finance 

soon after we adopted the current 

registration and disclosure system 

applicable to standardized options in 

1982. We are codifying this position to 

reduce the legal uncertainty regarding 

the liability issue.

EFFECTIVE DATE: February 1, 2002.

FOR FURTHER INFORMATION CONTACT: Ray 

Be, Special Counsel, at (202) 942–2910, 

Division of Corporation Finance, U.S. 

Securities and Exchange Commission, 

450 Fifth Street, NW., Washington, DC 

20549–0312.

SUPPLEMENTARY INFORMATION: We are 

adopting a revision to Rule 135b 1 under 

the Securities Act of 1933.2

I. Background 

In 1998, we issued a release proposing 

an amendment to Rule 135b under the 

Securities Act to clarify that an options 

disclosure document prepared in 

accordance with Rule 9b–1 under the 

Securities Exchange Act of 1934 is not 

a prospectus and, accordingly, is not 

subject to civil liability under Section 

12(a)(2) of the Securities Act.3

This clarification is consistent with 

the original intent of the simplified 

registration and disclosure system for 

standardized options that we adopted in 

1982.4 Under this system, the issuer of 

the standardized options, generally a 

clearing corporation, may register the 

options under the Securities Act on 

Form S–20.5 This form is quite 

streamlined. The Form S–20 prospectus 

includes limited information about the 

clearing corporation issuer and the 

options being registered.6 The 

registration statement includes 

additional information about the 

issuer’s directors and executive officers 

and legal proceedings as well as its 

financial statements.

Investors are informed about the 

general characteristics of standardized 

options and the rules of options trading 

through a separate disclosure document 

we refer to as the ‘‘options disclosure 

document’’ or the ‘‘ODD.’’ The ODD 

must meet the informational 

requirements of Rule 9b–1 under the 

Exchange Act. In addition to setting 

forth what information must be 

disclosed in the ODD, Rule 9b–1 

requires brokers and dealers to furnish 

a copy of the ODD to a customer before 

or at the time they approve that 

customer’s account or accept the 

customer’s order to trade options 

covered by the ODD. The exchanges on 

which the registered options trade work 

closely with the clearing corporation to 

prepare and update the ODD.7

We adopted the simplified 

registration and disclosure system 

applicable to standardized options 

primarily to reduce the expense of 

preparing and updating a detailed 

prospectus, and to provide investors 

with a document that is easier to read 

and understand than a traditional 

options prospectus.8 Securities Act Rule 

135b and its adopting release provide 

that an ODD prepared in accordance 

with Rule 9b–1 under the Exchange Act 

‘‘shall not be deemed to constitute an 

offer to sell or offer to buy any security’’ 

for purposes only of Section 5 of the 

Securities Act.9 In that adopting release, 

we stated that ‘‘[f]or purposes of 

clarification, it should be noted that if 

the disclosure document is deemed not 

to be an offer to sell or buy, it cannot 

be deemed to be a prospectus.’’ 10 In 

addition, we stated that Rule 135b ‘‘is 

intended to relieve the preparers of the 

disclosure document from liability 

under Section 12(1) [now Section 

12(a)(1)] of the [Securities] Act for 

distributing a disclosure document to 

investors which might, absent such 

relief, violate Section 5 of the 

[Securities] Act.’’ 11

However, Rule 135b and its adopting 

release both are silent as to whether the 

ODD is subject to liability under Section 

12(a)(2) of the Securities Act. Section 

12(a)(2) generally imposes civil liability 

on a person using a prospectus that 

contains material misstatements or 

omissions to offer or sell a security.12

Shortly after we adopted Rule 135b, 

the Options Clearing Corporation, 

commonly known as the OCC, requested 

interpretive advice from the Division of 

Corporation Finance regarding the 

applicability of Section 12(a)(2) liability 

to an ODD. After considering the rule’s 

adopting release, the Division advised 

the OCC that in its view, an ODD ‘‘is not 

a prospectus within the meaning of 

Section 2(10) [now Section 2(a)(10)] of 

the Securities Act and, thus, is not 

subject to liability under Section 12(2) 

[now Section 12(a)(2)] of the Securities 

Act.’’ 13 In 1998, we proposed and 

sought comment on a revision to Rule 

135b to clarify that the ODD is not 

subject to Section 12(a)(2) liability.14

II. Discussion 

Despite this long-standing interpretive 

position, some uncertainty continues to 

exist about the applicability of Section 

Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / Rules and Regulations 229

15See, for example, Spicer v. Chicago Board 

Options Exchange, No. 88 C 2139 (N.D. Ill. Oct. 24, 

1990) (deciding that an ODD could be subject to 

Section 12(a)(2) liability), motion to reconsider 

denied (Jan. 24, 1991), summary judgment granted

(Dec. 9, 1992) (finding in favor of the OCC on the 

Section 12(a)(2) claim on other grounds). We have 

never considered inclusion of the statement 

referring to the ODD that is required by Form S–

20 as having the effect of incorporating the ODD by 

reference into the Form S–20 prospectus. 

Accordingly, we have added language to Rule 135b 

stating that the ODD shall not be deemed a 

prospectus for purposes of Sections 2(a)(10) and 

12(a)(2) (15 U.S.C. 77b(a)(10) and 77l(a)(2)) of the 

Act, even if it is referred to in, deemed to be 

incorporated by reference into, or otherwise in any 

manner deemed to be a part of a Form S–20 

prospectus.

16See the comment letters from Options Clearing 

Corporation (Aug. 26, 1998) and the Philadelphia 

Stock Exchange (Aug. 28, 1998). The comments we 

received are available in our Public Reference Room 

at 450 Fifth Street, NW., Washington, DC 20549, in 

File No. S7–19–98.

17We note that this amendment is consistent with 

Congress’ exemption of security futures products 

from Section 12(a)(2) liability. Congress generally 

intended that we treat standardized options and 

securities futures products similarly. See, for 

example, Exchange Act Section 6(h)(3)(C) [15 U.S.C. 

78f(h)(3)(C)].

18Of course, the document would continue to be 

subject to the antifraud liability provisions of 

Section 17(a) of the Securities Act [15 U.S.C. 

77q(a)], Section 10(b) of the Exchange Act [15 

U.S.C. 78j(b)], and Rule 10b–5 under the Exchange 

Act [17 CFR 240.10b–5]. Thus, we believe that the 

rule, if amended as proposed, would continue to be 

consistent with protection of investors.

19See Spicer v. Chicago Board Options Exchange

in note 15 above.

12(a)(2) liability to an ODD.15 In 

response to informal requests from the 

Chicago Board Options Exchange and 

the OCC, we intend to reduce 

uncertainty in this area. We received 

two letters of comment on the 1998 

proposal to amend Rule 135b.16 Both 

letters supported clarification of the 

Section 12(a)(2) liability issue.

As noted above, the ODD informs 

investors of the general characteristics 

of standardized options and the rules of 

options trading. Because of the general 

nature of this document, the ODD does 

not encourage investors to invest in any 

particular standardized option. Rather, 

the ODD merely provides background 

information about standardized options. 

Therefore, we believe that the ODD is 

neither an offer under the Securities Act 

nor a prospectus and therefore is not 

subject to Section 12(a)(2) liability.17

Accordingly, we are adopting the 

proposed change to Rule 135b to codify 

the Division of Corporation Finance’s 

position that an ODD prepared in 

accordance with Exchange Act Rule 9b–

1 is not subject to liability under 

Securities Act Section 12(a)(2).18

III. Costs and Benefits 

We solicited comment to assist us in 

our evaluation of the costs and benefits 

associated with the change to Rule 135b. 

In response, we received two comment 

letters from affected parties, the 

Philadelphia Stock Exchange and the 

OCC. Both commenters supported the 

amendment. The OCC noted that the 

amendment would eliminate 

uncertainty in this area of the law, 

which would be beneficial to all parties. 

The amendment will not result in any 

new costs because it simply codifies the 

long-standing interpretive position of 

the Division of Corporation Finance that 

an ODD prepared in accordance with 

Exchange Act Rule 9b–1 is not a 

prospectus and thus is not subject to 

liability under Section 12(a)(2) of the 

Securities Act. By reducing any 

uncertainty in the courts concerning the 

applicability of Section 12(a)(2) liability 

to an ODD, we anticipate that the 

amendment will reduce the time and 

money spent by plaintiffs, the options 

exchanges, the OCC and the courts in 

pursuing, defending and dismissing 

such claims. 

As stated above, at least one federal 

district court has ruled that a claim may 

exist under Section 12(a)(2) even though 

the Division’s interpretive position was 

in place.19 This type of conflicting 

ruling has added to the cost of 

defending and adjudicating claims and 

added uncertainty regarding the Section 

12(a)(2) liability issue. In addition, the 

OCC has informed us of another suit 

currently pending in which the 

plaintiffs have claimed that the ODD is 

subject to Section 12(a)(2) liability. We 

also contacted the OCC to help estimate 

the dollar cost of the uncertainty, which 

includes the cost of legal services. They 

were not able to provide dollar 

estimates because of the difficulty of 

separating the costs of defending one 

claim among a number of claims. 

Although it is not possible to quantify 

the extent to which plaintiffs would 

bring such suits in the future absent the 

amendment, we expect the rule 

clarification to result in cost savings to 

plaintiffs, defendants and courts by 

reducing any further need for these 

parties to address this issue.

IV. Effects on Efficiency, Competition 

and Capital Formation 

We sought and received no comments 

on the amendment’s effects on 

efficiency, competition and capital 

formation. The amendment to Rule 135b 

is intended to reduce the OCC’s and the 

exchanges’ risk of Section 12(a)(2) 

liability for the contents of the ODD. We 

do not expect this rule to have a 

negative impact on efficiency, 

competition and capital formation for 

the following reasons: 

This amendment reduces the legal 

risks to the OCC as issuer. But the OCC 

does not receive the proceeds from the 

sale of these securities. Rather, it acts as 

the clearing agent between the buyers 

and sellers of the securities. As such, 

the risk to the seller is unchanged by 

this rule and will not impact the 

economic incentives of buyers and 

seller to transact. This rule therefore 

should have no impact on capital 

formation. 

To the extent that this rule reduces 

the risk of legal actions against the OCC 

and the exchanges on the basis of 

differences of interpretation in Section 

12(a)(2) liability, this rule will reduce 

the resources spent by the OCC and 

exchanges addressing suits. This rule 

therefore should increase the efficiency 

of the OCC and exchanges. 

We do not expect the amendment to 

have a significant impact on 

competition because the OCC is 

currently the only clearing corporation 

for standardized options trading on 

exchanges in the United States. Any 

new clearing corporations in the United 

States would benefit from the 

clarification equally with the OCC. 

Similarly, the exchanges will equally 

benefit from the clarification. However, 

to the extent that the options exchanges 

and the OCC compete with foreign 

markets for the trading of standardized 

options, by improving the efficiency of 

these entities, the amendment will have 

some positive effect on the exchanges’

and the OCC’s ability to compete in this 

market. 

V. Regulatory Flexibility Act 

Certification 

Pursuant to Section 605(b) of the 

Regulatory Flexibility Act, 5 U.S.C. 

605(b), the Chairman of the Commission 

has certified that the amendment will 

not have a significant economic impact 

on a substantial number of small 

entities. This certification, including the 

reasons supporting the certification, was 

attached to the proposing release, 

Release No. 33–7550, as Appendix A. 

We solicited comments on the potential 

impact of the amendment on small 

entities, but received no comments. 

VI. Statutory Basis 

We are adopting the amendment to 

Securities Act Rule 135b pursuant to 

Sections 2(a)(10), 2(b), 7, 10, 19(a) and 

28 of the Securities Act, as amended.

List of Subjects in 17 CFR Part 230 

Reporting and recordkeeping 

requirements, Securities.

230 Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / Rules and Regulations 

Text of the Rule Amendment

■ In accordance with the foregoing, Title 

17, chapter II of the Code of Federal 

Regulations is amended as follows:

PART 230—GENERAL RULES AND 

REGULATIONS, SECURITIES ACT OF 

1933

■ 1. The general authority citation for 

Part 230 is revised to read as follows:

Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 

77g, 77h, 77j, 77r, 77s, 77sss, 77z–3, 78c, 78d, 

78l, 78m, 78n, 78o, 78t, 78w, 78ll(d), 78mm, 

79t, 80a–8, 80a–24, 80a–28, 80a–29, 80a–30, 

and 80a–37, unless otherwise noted.

* * * * *

2. Revise § 230.135b to read as 

follows:

§ 230.135b Materials not deemed an offer 

to sell or offer to buy nor a prospectus. 

Materials meeting the requirements of 

§ 240.9b–1 of this chapter shall not be 

deemed an offer to sell or offer to buy 

a security for purposes solely of Section 

5 (15 U.S.C. 77e) of the Act, nor shall 

such materials be deemed a prospectus 

for purposes of Sections 2(a)(10) and 

12(a)(2) (15 U.S.C. 77b(a)(10) and 

77l(a)(2)) of the Act, even if such 

materials are referred to in, deemed to 

be incorporated by reference into, or 

otherwise in any manner deemed to be 

a part of a Form S–20 prospectus.

By the Commission.

Dated: December 21, 2001. 

Margaret H. McFarland, 

Deputy Secretary.

[FR Doc. 01–32079 Filed 12–31–01; 8:45 am] 

BILLING CODE 8010–01–P