Document ID: SEC-2009-0288-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Options Clearing Corp.
Posted Date: 2009-03-05T05:00Z

[Federal Register: March 5, 2009 (Volume 74, Number 42)]
[Notices]               
[Page 9654-9655]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05mr09-89]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59442; File No. SR-OCC-2009-01]

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Amended Interpretative Guidance on the New Methodology for 
Adjusting Option Contracts for Cash Dividends and Distributions

February 24, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on January 6, 2009, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change 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 Rule 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 parties.
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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 Substance 
of the Proposed Rule Change

    The proposed rule change would amend previously adopted 
interpretative guidance regarding the administration and application of 
the new adjustment method for cash dividends and distributions (``New 
Methodology'').

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 these 
statements.\4\
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    \4\ 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

Background
    In File No. SR-OCC-2008-10, OCC adopted interpretative guidance 
developed by the OCC's Securities Committee regarding the New 
Methodology.\5\ In File No. SR-OCC-2008-16, OCC proposed a minor 
modification to the New Methodology, which was approved by the 
Commission on September 18, 2008.\6\ The purpose of this rule change is 
to amend the interpretative guidance to address the approved 
modification to the New Methodology.
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    \5\ Securities Exchange Act Release No. 55258 (February 8, 
2007), 72 FR 7701 (February 16, 2007).
    \6\ Securities Exchange Act Release No. 58586 (September 18, 
2008), 73 FR 55582 (September 25, 2008).
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Amendment to Interpretative Guidance
    Under the New Methodology, cash dividends paid by a company other 
than pursuant to a policy or practice of paying dividends on a 
quarterly or other regular basis would be deemed ``special'' and would 
ordinarily trigger a contract adjustment provided the value of the 
adjustment is at least $12.50 per option contract.\7\ However, certain 
inconsistencies may result when the threshold of $12.50 per option 
contract is applied to all options on the affected underlying security. 
For example, if a $.10 special cash dividend is declared, the standard-
size 100 share option would not be adjusted (because the value is less 
than $12.50). However, a previously adjusted 150 share option 
(reflecting a 3 for 2 split) would be adjusted (because the value is 
$15 per contract). Adjusting some but not all options of the same class 
in response to the same dividend event, especially if the 100 share 
option is not adjusted, could be confusing to investors, OCC's 
Securities Committee (consisting of representatives of each of the 
options exchanges and OCC) determined that this potential confusion 
should be avoided.
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    \7\ The New Methodology took effect beginning with dividends 
announced on and after February 1, 2009, other than for certain 
grandfathered options.
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    OCC's Securities Committee believed that greater consistency across 
contracts of varying sizes could be achieved by retaining the $12.50 
per contract threshold in all cases but subjects the threshold amount 
to a qualification providing that if a corresponding standard-size 
contract exists on the underlying security, previously adjusted 
contracts will be adjusted only if the corresponding standard-size 
contract is also adjusted. This qualification was the subject of File 
No. SR-OCC-2008-16. Implementation of the qualification will take 
effect at the same time the New Methodology is effective.
    OCC's previously adopted interpretative guidance regarding the New 
Methodology has been amended to address the application of the 
qualified $12.50 per contract threshold, including examples of how the 
threshold will work in practice. The amended interpretative guidance is 
attached to the proposed rule change as Exhibit 5, and will be posted 
on OCC's public Web site, made available in an information memorandum 
accessible to clearing members, or otherwise made available in hard 
copy form on request.\8\
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    \8\ The proposed rule change, including Exhibit 5, can be found 
on OCC's Web site at http://www.theocc.com/publications/rules/
proposed_changes/sr_occ_09_01.pdf.
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    The proposed rule change is consistent with the requirements of 
Section 17A of the Act \9\ and the rules and regulations thereunder 
applicable to OCC because it provides market participants with 
interpretative guidance on the application of the New Methodology which 
will be applied to adjustments for cash dividends and

[[Page 9655]]

distributions. The proposed rule change is not inconsistent with the 
existing rules of OCC, including any other rules proposed to be 
amended.
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    \9\ 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 would impose any 
burden on competition.

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

    Written comments were not and are not intended to be solicited with 
respect to the proposed rule change, and none have been received.

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

    The foregoing rule change has become effective upon filing pursuant 
to Section 19(b)(3)(A)(i) of the Act \10\ and Rule 19b-4(f)(1) \11\ 
thereunder because the proposal constitutes an interpretation with 
respect to the meaning, administration, or enforcement of an existing 
rule of OCC. At any time within sixty days of the filing of such 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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    \10\ 15 U.S.C. 78s(b)(3)(A)(i).
    \11\ 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-comments@sec.gov. Please include 
File Number SR-OCC-2009-01 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-2009-01. 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. and 3 p.m. The text of the proposed rule change is available 
at OCC, the Commission's Public Reference Room, and http://
www.theocc.com/publications/rules/proposed_changes/sr_occ_09_
01.pdf. 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-
2009-01 and should be submitted on or before March 26, 2009.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-4679 Filed 3-4-09; 8:45 am]

BILLING CODE 8011-01-P