Document ID: SEC-2013-1110-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Options Clearing Corp.
Posted Date: 2013-06-21T04:00Z

[Federal Register Volume 78, Number 120 (Friday, June 21, 2013)]
[Notices]
[Pages 37645-37646]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-14793]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69772; File No. SR-OCC-2013-04]

Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving Proposed Rule Change To Change the Expiration Date For 
Most Option Contracts to the Third Friday of the Expiration Month 
Instead of the Saturday Following the Third Friday

June 17, 2013.

I. Introduction

    On April 17, 2013 The Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-OCC-2013-04 pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder.\2\ The proposed rule change was published for comment in 
the Federal Register on May 6, 2013.\3\ The Commission received one 
comment in response to the proposed rule change, in which the commenter 
expressed support for the change.\4\ This order approves the proposed 
rule change.\5\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 34-69480 (April 30, 
2013), 78 FR 26413 (May 6, 2013).
    \4\ See Comment from John V. Bruzzese dated May 3, 2013 (stating 
that the change would be ``beneficial for [the] option expiration 
process'') (http://sec.gov/comments/sr-occ-2013-04/occ201304-1.htm).
    \5\ OCC also filed the proposed rule change as an advance notice 
under Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (``Dodd-Frank Act'') entitled the 
Payment, Clearing, and Settlement Supervision Act of 2010 
(``Clearing Supervision Act''). 12 U.S.C. 5465(e)(1); SR-OCC-2013-
802.
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II. Description of the Proposed Rule Change

Proposal

    The primary purpose of the proposed rule change is to allow OCC to 
change the expiration date for most option contracts to the third 
Friday of the expiration month instead of the Saturday following the 
third Friday. Most option contracts (``Standard Expiration Contracts'') 
currently expire at the ``expiration time'' (11:59 p.m. Eastern Time) 
on the Saturday following the third Friday of the specified expiration 
month (``Expiration Date'').\6\
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    \6\ See the definition of ``expiration time'' in Article I of 
OCC's By-Laws. According to OCC, the expiration time would continue 
to be 11:59 p.m. Eastern Time on the Expiration date.
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    The proposed change applies only to series of Standard Expiration 
Contracts opened for trading after the effective date of this proposed 
rule change and having Expiration Dates later than February 1, 2015. 
Option contracts having non-standard expiration dates (``Non-standard 
Expiration Contracts'') are unaffected by this proposed rule change.\7\
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    \7\ Examples of options with Non-standard Expiration Contracts 
include flex options and quarterly, monthly, and weekly options 
where the expiration exercise processing for such options presently 
occurs on a weekday.
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    In order to provide a smooth transition to the Friday expiration, 
OCC intends to, beginning June 21, 2013, move the expiration exercise 
procedures to Friday for all Standard Expiration Contracts even though 
the contracts would continue to expire on Saturday.\8\ After February 
1, 2015, virtually all Standard Expiration Contracts will expire on 
Friday. According to OCC, the only Standard Expiration Contracts that 
will expire on a Saturday after February 1, 2015 are certain options 
that were listed prior to the effectiveness of this rule change,\9\ and 
a limited number of options that may be listed prior to necessary 
systems changes of the options exchanges, which are expected to be 
completed in August 2013.\10\ After the transition period and the 
expiration of all existing Saturday-expiring

[[Page 37646]]

options, expiration processing should be a single operational process 
and should run on Friday night for all Standard Expiration Contracts.
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    \8\ For contracts having a Saturday expiration date, exercise 
requests received after Friday expiration processing is complete but 
before the Saturday contract expiration time will continue to be 
processed so long as they are submitted in accordance with OCC's 
procedures governing such requests.
    \9\ According to OCC, certain option contracts have already been 
listed on exchanges with expiration dates as distant as December 
2016. Such options have Saturday expiration dates and OCC cannot 
change the terms of existing option contracts. In addition, clearing 
members have expressed a clear preference not to have open interest 
in any particular month with different expiration dates. Therefore, 
OCC will designate certain expiration dates as ``grandfathered,'' 
and any option contract that is listed, or may be listed in the 
future, that expires on a grandfathered date will have a Saturday 
expiration date even if such expiration date is after February 1, 
2015. After OCC designates an expiration date as grandfathered, the 
exchanges have agreed not to permit the listing of, and OCC will not 
accept for clearance, any newly listed standard expiration option 
contract with a Friday expiration in the applicable month.
    \10\ The exchanges have agreed that once these systems changes 
are made they will not open for trading any new series of option 
contracts with Saturday expiration dates falling after February 1, 
2015.
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    In connection with moving from Saturday to Friday night processing 
and expiration, OCC reviewed other aspects of its business to confirm 
that there would be no unintended consequences, and concluded that 
there would be none. For example, OCC believes the proposed changes do 
not affect OCC's liquidity forecasting procedures, nor do they impact 
OCC's liquidity needs, since OCC's liquidity forecasts and liquidity 
needs are driven by settlement obligations, which occur on the same day 
(T+3) irrespective of the move to Friday night processing and 
expiration dates.
    According to OCC, industry groups, clearing members, and options 
exchanges have been active participants in planning for the transition 
to the Friday expiration. OCC has obtained assurances from all options 
industry participants that they will be ready to move to Friday night 
expiration processing by June 2013.

Rule Changes

    In order to implement the change to Friday expiration processing 
and eventual transition to Friday expiration for all Standard 
Expiration Contracts, OCC is amending the definition of ``expiration 
date'' in Article I and certain other articles of the By-Laws. As 
amended, the applicability of the definition is no longer limited to 
stock options, and the definition of ``expiration date'' in certain 
articles of the By-Laws therefore is deleted in reliance on the Article 
I definition. OCC is also amending Rule 805, and all rules 
supplementing or replacing Rule 805, to allow for Friday expiration 
processing during the transition to Friday expiration. OCC is also 
amending section 18 of Article VI of the By-Laws to align procedures 
for delays in producing Expiration Exercise Reports and submission of 
exercise instructions with the amended expiration exercise procedures 
in Rule 805. OCC is amending Rule 801 to modify the prohibition against 
exercising an American-style option contract on the business day prior 
to its expiration date, because this prohibition is necessary only for 
options expiring on a Saturday and to remove clearing members' ability 
to revoke or modify exercise notices in order to accommodate the 
compressed Friday expiration processing expiration schedule.
    Finally, OCC is amending Rules 801 and 805 to allow certain 
determinations to be made by high-level officers of OCC, rather than 
the Board of Directors, in order to provide OCC with greater 
operational flexibility in processing exercise requests received after 
Friday expiration processing is complete but before the Saturday 
contract expiration time, and to replace various references to the 
expiration date of options with reference to the procedures of Rule 
805.
    Under the proposed change, OCC is preserving the ability of the 
options exchanges to designate (or, in the case of flexibly structured 
options, permit clearing members to designate) non-standard expiration 
dates for options, or classes or series of options, so long as the 
designated expiration date is not a date OCC has specified as 
ineligible to be an expiration date.

III. Discussion

    Section 19(b)(2)(C) of the Act \11\ 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 Act and the rules and regulations thereunder 
applicable to such organization. Section 17A(b)(3)(F) of the Act \12\ 
requires, among other things, that the rules of a clearing agency are 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions and foster cooperation and coordination with 
persons engaged in the clearance and settlement of securities 
transactions.
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    \11\ 15 U.S.C. 78s(b)(2)(C).
    \12\ 15 U.S.C. 78q-1(b)(3)(F).
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    By changing the expiration date for most Standard Expiration 
Contracts to the third Friday of the expiration month and moving the 
expiration exercise procedures to Friday for all Standard Expiration 
Contracts, the rule change should help to promote the prompt and 
accurate clearance and settlement of securities transactions as well as 
foster cooperation and coordination with persons engaged in the 
clearance and settlement of securities transactions. As mentioned 
above, the rule change will allow OCC to streamline the expiration 
process among Standard Expiration, Non-standard Expiration Contracts, 
quarterly options, and weekly options and also align expiration 
processing schedules for United States markets with expiration 
processing schedules for European markets.

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \13\ and the 
rules and regulations thereunder.
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    \13\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (File No. SR-OCC-2013-04) be and 
hereby is approved.\15\ However, the proposed changes that are the 
subject of the proposed rule change shall not take effect until all 
regulatory actions required with respect to the proposed changes are 
completed.\16\
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    \14\ 15 U.S.C. 78s(b)(2).
    \15\ 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).
    \16\ OCC also filed the proposed rule change as an advance 
notice under Section 806(e)(1) of the Clearing Supervision Act. 12 
U.S.C. 5465(e)(1); SR-OCC-2013-802. Proposed changes filed under the 
Clearing Supervision Act may be implemented pursuant to Section 
806(e)(1)(G) of the Clearing Supervision Act if the Commission does 
not object to the proposed change within 60 days of the later of (i) 
the date that the proposed change was filed with the Commission or 
(ii) the date that any additional information requested by the 
Commission is received. 12 U.S.C. 5465(e)(1)(G).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary .
[FR Doc. 2013-14793 Filed 6-20-13; 8:45 am]
BILLING CODE 8011-01-P