Document ID: SEC-2010-1349-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Options Clearing Corp.
Posted Date: 2010-09-07T04:00Z

[Federal Register: September 7, 2010 (Volume 75, Number 172)]
[Notices]               
[Page 54410-54411]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07se10-79]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62801; File No. SR-OCC-2010-13]

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of a Proposed Rule Change To Allow for Adjustments to 
the Settlement Price of Exchange-Designated Security Futures for All 
Cash Dividends or Distributions Paid by the Issuer of the Underlying 
Security

August 31, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 19, 2010, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') and on August 25, 2010, amended 
the proposed rule change as described in Items I and II below, which 
items have been prepared primarily by OCC. The Commission is publishing 
this notice to solicit comments from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of the proposed rule change is to revise OCC's By-Laws 
to allow OCC to make adjustments to the settlement price of exchange-
designated security futures for all cash dividends or distributions 
paid by the issuer of the underlying security.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, OCC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. OCC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of such 
statements.\2\
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    \2\ The Commission has modified the text of the summaries 
prepared by OCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The primary purpose of this proposed rule change is to revise OCC's 
By-Laws to allow OCC to make adjustments to the settlement price of 
exchange-designated security futures for all cash dividends or 
distributions paid by the issuer of the underlying security. Under its 
current rules, OCC makes such adjustments only for ``non-ordinary'' 
dividends. However, OneChicago, LLC (``OneChicago'') has informed OCC 
that it believes there is a demand for security futures that would be 
adjusted in response to all cash dividends or distributions. 
Accordingly, OCC is proposing to amend Section 3 of Article XII of its 
By-Laws to permit exchanges to designate certain security futures that 
would be adjusted for ordinary as well as ``non-ordinary'' dividends. 
Exchanges could continue to trade security futures that would be 
adjusted only in the event of a ``non-ordinary'' dividend.
    For security futures subject to adjustment for all cash dividends 
or distributions, it would be the exchange's responsibility to inform 
OCC of the issuance of a cash dividend or distribution and the 
appropriate adjustment amount. Provided that such information 
(including any corrections thereto) is reported to OCC before a 
designated cut-off time prior to the ex-date, OCC would then make the 
appropriate adjustment to the settlement price of the security futures 
contract. Such adjustments would be effective before the opening of 
business on the ex-date.\3\ If the exchange failed to report dividend 
or distribution information to OCC on a timely basis or reported 
incorrect dividend or distribution information to OCC, then the 
exchange would be able to report such information or corrected 
information to OCC on the ex-date, and OCC would effect the adjustment 
as soon as practicable thereafter.\4\ In the event the exchange already 
opened trading in the security futures contracts affected thereby, the 
exchange would provide OCC with direction on whether such trades should 
be cleared or disregarded as provided for in Article VI, Section 7 of 
OCC's By-Laws. Pursuant thereto, disregarded transactions would be 
deemed null and void and given no effect. These procedures are intended 
to preserve OCC's ability to initiate and conduct nightly processing on 
a timely basis, but they also provide the exchange with the opportunity 
to report to OCC dividend or distribution information that was not 
available to it before OCC's processing cut-offs or to correct 
erroneously reported information to ensure an appropriate adjustment to 
the settlement price for the affected contracts.
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    \3\ The standard method for adjusting futures contracts in 
response to cash distributions is to decrease the prior day's 
settlement price by the amount of the dividend. This adjustment is 
effective at the opening of business on the ex-distribution date and 
parallels the adjustment made to the price of the underlying stock 
by the securities exchanges on the ex-distribution date. It is 
intended to ensure that no futures mark-to-the-market attributable 
to the adjustment made to the stock price for the dividend will 
occur.
    \4\ OCC also proposes to add Interpretation and Policy .10 to 
Article XII, Section 3 that provides that officially reported 
settlement prices will not be adjusted (other than as provided for 
in the By-Laws and Rules) except in extraordinary circumstances. The 
Interpretation further provides that in no event will a completed 
settlement be adjusted due to errors discovered thereafter. This 
latter provision is intended to preserve the finality of money 
settlements should it be later determined that an officially 
reported settlement price was erroneous and is based on existing 
provisions of OCC's By-Laws. See, e.g., Article XIV, Section 6, 
Interpretation and Policy .01; Article XVI, Section 4, 
Interpretation and Policy .01; and Article XVII, Section 4, 
Interpretation and Policy .01.
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    In connection with OneChicago's proposal, OneChicago and OCC also 
have agreed to amend the Security Futures Agreement for Clearing and 
Settlement Services, dated April 1, 2002 (the ``Clearing Agreement''), 
by entering into Amendment No. 1 thereto.\5\ Amendment No. 1 would 
amend Section 5 of the Clearing Agreement to permit OneChicago to 
designate those security futures contracts for which adjustments will 
be made in response to all cash dividends or distributions and to set 
forth for OneChicago's obligation to furnish OCC with notice of all 
relevant information regarding such dividends or distributions in order 
for

[[Page 54411]]

OCC to adjust the settlement price of the affected security future as 
described above. Amended Section 5 further extends the current 
indemnification provided by OneChicago to OCC to also cover losses 
resulting from adjusting security futures in accordance with dividend 
or distribution information supplied by OneChicago or failing to adjust 
in the event OneChicago did not supply OCC with information regarding 
such an adjustment.
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    \5\ Amendment No. 1, which will be executed after the 
effectiveness of this filing, would amend and restate Section 5 of 
the Clearing Agreement.
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    OCC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act,\6\ as amended, and the rules 
and regulations thereunder applicable to OCC because it is designed to 
promote the prompt and accurate clearance and settlement of security 
transactions and generally to protect investors and the public interest 
by allowing the clearing and settling of security futures contracts 
that reflect the issuance of all cash dividends or distributions on the 
underlying security.
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    \6\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    OCC does not believe that the proposed rule change will have an 
impact on or impose a burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others

    No written comments relating to the proposed rule change have been 
solicited or received. OCC will notify the Commission of any written 
comments received by OCC.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to ninety days of such date if it finds such longer period 
to be appropriate and publishes its reasons for so finding or (ii) as 
to which the self-regulatory organization consents, the Commission 
will:
    (A) By order approve or disapprove the proposed rule change or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-OCC-2010-13 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-OCC-2010-13. This file 
number should be included on the subject line if e-mail 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 Web site (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 inspection and 
copying in the Commission's Public Reference Section, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of OCC and on OCC's Web 
site at http://www.theocc.com. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-OCC-2010-13 and should be submitted on or before 
September 28, 2010.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-22209 Filed 9-3-10; 8:45 am]
BILLING CODE 8010-01-P