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SECURITIES AND EXCHANGE COMMISSION
Securities and Exchange Commission
DOCUMENT ID: [Release No. 34-56856; File No. SR-OCC-2007-13]
NOTICE: NOTICES
ACTION: Self-regulatory organizations; proposed rule changes:
SUBJECT CATEGORY: Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change Relating to Delayed Start Options
DOCUMENT SUMMARY: November 28, 2007.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on October 9, 2007, 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. The Commission is publishing this notice and order to solicit
comments from interested persons and to grant approval of the proposal. \1\ 15 U.S.C. 78s(b)(1).
I. SelfRegulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The proposed rule change would permit OCC to clear and settle
delayed start options (``DSOs'') by the Chicago Board Options Exchange (``CBOE'').
II. SelfRegulatory 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.\2\
\2\ The Commission has modified the text of the summaries prepared by OCC.
A. SelfRegulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule ChangePurpose of Rule Change
The purpose of the proposed rule change is to accommodate the
introduction of DSOs by the CBOE. Initially CBOE proposes to list DSOs only on indexes.\3\
\3\ File No. SRCBOE200726. The Commission recently issued an
order granting approval of SRCBOE200726 that allows CBOE to list
and trade DSOs. Securities Exchange Act Release No. 56855 (November 28, 2007).
Description of Product
As described by CBOE, a DSO is identical to existing standardized options with one exception: at the commencement of trading in a series, DSOs of that series will not have a set exercise price. Instead, a DSO will commence trading with a preestablished formula that the listing exchange will use to fix the exercise price for the DSO on a specified date prior to the DSO's expiration date (``exercise price setting date''). The CBOE is currently proposing that an ``atthemoney'' DSO on an index will be assigned an exercise price equal to the closing value of the underlying index on the exercise price setting date, rounded to the increment established by CBOE at the time the DSO commences trading. CBOE has also indicated that it may introduce in or outofthemoney DSOs. Those DSOs would, according to CBOE, have the same terms as atthemoney DSOs except that the exercise price would be set at a specified percentage either in or outofthemoney on the exercise price setting date (e.g., 5% inthemoney or 5% outofthe money).
The listing exchange will specify the exercise price setting date prior to the opening of each series of DSOs. According to CBOE, the exercise price setting date for each series of DSOs traded on CBOE will initially be three months prior to the DSO's expiration date. In other words, each series of DSOs will trade without an exercise price until three months prior to expiration. From the exercise price setting date forward, all options terms will be fixed, and DSOs will be fungible with any other option on the same underlying interest having the same terms such as exercise price, expiration date, etc. An exchange may determine to issue series of DSOs with more or less than three months between the exercise price setting date and the expiration date.
A DSO will not have an exercise price until the exercise price setting date, and it will not be exerciseable until after that date. Thus, an ``Americanstyle'' DSO would be exerciseable only between the exercise price setting date and the expiration date. A ``European style'' DSO, like any other Europeanstyle option, would be exercised only on or near the expiration date.
Proposed Changes to OCC's ByLaws and Rules
In order to issue and clear DSOs, OCC needs to make several
definitional changes in its ByLaws. A definition of DSO would be added to Article I of the ByLaws. OCC is also proposing to
[[Page 68938]]
amend the existing definition of ``Americanstyle'' in Article I of its
ByLaws to make clear that unlike other Americanstyle options, DSOs
could not be exercised beginning at the commencement time for the
options. Instead, Americanstyle DSOs could only be exercised after
their exercise price is set. Additionally, OCC proposes to amend the
existing definition of ``series'' to provide that DSOs with the same
expiration date, unit of trading, exercise price setting date, and
exercise price setting formula will comprise the same series until
their exercise price is set. At that point DSOs with the same
expiration date, unit of trading and exercise price will, like other
options, comprise the same series. Similarly, OCC is proposing to amend
the existing definition of ``variable terms'' in Article I because DSOs
will not have an exercise price as one of their variable terms until
their exercise price setting date. Instead, DSOs will have both an
exercise price setting date and an exercise price setting formula as
variable terms until that time. OCC is proposing to add two definitions
to Article I as well. Both ``exercise price setting date'' and
``exercise price setting formula'' are needed to reflect the fact that
DSOs will not have an exercise price when they begin trading and to
describe when and how an exercise price will be fixed by the listing exchange.
OCC proposes amending Article VI of its ByLaws to clarify that an exchange listing DSOs need not set the exercise price for such options at the time each series is opened for trading but instead must set the exercise price setting date and the exercise price setting formula, and that an Americanstyle DSO may not be exercised until after its exercise price has been set. The proposed amendment to the definition of ``series of options'' in Article XVII is similar to the amendment to the definition of ``series'' in Article I and like that amendment is to clarify that DSOs with the same expiration date, unit of trading, exercise price setting date, and exercise price setting formula will comprise the same series until their exercise price is set. The amendments to Article XVII, Section 2(a) and to Rule 1802(a), like the changes to the definition of ``Americanstyle'' in Article I and in Article VI, would prohibit holders of Americanstyle DSOs from exercising until the exercise price is set.
Proposed amendments to Rule 401(a)(1) are to permit matched trade reports for DSOs to contain the exercise price setting date and exercise price setting formula rather than an exercise price until the exercise price is set.
The proposed changes to OCC's ByLaws and Rules are consistent with
the purposes and requirements of Section 17A of the Act, as amended,
because they are designed to promote the prompt and accurate clearance
and settlement of transactions in DSOs, which are a new product
designed to allow customers to manage risk associated with the
volitility of an underlying interest. DSOs are very similar to existing
options currently cleared by OCC and would be governed by substantially
the same rules and procedures to which existing options are subject.
The proposed rule change is not inconsistent with the existing rules of OCC, including rules proposed to be amended.
B. SelfRegulatory Organization's Statement on Burden on Competition
OCC does not believe that the proposed rule change would impose any burden on competition.
C. SelfRegulatory 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.\4\ The purpose of the proposed rule change is to amend OCC's ByLaws and Rules so that OCC may clear and settle DSOs. Accordingly, after careful review the Commission finds that the proposed rule change meets the requirements of Section 17A(b)(3)(F) of the Act because the proposed rule change should result in the prompt and accurate clearance and settlement of securities transactions, specifically transactions in DSOs.
\4\ 15 U.S.C. 78q1(b)(3)(F).
OCC has requested that the Commission approve the proposed rule prior to the thirtieth day after publication of the notice of filing. The Commission finds good cause for approving the proposed rule change prior to the thirtieth day after publication of notice because such approval will allow CBOE to commence trading of DSOs without any unnecessary delay.
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
Paper Comments
All submissions should refer to File Number SROCC200713. This
file number should be included on the subject line if email 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. Copies of such filing also will be available for
inspection and copying at the principal office of OCC and on OCC's Web
site at http://www.theocc.com/publications/rules/proposed_changes/sr_occ_07_13.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 SROCC
200713 and should be submitted on or before December 27, 2007. [[Page 68939]]
IV. 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.\5\
\5\ 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).
It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SROCC200713) be and hereby is approved on an accelerated basis.
For the Commission by the Division of Trading and Markets, pursuant to delegated authority.\6\
\6\ 17 CFR 200.303(a)(12).
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E723610 Filed 12507; 8:45 am]
BILLING CODE 801101P
SUMMARY: Options Clearing Corp.,
DOCUMENT BODY 2: November 28, 2007.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on October 9, 2007, 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. The Commission is publishing this notice and order to solicit
comments from interested persons and to grant approval of the proposal. \1\ 15 U.S.C. 78s(b)(1).
I. SelfRegulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The proposed rule change would permit OCC to clear and settle
delayed start options (``DSOs'') by the Chicago Board Options Exchange (``CBOE'').
II. SelfRegulatory 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.\2\
\2\ The Commission has modified the text of the summaries prepared by OCC.
A. SelfRegulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule ChangePurpose of Rule Change
The purpose of the proposed rule change is to accommodate the
introduction of DSOs by the CBOE. Initially CBOE proposes to list DSOs only on indexes.\3\
\3\ File No. SRCBOE200726. The Commission recently issued an
order granting approval of SRCBOE200726 that allows CBOE to list
and trade DSOs. Securities Exchange Act Release No. 56855 (November 28, 2007).
Description of Product
As described by CBOE, a DSO is identical to existing standardized options with one exception: at the commencement of trading in a series, DSOs of that series will not have a set exercise price. Instead, a DSO will commence trading with a preestablished formula that the listing exchange will use to fix the exercise price for the DSO on a specified date prior to the DSO's expiration date (``exercise price setting date''). The CBOE is currently proposing that an ``atthemoney'' DSO on an index will be assigned an exercise price equal to the closing value of the underlying index on the exercise price setting date, rounded to the increment established by CBOE at the time the DSO commences trading. CBOE has also indicated that it may introduce in or outofthemoney DSOs. Those DSOs would, according to CBOE, have the same terms as atthemoney DSOs except that the exercise price would be set at a specified percentage either in or outofthemoney on the exercise price setting date (e.g., 5% inthemoney or 5% outofthe money).
The listing exchange will specify the exercise price setting date prior to the opening of each series of DSOs. According to CBOE, the exercise price setting date for each series of DSOs traded on CBOE will initially be three months prior to the DSO's expiration date. In other words, each series of DSOs will trade without an exercise price until three months prior to expiration. From the exercise price setting date forward, all options terms will be fixed, and DSOs will be fungible with any other option on the same underlying interest having the same terms such as exercise price, expiration date, etc. An exchange may determine to issue series of DSOs with more or less than three months between the exercise price setting date and the expiration date.
A DSO will not have an exercise price until the exercise price setting date, and it will not be exerciseable until after that date. Thus, an ``Americanstyle'' DSO would be exerciseable only between the exercise price setting date and the expiration date. A ``European style'' DSO, like any other Europeanstyle option, would be exercised only on or near the expiration date.
Proposed Changes to OCC's ByLaws and Rules
In order to issue and clear DSOs, OCC needs to make several
definitional changes in its ByLaws. A definition of DSO would be added to Article I of the ByLaws. OCC is also proposing to
[[Page 68938]]
amend the existing definition of ``Americanstyle'' in Article I of its
ByLaws to make clear that unlike other Americanstyle options, DSOs
could not be exercised beginning at the commencement time for the
options. Instead, Americanstyle DSOs could only be exercised after
their exercise price is set. Additionally, OCC proposes to amend the
existing definition of ``series'' to provide that DSOs with the same
expiration date, unit of trading, exercise price setting date, and
exercise price setting formula will comprise the same series until
their exercise price is set. At that point DSOs with the same
expiration date, unit of trading and exercise price will, like other
options, comprise the same series. Similarly, OCC is proposing to amend
the existing definition of ``variable terms'' in Article I because DSOs
will not have an exercise price as one of their variable terms until
their exercise price setting date. Instead, DSOs will have both an
exercise price setting date and an exercise price setting formula as
variable terms until that time. OCC is proposing to add two definitions
to Article I as well. Both ``exercise price setting date'' and
``exercise price setting formula'' are needed to reflect the fact that
DSOs will not have an exercise price when they begin trading and to
describe when and how an exercise price will be fixed by the listing exchange.
OCC proposes amending Article VI of its ByLaws to clarify that an exchange listing DSOs need not set the exercise price for such options at the time each series is opened for trading but instead must set the exercise price setting date and the exercise price setting formula, and that an Americanstyle DSO may not be exercised until after its exercise price has been set. The proposed amendment to the definition of ``series of options'' in Article XVII is similar to the amendment to the definition of ``series'' in Article I and like that amendment is to clarify that DSOs with the same expiration date, unit of trading, exercise price setting date, and exercise price setting formula will comprise the same series until their exercise price is set. The amendments to Article XVII, Section 2(a) and to Rule 1802(a), like the changes to the definition of ``Americanstyle'' in Article I and in Article VI, would prohibit holders of Americanstyle DSOs from exercising until the exercise price is set.
Proposed amendments to Rule 401(a)(1) are to permit matched trade reports for DSOs to contain the exercise price setting date and exercise price setting formula rather than an exercise price until the exercise price is set.
The proposed changes to OCC's ByLaws and Rules are consistent with
the purposes and requirements of Section 17A of the Act, as amended,
because they are designed to promote the prompt and accurate clearance
and settlement of transactions in DSOs, which are a new product
designed to allow customers to manage risk associated with the
volitility of an underlying interest. DSOs are very similar to existing
options currently cleared by OCC and would be governed by substantially
the same rules and procedures to which existing options are subject.
The proposed rule change is not inconsistent with the existing rules of OCC, including rules proposed to be amended.
B. SelfRegulatory Organization's Statement on Burden on Competition
OCC does not believe that the proposed rule change would impose any burden on competition.
C. SelfRegulatory 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.\4\ The purpose of the proposed rule change is to amend OCC's ByLaws and Rules so that OCC may clear and settle DSOs. Accordingly, after careful review the Commission finds that the proposed rule change meets the requirements of Section 17A(b)(3)(F) of the Act because the proposed rule change should result in the prompt and accurate clearance and settlement of securities transactions, specifically transactions in DSOs.
\4\ 15 U.S.C. 78q1(b)(3)(F).
OCC has requested that the Commission approve the proposed rule prior to the thirtieth day after publication of the notice of filing. The Commission finds good cause for approving the proposed rule change prior to the thirtieth day after publication of notice because such approval will allow CBOE to commence trading of DSOs without any unnecessary delay.
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
Paper Comments
All submissions should refer to File Number SROCC200713. This
file number should be included on the subject line if email 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. Copies of such filing also will be available for
inspection and copying at the principal office of OCC and on OCC's Web
site at http://www.theocc.com/publications/rules/proposed_changes/sr_occ_07_13.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 SROCC
200713 and should be submitted on or before December 27, 2007. [[Page 68939]]
IV. 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.\5\
\5\ 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).
It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SROCC200713) be and hereby is approved on an accelerated basis.
For the Commission by the Division of Trading and Markets, pursuant to delegated authority.\6\
\6\ 17 CFR 200.303(a)(12).
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E723610 Filed 12507; 8:45 am]
BILLING CODE 801101P
Common CFR Searches
14 CFR Part 39 40 CFR Part 52 14 CFR Part 71 33 CFR Part 165 50 CFR Part 679 47 CFR Part 73 26 CFR Part 1 40 CFR Part 180 33 CFR Part 117 50 CFR Part 17 44 CFR Part 67 50 CFR Part 648 14 CFR Part 97 33 CFR Part 100 40 CFR Part 63 50 CFR Part 622 44 CFR Part 65 50 CFR Part 660 26 CFR Part 301 39 CFR Part 111 40 CFR Part 300 6 CFR Part 5 40 CFR Part 271 47 CFR Part 64 40 CFR Parts 52 and 81 44 CFR Part 64 10 CFR Part 50 49 CFR Part 571 50 CFR Part 665 47 CFR Part 76