Document ID: SEC-2007-1483-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Options Clearing Corp.
Posted Date: 2007-10-26T04:00Z

[Federal Register: October 26, 2007 (Volume 72, Number 207)]
[Notices]               
[Page 60925-60927]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26oc07-124]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56684; File No. SR-OCC-2007-12]

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change Relating to Options on Leveraged ETF Shares

October 22, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 4, 2007, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') 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 and order to 
solicit comments on the proposed rule change from interested persons 
and to grant accelerated approval of the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).

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[[Page 60926]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change would allow OCC to clear and settle 
options on exchange traded fund (``ETF'') shares generally known as 
``Leveraged ETF Shares.''

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 parts of these statements.
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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 accommodate the 
introduction of options on ETF shares that represent interests in 
entities making a broad array of investments in order to provide 
investment returns that are equivalent to (a) a multiple of the 
percentage return of a specific stock index (``Multiple Fund Shares'' 
or ``Index Multiple ETFs'') or (b) a multiple of the inverse percentage 
return of a specific stock index (``Inverse Fund Shares'' or ``Index 
Inverse ETFs'') (Multiple Fund Shares, Index Multiple ETFs, Inverse 
Fund Shares, and Index Inverse ETFs are collectively ``Leveraged ETF 
Shares'').\3\ According to the proposed rule changes filed by the 
exchanges seeking to list and trade Leveraged ETF Shares, the ETF 
issuing the Leveraged ETF Shares may make a variety of exchange-traded 
and over-the-counter investments, including stock index futures 
contracts, options on futures, options on securities, options on 
indexes, caps on stock, collars on stock, floors on stock, swap 
agreements, forward contracts, repurchase agreements, and reverse 
repurchase agreements.\4\
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    \3\ The ProShares Ultra Funds, which trades on the American 
Stock Exchange (``Amex''), is an example of a Multiple Fund Share or 
Index Multiple ETF. The Short Funds and the UltraShort Funds, which 
also trade on Amex, are examples of Inverse Fund Shares Index 
Inverse ETFs.
    \4\ File Nos. SR-Amex-2007-35 and SR-ISE-2007-87. The Commission 
recently issued an order granting approval of SR-Amex-2007-35 that 
allows Amex to list and trade options on Multiple Fund Shares and on 
Inverse Fund Shares. Securities Exchange Act Release No. 56650 
(October 12, 2007), 72 FR 59123 (October 18, 2007).
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    Currently, the definition of ``fund share'' in Article I, Section 1 
of OCC's By-Laws lists the various underlying investments that may be 
made by the ETF issuing the fund share. In order to avoid creating an 
ever-lengthening list of possible investments that may prove to be non-
exhaustive, OCC proposes to amend the definition of ``fund share'' to 
state that the term means ``a publicly traded security (as defined in 
Section 3(a)(10) of the Securities Exchange Act of 1934, as amended) 
that represents an interest in a trust, investment company, commodity 
pool, or similar entity holding and/or trading in one or more 
investments.'' \5\
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    \5\ The Commission previously approved a supplement to the 
``options disclosure document'' defining ``fund shares'' in a 
similar manner. Part III of the May 2007 Supplement to 
Characteristics and Risks of Standardized Options provides that the 
term ``fund shares'' includes interests in exchange-traded funds and 
other entities holding or trading in one or more types of 
investments. Securities Exchange Act Release No. 55702 (May 3, 
2007), 72 FR 26671 (May 10, 2007) (File No. SR-ODD-2007-02).
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    The proposed rule change is consistent with the requirements of 
Section 17A of the Act because it (1) promotes the prompt and accurate 
clearance and settlement of transactions in options on Leveraged ETF 
Shares by applying the same basic rules and procedures to such options 
as are applied to options on other equity interests, (2) fosters 
cooperation and coordination with persons engaged in the clearance and 
settlement of securities transactions, (3) removes impediments to and 
perfects the mechanism of a national system for the prompt and accurate 
clearance and settlement of securities transactions, and (4) protects 
investors and the public interest. The proposed rule change is not 
inconsistent with the rules of OCC, including any rule 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 
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

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of a clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions.\6\ By 
amending OCC's By-Laws so that OCC may clear and settle options on 
Leveraged ETF Shares that are to be listed and traded on Amex, the 
proposed rule change should help promote the prompt and accurate 
clearance and settlement of such securities transactions.
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    OCC has requested that the Commission approve the proposed rule 
prior to the thirtieth day after publication of the notice of the 
filing. The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the publication of notice 
because such approval will allow Amex to commence trading of options on 
Leveraged ETF Shares without any unnecessary delay.\7\
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    \7\ Supra note 4. 7
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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-2007-12 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-OCC-2007-12. 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

[[Page 60927]]

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. Copies of such filing also will be available for inspection and 
copying at the principal office of OCC. 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-2007-12 and should be submitted on 
or before November 16, 2007.

V. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular Section 17A of the Act and the rules and regulations 
thereunder.\8\
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    \8\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-OCC-2007-12) be and hereby 
is approved.
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    \9\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-21179 Filed 10-25-07; 8:45 am]

BILLING CODE 8011-01-P