Document ID: SEC-2011-0168-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Options Clearing Corp.
Posted Date: 2011-02-07T05:00Z

[Federal Register Volume 76, Number 25 (Monday, February 7, 2011)]
[Notices]
[Pages 6648-6650]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-2570]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63811; File No. SR-OCC-2011-02]

Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Accommodate the Clearance 
of Relative Performance Options

February 1, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder \2\ notice is hereby given that 
on January 19, 2011, 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 to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 accommodate the clearance of options 
on certain indexes measuring the relative performance of one reference

[[Page 6649]]

security or reference index relative to a second reference security or 
reference index.

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.\3\
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    \3\ 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 purpose of this rule change is to accommodate the clearance of 
options on certain indexes measuring the relative performance of one 
reference security or reference index relative to a second reference 
security or reference index (``Relative Performance Options''). A 
reference security may be an exchange-traded fund (``ETF''). The 
revised rules have been broadly drafted to cover Alpha Options 
(described below) and any similar product that may be listed on any 
participant exchange in the future.
    NASDAQ OMX PHLX LLC (``Phlx'') is proposing to list options 
(``Alpha Options'') \4\ on NASDAQ OMX Alpha Indexes (``Alpha 
Indexes''), a family of indexes developed by NASDAQ OMX Group, Inc. 
(``Nasdaq''). Alpha Indexes are calculated based on two ETFs or other 
reference securities underlying options that are also traded on Phlx. 
For example, an Alpha Index may measure the relative total return of 
two non-ETF securities, two ETFs, or one ETF and one non-ETF security 
(the first component of each pair is referred to as the ``Target 
Component,'' and the second component is referred to as the ``Benchmark 
Component''). The Alpha Index is calculated by measuring the total 
return performance of the Target Component relative to the total return 
performance of the Benchmark Component based upon prices of 
transactions on the primary listing exchange of each underlying 
component. Each Alpha Index will initially be set at 100.00. Alpha 
Options will be cash-settled, European-style options. In the event of a 
corporate event that eliminates one of the underlying components of an 
Alpha Index, Nasdaq will cease calculation of the Alpha Index for that 
pair of underlying components, and all outstanding option positions 
will be immediately settled at the last disseminated price of that 
Alpha Index.
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    \4\ See SR-Phlx-2010-176, Release No. 34-63575, December 17, 
2010.
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    Relative Performance Options are highly similar to other index 
options cleared by OCC except for the identity and nature of the 
underlying index. Therefore, OCC believes that the provisions of its 
By-Laws and Rules governing index options, as they are currently in 
effect, are generally sufficient to support the clearance and 
settlement of Relative Performance Options. However, minor 
modifications are needed to support Alpha Options and other types of 
Relative Performance Options that may be introduced in the future. For 
example, OCC's current Rules do not account for the possibility of an 
index having a negative value as could occur for certain Relative 
Performance Indexes. If this should ever occur, the index value would 
be deemed to be equal to zero or, because certain systems may not 
accept a zero index value, a near-zero positive amount. Therefore, OCC 
proposes to modify its By-Laws to provide for such potential adjustment 
of the index value by either the listing exchange or OCC.
    In addition, OCC's current By-Laws do not account for the 
possibility that an expiration date may be accelerated when a reference 
security (i.e., an individual reference security and not a reference 
index) that is one of the components of an underlying relative 
performance index ceases to be published as a result of a cash-out 
merger or similar corporate event. If the value of an underlying 
Relative Performance Index ceases to be published as a result of such 
an event, the value of the overlying options would become fixed. OCC 
therefore proposes to modify its By-Laws to provide that OCC will 
either accelerate or not accelerate the expiration in consultation with 
the relevant exchange on which the index underlying a Relative 
Performance Option is listed.
    OCC believes the proposed rule change is consistent with the 
requirements of Section 17A of the Act \5\ because it is designed to 
promote the prompt and accurate clearance and settlement of 
transactions in, including the expiry of, Relative Performance Options, 
and to foster cooperation and coordination with persons engaged in the 
clearance and settlement of such transactions, to remove impediments to 
and perfect the mechanism of a national system for the prompt and 
accurate clearance and settlement of such transactions, and, in 
general, to protect investors and the public interest. The proposed 
rule change accomplishes this purpose by applying substantially the 
same rules and procedures to these transactions as OCC applies to 
transactions in other index options. The proposed rule change is not 
inconsistent with the existing rules of OCC, including any rules 
proposed to be amended.
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    \5\ 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 relating to the proposed rule change have not 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 up to 90 days (i) as the 
Commission may designate 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 is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commissions 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-2011-02 on the subject line.

[[Page 6650]]

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-2011-02. 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 Web site viewing and 
printing in the Commission's Public Reference Section, 100 F Street, 
NE., Washington, DC 20549-1090, on official business days between the 
hours of 10 a.m. and 3 p.m. Copies of such filings will also be 
available for inspection and copying at the principal office of OCC and 
on OCC's Web site at http://www.optionsclearing.com/components/docs/legal/rules_and_bylaws/sr_occ_11_02.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-2011-02 
and should be submitted on or before February 22, 2011.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-2570 Filed 2-4-11; 8:45 am]
BILLING CODE 8011-01-P