Document ID: SEC-2022-1219-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Options Clearing Corp.
Posted Date: 2022-09-15T04:00Z

[Federal Register Volume 87, Number 178 (Thursday, September 15, 2022)]
[Notices]
[Pages 56719-56721]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19919]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95717; File No. SR-OCC-2022-009]

Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Partial Amendment No. 1 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by Partial 
Amendment No. 1, by The Options Clearing Corporation Concerning One 
Multiplier Options

September 9, 2022.

I. Introduction

    On July 18, 2022, the Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-OCC-2022-009 pursuant to Section 19(b) of the 
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
\2\ thereunder. The proposed rule change would amend provisions of OCC 
Rules to accommodate the issuance, clearance, and settlement of index 
options and flexibly-structured index options with an index multiplier 
of one.\3\ The proposed rule change was published for public comment in 
the Federal Register on August 1, 2022.\4\ On August 10, 2022, OCC 
filed Partial Amendment No. 1 to the proposed rule change.\5\ The 
Commission has received no comments regarding the proposed rule change. 
The Commission is publishing this notice to solicit comments on Partial 
Amendment No. 1 from interested persons, and is approving the proposed 
rule change, as

[[Page 56720]]

modified by Partial Amendment No. 1, on an accelerated basis.\6\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Notice of Filing infra note 4, 87 FR at 47016.
    \4\ Securities Exchange Act Release No. 95364 (July 26, 2022), 
87 FR 47016 (Aug. 1, 2022) (File No. SR-OCC-2022-009) (``Notice of 
Filing'').
    \5\ In Partial Amendment No. 1, OCC updated the description of 
Information Memo #50046 contained in Footnote 6 of SR-OCC-2022-009 
to align with the proposed language for OCC Rule 1804 contained in 
Exhibit 5 to SR-OCC-2022-009 that an index or flexibly-structured 
index option with a multiplier of one will have an automatic 
exercise threshold amount of $0.01 per contract. Partial Amendment 
No. 1 included a similar update to Item 4 of SR-OCC-2022-009.
    \6\ References to the proposed rule change from this point 
forward refer to the proposed rule change as modified by Partial 
Amendment No. 1.
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II. Background 7
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    \7\ Capitalized terms used but not defined herein have the 
meanings specified in OCC's Rules and By-Laws, available at https://www.theocc.com/about/publications/bylaws.jsp.
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    In 2021, the Commission approved a rule change proposed by the Cboe 
Exchange, Inc. (``Cboe'') providing for the listing of non-FLEX options 
with a multiplier of one (``micro-options'').\8\ In September 2021, the 
Commission approved a rule change proposed by Cboe to accommodate the 
listing and trading of a new product, namely flexible exchange 
(``FLEX'') index options with an index multiplier of one (``Micro FLEX 
Index Options'').\9\ Micro FLEX Index Options differ from other FLEX 
index options permitted under Cboe's rules, which have a multiplier of 
100. Now, OCC proposes to amend its rules related to the automatic 
exercise of index options and flexibly-structured index options with an 
index multiplier of one (collectively ``One Multiplier Options'').
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    \8\ Securities Exchange Release No. 91528 (Apr. 9, 2021), 86 FR 
19933 (Apr. 15, 2021) (File No. SR-CBOE-2020-117).
    \9\ Securities Exchange Act Release No. 93122 (Sept. 24, 2021), 
87 FR 54269 (Sept. 30, 2021) (File No. SR-CBOE-2021-041).
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    Currently, OCC's rules provide for the automatic exercise of index 
options and flexibly-structured index options with a settlement value 
of $1 or more without regard to the size of the index multiplier.\10\ 
OCC states that, with the proliferation of options with multipliers 
less than 100, OCC is proposing to modify its Rules to explicitly allow 
for a corresponding reduction in the automatic exercise threshold used 
for expiration processing for these products.\11\
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    \10\ See OCC Rule 1804.
    \11\ Notice of Filing, 87 FR at 47017.
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A. Current Rule 1804 Generally Does Not Account for Index Multipliers

    OCC proposes to amend Rule 1804, which provides expiration exercise 
procedures for cash-settled options, to accommodate the automatic 
exercise of One Multiplier Options by adding a new threshold for 
automatic exercise. Currently, Rule 1804(b) allows for the automatic 
exercise of expiring cash-settled index options with standard 
expiration dates that are listed in a Clearing Member's Expiration 
Exercise Report if the option's expiration date is in-the-money by 
$1.00 or more per contract.\12\ Under the current Rule 1804(c), with 
the exception of OTC index options, which have an automatic exercise 
threshold of one cent, the same $1.00 automatic exercise threshold 
exists for expiring flexibly-structured index options, quarterly index 
options, monthly index options, weekly index options, and short-term 
index options that are listed in a Clearing Member's Expiration 
Exercise Report.\13\ Generally, Rule 1804, which is silent regarding 
the size of index multipliers, does not set automatic exercise 
thresholds below one dollar, except for OTC index options.
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    \12\ OCC states that options are exercised under Rule 1804(b) as 
an operational convenience for its Clearing Members, but that 
Clearing Members have the ability to prevent the exercise of an in-
the-money option that would otherwise be deemed exercised by 
submitting contrary exercise instructions. Notice of Filing, 87 FR 
at 47017.
    \13\ By product design, the flexibly-structured options covered 
by Rule 1804(c) are automatically exercised if they are in-the-money 
by the exercise threshold amount, and Clearing Members are not 
permitted to submit instructions to prevent such exercise.
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B. Amending Expiration Exercise Procedures for One Multiplier Options

    OCC's proposed amendments to Rule 1804(b) and (c) would facilitate 
automatic exercise procedures for One Multiplier Options. OCC proposes 
to add a new threshold that would trigger automatic exercise of One 
Multiplier Options. Specifically, proposed Rule 1804(b) would 
explicitly state that for cash-settled options with a multiplier of 
one, each option contract that has an exercise settlement amount of 
$0.01 or more per contract would be automatically exercised. Proposed 
Rule 1804(c) would maintain the current treatment of all other cash-
settled options with a multiplier of other than one, by explicitly 
stating that each such option contract that has an exercise settlement 
amount of $1.00 or more per contract would be automatically exercised. 
OCC's proposed amendments would apply to cash-settled index options 
with standard expiration dates under Rule 1804(b); and to flexibly-
structured index options, quarterly index options, monthly index 
options, weekly index options, and short-term index options under Rule 
1804(c). OCC's proposed changes would also ensure that the one-cent 
automatic exercise threshold for OTC index options would remain the 
same.
    OCC believes the amendments to Rule 1804 are necessary to 
accommodate the decrease in product size as the result of the smaller 
multiplier.\14\ One Multiplier Options are 1/100th the size of most 
index options or index flex options on the same underlying index. OCC 
explained that, due to the difference in product size as the result of 
the smaller multiplier, Cboe requested a proportionate reduction to the 
exercise threshold amount as established in OCC's Rule 1804(b) and 
(c).\15\
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    \14\ Notice of Filing, 87 FR at 47017.
    \15\ Id.
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III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Exchange Act directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to such organization.\16\ After carefully 
considering the proposed rule change, the Commission finds that the 
proposal is consistent with the requirements of the Exchange Act and 
the rules and regulations thereunder applicable to OCC. More 
specifically, the Commission finds that the proposal is consistent with 
Section 17A(b)(3)(F) of the Exchange Act,\17\ as described in detail 
below.
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    \16\ 15 U.S.C. 78s(b)(2)(C).
    \17\ 15 U.S.C. 78q-1(b)(3)(F).
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    Section 17A(b)(3)(F) of the Exchange Act requires, among other 
things, that a clearing agency's rules are designed to promote the 
prompt and accurate clearance and settlement of securities transactions 
and, to the extent applicable, derivative agreements, contracts, and 
transactions.\18\ Based on its review of the record, and for the 
reasons described below, the Commission believes that the proposed rule 
change is consistent with facilitating the prompt and accurate 
clearance and settlement of securities transactions and derivative 
agreements, contracts, and transactions.
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    \18\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission believes that, in amending Rule 1804(b) and (c) to 
introduce a $0.01 automatic exercise threshold for One Multiplier 
Options, the proposed rule aligns OCC's expiration processing of One 
Multiplier Options with already-existing procedures applicable to 
options with multipliers other than one, including multipliers of 100. 
The introduction of an automatic exercise threshold consistent with the 
size of One Multiplier Options would extend the operational convenience 
provided for other options to One Multiplier Options without removing a 
Clearing Member's ability to prevent the exercise of an in-the-money 
option that would otherwise be deemed exercised by submitting

[[Page 56721]]

contrary exercise instructions. The Commission believes that the 
introduction of such processes would reduce the likelihood that a 
Clearing Member would lose the value of a contract that is in-the-money 
due to the failure to exercise such a contract. Further, the Commission 
believes that the reduction of such likelihood of loss would, in turn, 
facilitate the prompt and accurate clearance and settlement of 
securities transactions.
    The Commission believes, therefore, that the proposal is consistent 
with the requirements of Section 17A(b)(3)(F) of the Exchange Act.\19\
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    \19\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Solicitation of Comments on Partial Amendment No. 1 to the Proposed 
Rule Change

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as modified by Partial Amendment No. 1, is consistent with the 
Exchange 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 email to [email protected]. Please include 
File Number SR-OCC-2022-009 on the subject line.

Paper Comments

     Send paper comments in triplicate to: Secretary, 
Securities and Exchange Commission, 100 F Street NE, Washington, DC 
20549-1090.

All submissions should refer to File Number SR-OCC-2022-009. This file 
number should be included on the subject line if email 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 website (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 website 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 10:00 a.m. and 
3:00 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-OCC-2022-009 and should be submitted on 
or before October 6, 2022.

V. Accelerated Approval of Proposed Rule Change, as Modified by Partial 
Amendment No. 1

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Exchange Act,\20\ to approve the proposed rule change prior to the 
30th day after the date of publication of notice of the filing of 
Partial Amendment No. 1 in the Federal Register. As discussed above, 
Partial Amendment No. 1 modified the original proposed rule change by 
updating the description of Information Memo #50046 contained in 
Footnote 6 of SR-OCC-2022-009 to align with the proposed language for 
OCC Rule 1804. Partial Amendment No. 1 does not change the purpose of 
or basis for the proposed changes.
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    \20\ 15 U.S.C. 78s(b)(2).
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    For similar reasons as discussed above, the Commission finds that 
Partial Amendment No. 1 is consistent with the requirement that OCC's 
rules be designed to promote the prompt and accurate clearance and 
settlement of securities transactions under Section 17A(b)(3)(F) of the 
Exchange Act.\21\ Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Exchange Act, to approve the 
proposed rule change, as modified by Partial Amendment No. 1, on an 
accelerated basis, pursuant to Section 19(b)(2) of the Exchange 
Act.\22\
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    \21\ 15 U.S.C. 78q- 1(b)(3)(F).
    \22\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change, as modified by Partial Amendment No. 1, is 
consistent with the requirements of the Exchange Act, and in 
particular, the requirements of Section 17A of the Exchange Act \23\ 
and the rules and regulations thereunder.
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    \23\ In approving this proposed rule change, the Commission has 
considered the proposed rules' impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\24\ that the proposed rule change (SR-OCC-2022-009), as 
modified by Partial Amendment No. 1, be, and hereby is, approved on an 
accelerated basis.
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    \24\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19919 Filed 9-14-22; 8:45 am]
BILLING CODE 8011-01-P