Document ID: SEC-2011-0452-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Options Clearing Corp.
Posted Date: 2011-04-06T04:00Z

[Federal Register Volume 76, Number 66 (Wednesday, April 6, 2011)]
[Notices]
[Pages 19173-19174]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-8118]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64154; File No. SR-ODD-2011-02]

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 Variability Index Options and Relative Performance Index 
Options and Amendment to the Options Disclosure Document Inside Front 
Cover

March 31, 2011.
    On May 21, 2010, 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 amend its 
options disclosure document (``ODD'') to reflect certain changes to 
disclosure regarding variability index options.\2\ On January 20, 2011, 
the OCC submitted to the Commission five preliminary copies of a 
supplement to amend its ODD to add disclosure regarding relative 
performance index options.\3\ The OCC is also updating the front inside 
cover page of the ODD so that it contains a current list of the U.S. 
exchanges that trade options issued by the OCC, and the current names 
and corporate addresses of these options exchanges. On March 16, 2011, 
the OCC submitted to the Commission five definitive copies of the March 
2011 Supplement \4\ to reflect all these changes, as described in more 
detail below.\5\
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    \1\ 17 CFR 240.9b-1.
    \2\ See letter from Jean M. Cawley, Senior Vice President and 
Deputy General Counsel, OCC, to Sharon Lawson, Senior Special 
Counsel, Division of Trading and Markets (``Division''), Commission, 
dated May 20, 2010.
    \3\ See letter from Jean M. Cawley, Senior Vice President and 
Deputy General Counsel, OCC, to Sharon Lawson, Senior Special 
Counsel, Division, Commission, dated January 19, 2011.
    \4\ See letter from Jean M. Cawley, Senior Vice President and 
Deputy General Counsel, OCC, to Sharon Lawson, Senior Special 
Counsel, Division, Commission, dated March 15, 2011.
    \5\ The proposed March 2011 Supplement to the ODD amends the 
February 1994 version of the booklet entitled ``Characteristics and 
Risks of Standardized Options,'' and portions of the May 2007, June 
2008, December 2009 and May 2010 Supplements.
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Variability Indexes

    The ODD currently contains general disclosures on the 
characteristics and risks of trading standardized options on 
variability indexes. The current ODD states that variability indexes 
are indexes intended to measure the implied volatility, or the realized 
variance or volatility, of specified stock indexes. In May of 2010, the 
Commission approved the Chicago Board Options Exchange's (``CBOE'') 
proposal to list and trade options on the CBOE Gold ETF Volatility 
Index.\6\ The March 2011 Supplement amends disclosures in the ODD 
regarding variability index options to accommodate the listing and 
trading of options on the CBOE Gold ETF Volatility Index and similarly 
structured equity-based volatility indexes that are intended to measure 
the volatility of a single reference security. Specifically, the 
proposed March 2011 Supplement amends the discussion of variability 
index options to provide disclosure regarding the characteristics of 
options on equity-based volatility indexes \7\ and their special risks.
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    \6\ See Securities Exchange Act Release No. 62139 (May 19, 
2010), 75 FR 29597 (May 26, 2010) (SR-CBOE-2010-018) (order 
approving CBOE's proposed rules to list and trade CBOE Gold ETF 
Volatility Index options).
    \7\ For purposes of the ODD, the disclosure will make clear that 
an equity-based volatility index measures the implied volatility, or 
the realized variance or volatility of a specified reference 
security.
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Relative Performance Indexes

    Currently, the ODD states that indexes that may underlie options 
include stock indexes, variability indexes, strategy-based indexes, and 
dividend indexes. Recently, the Commission approved the NASDAQ OMX PHLX 
LLC's (``Phlx'') proposal to list and trade Alpha Index options.\8\ 
Alpha Indexes measure the relative total return of one stock and one 
exchange-traded fund share. The proposed March 2011 Supplement amends 
disclosures in the ODD to add relative performance indexes as a type of 
index that can underlie an option in order to accommodate the listing 
and trading of options on the Alpha Index and similarly structured 
relative performance indexes.\9\ Specifically, the proposed March 2011 
Supplement adds new disclosure regarding the characteristics of options 
on relative performance indexes and their special risks. The Commission 
notes that the intent of this proposed March 2011 Supplement is to 
provide disclosure for relative performance options on indexes of which 
both index components are equity securities, and one of which could be 
a fund share.
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    \8\ See Securities Exchange Act Release No. 63860 (February 7, 
2011), 76 FR 7888 (February 11, 2011) (SR-Phlx-2010-176) (order 
approving Phlx's proposed rules to list and trade Alpha Index 
options).
    \9\ For purposes of the ODD, relative performance indexes are a 
special type of strategy-based indexes that measure the relative 
performance--generally the relative total return--of two index 
components (the target component and the benchmark component). The 
index is calculated by measuring the total return of the target 
component relative to the total return of the benchmark component. 
The index will rise as and to the extent that the target component 
outperforms the benchmark component, and will fall as and to the 
extent that the opposite occurs. As stated in the March 2011 
Supplement, as of the date of this Supplement, the only relative 
performance options approved for trading are options on indexes of 
which both index components are equity securities, and one of which 
could be a fund share.
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Inside Cover of ODD

    Lastly, the March 2011 Supplement amends the ODD to revise the 
inside front cover page. The revisions are as follows: (1) Adding the 
C2 Options Exchange, Incorporated and its corporate address to the 
inside front cover of the ODD; (2) updating Phlx's name to incorporate 
the Phlx's recent conversion to a limited liability company; and (3) to 
reflect NASDAQ OMX BX's recent change in corporate address. These 
changes will ensure that the ODD accurately identifies the markets on 
which options currently trade and accurately reflects the corporate 
name and address of those entities.
    The proposed supplement is intended to be read in conjunction with 
the more general ODD, which discusses the characteristics and risks of 
options generally.\10\ Rule 9b-1(b)(2)(i) under the Act \11\ provides 
that an options market must file five copies of an amendment or 
supplement to the ODD with the

[[Page 19174]]

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.\12\ 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 ODD, is furnished to customers. The 
Commission has reviewed the proposed supplement and amendment and 
finds, having due regard to the adequacy of the information disclosed 
and the public interest and protection of investors, that they may be 
furnished to customers as of the date of this order.
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    \10\ 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), 
including when changes regarding variability index options and 
relative performance index options are made in the future. Any 
future changes to the rules of the options markets concerning 
variability index options and relative performance index options 
would need to be submitted to the Commission under Section 19(b) of 
the Act. 15 U.S.C. 78s(b).
    \11\ 17 CFR 240.9b-1(b)(2)(i).
    \12\ 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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    It is therefore ordered, pursuant to Rule 9b-1 under the Act,\13\ 
that definitive copies of the March 2011 Supplement amending the ODD 
(SR-ODD-2011-02) to reflect changes to disclosure regarding variability 
index options and relative performance index options and to the inside 
front cover of the ODD, may be furnished to customers as of the date of 
this order.
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    \13\ 17 CFR 240.9b-1.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Cathy H. Ahn,
Deputy Secretary.
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    \14\ 17 CFR 200.30-3(a)(39).
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[FR Doc. 2011-8118 Filed 4-5-11; 8:45 am]
BILLING CODE 8011-01-P