Document ID: SEC-2008-1147-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Options Clearing Corp.
Posted Date: 2008-08-19T04:00Z

[Federal Register: August 19, 2008 (Volume 73, Number 161)]
[Notices]               
[Page 48420-48421]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19au08-81]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58349; File No. SR-OCC-2008-15]

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Binary Options

August 12, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ notice is hereby given that on July 23, 2008, The Options 
Clearing Corporation (``OCC'') filed with the Securities and Exchange 
Commission the proposed rule change as described in Items I, II and III 
below, which Items have been prepared primarily by OCC. OCC filed the 
proposed rule change pursuant to Section 19(b)(3)(A)(i) of the Act \2\ 
and 19b-4(f)(1) thereunder \3\ so that the proposal was effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78s(b)((3)(A)(i).
    \3\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The proposed rule change would clarify how a listing exchange may 
define the exercise settlement amount for binary options and that 
escrow deposits are not permitted in lieu of margin with respect to 
binary options on any underlying interest.

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.

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

    The purpose of the proposed rule change is to clarify, in two 
respects, the application of OCC's By-Laws and Rules to certain binary 
options. OCC currently clears the following types of binary options: 
credit default options, credit default basket options, and ``other 
binary options.'' \4\ ``Other binary options'' include ``fixed return 
options'' traded on the American Stock Exchange LLC 
[bs] (``Amex'') and binary options on broad-based 
indexes traded on the Chicago Board Options Exchange, Incorporated 
(``CBOE''). ``Other binary options'' are European-style options that 
will be automatically exercised if the value of the underlying interest 
at expiration when measured against its exercise price is determined to 
meet the criteria for automatic exercise as specified in the rules of 
the listing exchange. All binary options, when automatically exercised, 
have a fixed exercise settlement amount that does not vary depending 
upon how much the

[[Page 48421]]

option is in the money. The present rule filing addresses two unrelated 
points concerning ``other binary options.''
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    \4\ In June 2007 and August 2007, the Commission approved 
changes to OCC's Rules designed to accommodate credit default 
options and credit default basket options, respectively. Securities 
Exchange Act Release Nos. 55872 (June 6, 2007), 72 FR 32693 (June 
13, 2007) [SR-OCC-2007-01] and 56288 (Aug. 20, 2007), 72 FR 49034 
(Aug. 27, 2007) [SR-OCC-2007-06]. In November 2007, the Commission 
approved additional changes to OCC's Rules designed to accommodate 
binary options, including fixed return options and binary options on 
broad-based indexes. Securities Exchange Act Release No. 56875 (Nov. 
30, 2007), 72 FR 69274 (Dec.7, 2007) [SR-OCC-2007-08].
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    The first issue addressed in this filing relates to the description 
of the fixed exercise settlement amount. CBOE's proposed rules for 
binary options on broad-based indexes define the fixed exercise 
settlement amount as the product of the multiplier for that option and 
another fixed value, both established by CBOE at or before the opening 
of trading in a series of binary options. In contrast, the fixed 
exercise settlement amount for binary options currently traded on Amex 
is defined without reference to a multiplier. Since ``multiplier'' is 
defined in Section I of Article XIV of OCC's By-Laws only with respect 
to premiums and not exercise settlement amounts, OCC wishes to clarify 
through a new interpretation to Article XIV, Section 2B of OCC's By-
Laws that some exchanges are permitted to describe the fixed exercise 
settlement amount as being the product of a multiplier times another 
fixed value.
    Secondly, OCC proposes to clarify through an amendment to Rule 1506 
that escrow deposits, like other deposits in lieu of margin, are not 
permitted with respect to binary options. The clarification will state 
that neither Rule 610 and Rule 613 shall not apply to binary options.
    OCC states that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \5\ because it will promote the 
prompt and accurate clearance and settlement of transactions in binary 
options by clarifying the consistent application of OCC's By-Laws and 
Rules to binary options notwithstanding differences in the manner in 
which different listing exchanges define the exercise settlement amount 
for these options. OCC further states that the proposed rule change is 
not inconsistent with the rules of OCC, including those proposed to be 
amended.

B. Self-Regulatory Organization's Statement on Burden on Competition

    OCC does not believe that the proposed rule change would impose any 
burdenon competition.

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

    OCC did not solicit or receive written comments with respect to the 
proposed rule change.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \6\ and Rule 19b-4(f)(1) \7\ thereunder because 
it constitutes a stated policy, practice, or interpretation with 
respect to the meaning, administration, or enforcement of an existing 
rule. At any time within sixty days of the filing of such proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(1).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change 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-comment@sec.gov. Please include 
File No. SR-OCC-2008-15 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 No. SR-OCC-2008-15. 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 Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. to 3 p.m. Copies of such filing also will be available for 
inspection and copying at OCC's principal office and on OCC's Web site 
at http://www.theocc.com/publications/rules/proposed_changes/
proposed_changes.jsp . 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 No. OCC-
2008-15 and should be submitted on or before September 9, 2008.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-19129 Filed 8-18-08; 8:45 am]

BILLING CODE 8010-01-P