Document ID: SEC-2007-0661-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Options Clearing Corp.
Posted Date: 2007-05-10T04:00Z

[Federal Register: May 10, 2007 (Volume 72, Number 90)]
[Notices]               
[Page 26671-26672]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10my07-122]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55702; File No. SR-ODD-2007-02]

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Granting Approval of Accelerated Delivery of Supplement to the 
Options Disclosure Document Reflecting Certain Changes to Disclosure 
Regarding Options Adjustment Methodology and Fund Shares

May 3, 2007.
    On September 22, 2006, The Options Clearing Corporation (``OCC'') 
submitted to the Securities and Exchange Commission (``Commission''), 
pursuant to Rule 9b-1 under the Securities Exchange Act of 1934 
(``Act''),\1\ five preliminary copies of a supplement to its options 
disclosure document (``ODD'') reflecting certain changes to disclosure 
regarding options adjustment methodology.\2\ On December 22, 2006, OCC 
submitted to the Commission five preliminary copies of another 
supplement to the ODD reflecting certain changes to disclosure 
regarding, among other things, the term ``fund shares.'' \3\ On April 
27, 2007, OCC submitted to the Commission five definitive copies of a 
single supplement combining the two preliminary supplements discussed 
above.\4\
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    \1\ 17 CFR 240.9b-1.
    \2\ See letter from Jean M. Cawley, First Vice President and 
Deputy General Counsel, OCC, to Sharon Lawson, Senior Special 
Counsel, Division of Market Regulation (``Division''), Commission, 
dated September 21, 2006.
    \3\ See letter from Jean M. Cawley, First Vice President and 
Deputy General Counsel, OCC, to Sharon Lawson, Senior Special 
Counsel, Division, Commission, dated December 21, 2006.
    \4\ See letter from Jean M. Cawley, First Vice President and 
Deputy General Counsel, OCC, to Sharon Lawson, Senior Special 
Counsel, Division, Commission, dated April 26, 2007.
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    The ODD currently provides general disclosures on the 
characteristics and risks of trading standardize options. Recently, OCC 
amended its options adjustment rules to eliminate the need to round 
adjusted strike prices and/or units of trading in the event of certain 
stock dividends, stock distributions, or stock splits.\5\ OCC also 
revised the definition of ``ordinary dividends and distributions'' such 
that cash dividends or cash distributions announced on or after 
February 1, 2009, would be considered ordinary if declared on a regular 
basis pursuant to a policy or practice.\6\ Further, OCC amended its 
rules to provide that no adjustment would be made for cash dividends or 
cash distributions less than $12.50 per contract.\7\ The proposed 
supplement therefore amends the ODD to accommodate these changes.
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    \5\ See Securities Exchange Act Release No. 55258 (February 8, 
2007), 72 FR 7701 (February 16, 2007) (SR-OCC-2006-01).
    \6\ Id.
    \7\ Id.
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    The proposed supplement also amends the ODD to reflect certain 
other changes to OCC rules. To accommodate one such change, the 
proposed supplement adds disclosure pertaining to OCC's authority to 
adjust yield-based Treasury options if an options exchange increases 
the multiplier for such options.\8\ The proposed supplement also adds 
disclosure pertaining to OCC's authority to fix exercise settlement 
price for yield-based Treasury options in unusual market conditions.\9\ 
Pursuant to another OCC rule change, the proposed supplement amends the 
ODD to include acceleration of the expiration date of American-style 
equity options that have been adjusted to call for cash 
deliverable.\10\
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    \8\ See Securities Exchange Act Release No. 50895 (December 20, 
2004), 69 FR 78085 (December 29, 2004) (SR-OCC-2004-11).
    \9\ Id.
    \10\ See Securities Exchange Act Release No. 55124 (January 18, 
2007), 72 FR 3466 (January 25, 2007) (SR-OCC-2006-20).
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    The proposed supplement also amends the ODD to reflect changes to 
the rules of the option exchanges. For instance, certain options 
exchanges amended their rules to permit listing and trading of options 
on fund shares that hold baskets of currencies \11\ or hold or trade in 
commodity futures products.\12\ Therefore, to accommodate listing and 
trading of these options, the proposed supplement amends the term 
``fund shares.''
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    \11\ See Securities Exchange Act Releases No. 54087 (June 30, 
2006), 71 FR 38918 (July 10, 2006) (SR-ISE-2005-60); 54693 (November 
2, 2006), 71 FR 65851 (November 9, 2006) (SR-CBOE-2006-74); and 
54983 (December 20, 2006), 71 FR 78476 (December 29, 2006) (SR-Amex-
2006-87).
    \12\ See Securities Exchange Act Releases No. 54450 (September 
14, 2006), 71 FR 55230 (September 21, 2006) (approving SR-Amex-2006-
44) and 55547 (March 28, 2007), 72 FR 16388 (April 4, 2007) (SR-
Amex-2006-110).
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    Lastly, the proposed supplement deletes certain disclosures 
originally made in February 2003 Supplement.\13\ First, the proposed 
supplement deletes disclosure pertaining to options series opened 
before September 16, 2000, as those options have all expired. Second, 
pursuant to adoption of rules by certain options exchanges to permit 
cancellation or adjustment of trades resulting from an erroneously 
reported index level, the proposed supplement deletes the provision 
disclosing that a person who buys or sells an index option based on 
such erroneously information is bound by the trade.\14\ The proposed 
supplement is intended to be read in conjunction with the more general 
ODD, which, as described above, discusses the characteristics and risks 
of options generally.\15\
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    \13\ See Securities Exchange Act Release No. 47418 (February 27, 
2003), 68 FR 11439 (March 10, 2003) (SR-ODD-2003-01) (``February 
2003 Supplement'').
    \14\ See e.g., Securities Exchange Act Releases No. 50880 
(December 17, 2004), 69 FR 77790 (December 28, 2004) (SR-CBOE-2004-
83) and 51246 (February 24, 2005), 70 FR 10425 (March 3, 2005) (SR-
Amex-2005-11).
    \15\ The Commission notes that the options markets must continue 
to ensure that the ODD is in compliance with the requirements of 
Rule 9b-1(b)(2)(i) under the Act, 17 CFR 240.9b-1(b)(2)(i). Any 
future changes to the rules of the options markets would need to be 
submitted to the Commission under Section 19(b) of the Act. 15 
U.S.C. 78s(b).
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    Rule 9b-1(b)(2)(i) under the Act \16\ provides that an options 
market must file five copies of an amendment or supplement to the ODD 
with the Commission at least 30 days prior to the date definitive 
copies are furnished to customers, unless the Commission determines 
otherwise, having due regard to the adequacy of information disclosed 
and the public interest and protection of investors.\17\ In addition, 
five copies of the definitive ODD, as amended or supplemented, must be 
filed with the Commission not later than the date the amendment or 
supplement, or the amended options disclosure document, is furnished to 
customers. The Commission has reviewed the proposed supplement and 
finds, having due regard to the adequacy of information disclosed and 
the public interest and protection of investors, that the proposed 
supplement may be furnished to customers as of the date of this order.
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    \16\ 17 CFR 240.9b-1(b)(2)(i).
    \17\ This provision permits the Commission to shorten or 
lengthen the period of time which must elapse before definitive 
copies may be furnished to customers.

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[[Page 26672]]

    It is therefore ordered, pursuant to Rule 9b-1 under the Act,\18\ 
that definitive copies of the proposed supplement to the ODD (SR-ODD-
2007-02), reflecting these changes to disclosure, may be furnished to 
customers as of the date of this order.
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    \18\ 17 CFR 240.9b-1.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(39).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-8959 Filed 5-9-07; 8:45 am]

BILLING CODE 8010-01-P