[Federal Register Volume 67, Number 148 (Thursday, August 1, 2002)]
[Proposed Rules]
[Pages 50326-50331]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-19393]



[[Page 50325]]

-----------------------------------------------------------------------

Part IV





Securities and Exchange Commission





-----------------------------------------------------------------------



17 CFR Parts 230 and 240



Exemption for Standardized Options From Provisions of the Securities 
Act of 1933 and From the Registration Requirements of the Securities 
Exchange Act of 1934; Proposed Rule

  Federal Register / Vol. 67, No. 148 / Thursday, August 1, 2002 / 
Proposed Rules  

[[Page 50326]]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230 and 240

[Release Nos. 33-8114; 34-46264; File No. S7-29-02]
RIN 3235-AI55


Exemption for Standardized Options From Provisions of the 
Securities Act of 1933 and From the Registration Requirements of the 
Securities Exchange Act of 1934

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: We propose new exemptions under the Securities Act of 1933 and 
the Securities Exchange Act of 1934 for most standardized options. The 
proposals would exempt standardized options issued by registered 
clearing agencies and traded on a registered national securities 
exchange or an automated quotation system of a registered national 
securities association from all provisions of the Securities Act, other 
than the Section 17 antifraud provision, as well as the Exchange Act 
registration requirements. The proposals further would clarify that a 
security futures product that is cleared by a registered clearing 
agency and traded on a registered national securities exchange or an 
automated quotation system of a registered national securities 
association is exempt from the registration requirements of Exchange 
Act Section 12(g). The proposed rules would ensure comparable 
regulatory treatment of standardized options and security futures 
products.

DATES: You should send us your comments so that they arrive at the 
Commission by September 3, 2002.

ADDRESSES: To help us process and review your comments more 
efficiently, comments should be sent by one method only.
    Please send three copies of your comments to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, 
Washington, DC 20549-0609. Alternatively, you may submit your comments 
electronically to the following e-mail address: [email protected]. 
All comment letters should refer to File No. S7-29-02; please include 
this file number in the subject line if you use e-mail. We will make 
all comment letters available for public inspection and copying in our 
public reference room at the same address. We will post electronically 
submitted comment letters on the Commission's Internet Web site (http://www.sec.gov).\1\
---------------------------------------------------------------------------

    \1\ We do not edit personal identifying information, such as 
names or e-mail addresses, from electronic submissions. You should 
only submit information that you wish to make publicly available.

FOR FURTHER INFORMATION CONTACT: N. Sean Harrison, Special Counsel, 
Office of Rulemaking, Division of Corporation Finance at (202) 942-
2910, at the Securities and Exchange Commission, 450 Fifth Street NW, 
---------------------------------------------------------------------------
Washington, DC 20549-0312.

SUPPLEMENTARY INFORMATION: We are proposing new Rule 238 under the 
Securities Act of 1933 \2\ and new Rule 12a-9 under the Securities 
Exchange Act of 1934.\3\ We also propose to amend Exchange Act Rules 
9b-1 \4\ and 12h-1.\5\
---------------------------------------------------------------------------

    \2\ 15 U.S.C. 77a et seq.
    \3\ 15 U.S.C. 78a et seq.
    \4\ 17 CFR 240.9b-1.
    \5\ 17 CFR 240.12h-1.
---------------------------------------------------------------------------

I. Background

    In 1973, we first permitted national securities exchanges to 
establish pilot programs for the trading of standardized options.\6\ 
The Chicago Board Options Exchange (``CBOE'') established the first of 
these pilot programs.\7\ The American Stock Exchange,\8\ Philadelphia 
Stock Exchange,\9\ Pacific Exchange \10\ and the Midwest Stock Exchange 
\11\ also later began to list standardized options.
---------------------------------------------------------------------------

    \6\ See Release No. 34-9985 (February 1, 1973). Section 9(b) of 
the Exchange Act [15 U.S.C. 78i(b)] prohibits the trading of 
options, by use of any facility of a national securities exchange, 
``in contravention of such rules and regulations as the Commission 
may prescribe as necessary or appropriate in the public interest or 
for the protection of investors.''
    \7\ The Commission granted CBOE's application to register as a 
national securities exchange to trade standardized options in 
February 1973. See Release No. 34-9985.
    \8\ See Release No. 34-11144 (December 19, 1974) [40 FR 3258].
    \9\ See Release No. 34-11423 (May 15, 1975).
    \10\ See Release No. 34-12283 (March 30, 1976) [41 FR 14454].
    \11\ See Release No. 34-13045 (December 8, 1976) [41 FR 54783].
---------------------------------------------------------------------------

    Before CBOE could commence trading of standardized options, it had 
to register the options under both the Securities Act and the Exchange 
Act.\12\ The Commission determined that the Options Clearing 
Corporation (``OCC'')\13\ should be deemed to be the sole issuer of the 
standardized options to be listed on CBOE.\14\ Therefore, OCC 
registered standardized options under both the Securities Act and the 
Exchange Act.\15\ At that time, all transactions in standardized 
options were registered under the Securities Act on Form S-1, our 
general registration form. OCC filed a registration statement on Form 
10 to register standardized options under the Exchange Act.\16\
---------------------------------------------------------------------------

    \12\ Offers and sales of standardized options listed on national 
securities exchanges or traded through the facilities of a 
registered securities association must be registered under section 5 
of the Securities Act [15 U.S.C. 77e]. Section 12(a) of the Exchange 
Act [15 U.S.C. 78l(a)] prohibits any broker or dealer from engaging 
in any transaction in a security on a national exchange unless the 
security is registered under the Exchange Act.
    \13\ Founded in 1973, OCC was the successor to CBOE's original 
clearing agency, the Chicago Board Options Exchange Clearing 
Corporation. OCC, which is a registered clearing agency under 
section 17A of the Exchange Act [15 U.S.C. 78q-1], is the issuer and 
clearing facility for all U.S. exchange listed securities options. 
The American Stock Exchange, Chicago Board Options Exchange, Pacific 
Exchange, Philadelphia Stock Exchange and International Securities 
Exchange share equal ownership of OCC.
    \14\ See Release No. 33-6411 (June 24, 1982) [47 FR 28688].
    \15\ In 1974, the Commission approved OCC's registration as a 
common clearing agency for exchange listed options. See Release No. 
34-11146 (December 19, 1974).
    \16\ Registration of a class of securities under section 12 of 
the Exchange Act [15 U.S.C. 78l] generally imposes several reporting 
duties on the registrant, including the duty to file periodic and 
current reports under Section 13(a) [15 U.S.C. 78m(a)]. 
Additionally, the rules under Exchange Act Sections 13(d), 13(e), 
13(g), 14(d) and Section 16 [15 U.S.C. 78m(d), 78m(e), 78m(g), 
78n(d) and 78p] apply to classes of equity securities registered 
under Section 12. Because the securities underlying standardized 
options are issued by persons other than the clearing agency and are 
themselves registered under Section 12, it serves no purpose to 
require the clearing agency to file Exchange Act reports. The value 
of standardized options derives primarily from the value of the 
underlying security or index, not from matters peculiar to the 
issuing clearing agency. Moreover, because there is no possibility 
that a purchaser of standardized options could gain control over the 
clearing agency, there is no need for the disclosure mandated by 
sections 13(d) and 14(d) of the Exchange Act, which govern stock 
accumulations and tender offers. Clearing agency insiders have no 
informational advantages with respect to the issuers of the 
securities underlying standardized options. In recognition of these 
unique circumstances, we issued an order under Section 12(h) [15 
U.S.C. 78l(h)] exempting OCC from Sections 13(a), 13(d), 13(e), 
14(d), 15(d) and 16 of the Exchange Act. See Release No. 34-10483 
(Nov. 7, 1973). If we adopt these proposals, this order would remain 
in effect to prevent OCC from becoming subject to reporting 
obligations pursuant to Exchange Act Section 15(d) [15 U.S.C. 
78o(d)].
---------------------------------------------------------------------------

    In 1977, we placed a moratorium on any further expansion of 
standardized option trading in connection with a comprehensive 
examination of the trading and regulation of these securities.\17\ As 
part of this examination, consideration was given as to whether the 
disclosure regime existing at the time was meeting the informational 
needs of buyers and sellers of standardized options. The results of 
this examination were presented to Congress in December 1978. The 
Report of the Special Study of Options Markets (``Options Study'') \18\ 
concluded that,

[[Page 50327]]

while OCC had simplified the disclosure about standardized options, the 
Form S-1 registration statement was lengthy, complicated and not 
particularly well-suited to satisfying investors' informational 
needs.\19\ The Options Study also found that options investors were 
frustrated by the available disclosure. Furthermore, OCC, as the 
nominal issuer of standardized options, was incurring substantial costs 
related to the annual revision and redistribution of the Form S-1 
prospectus.
---------------------------------------------------------------------------

    \17\ See Release No. 34-14056 (October 17, 1977) [42 FR 56706].
    \18\ 96th Cong., 1st Sess. (Comm. Print 1978).
    \19\ Options Study at 39.
---------------------------------------------------------------------------

    In 1982, we extensively revised our system of regulation of 
standardized options in accordance with the recommendations included in 
the Options Study.\20\ First, we adopted Form S-20 as a simplified 
Securities Act registration form customized for standardized 
options.\21\ Form S-20 requires limited information about the clearing 
agency registrant and the options being registered.\22\ We also adopted 
Securities Act Rule 153b \23\ to provide that the prospectus delivery 
requirement in Securities Act Section 5(b)(2)\24\ is satisfied by 
delivery of copies of the Form S-20 prospectus to each options market 
trading the options covered by the prospectus.\25\ These changes 
simplified the registration process for options and eliminated some of 
the costs associated with the distribution and annual redistribution of 
options prospectuses to investors.
---------------------------------------------------------------------------

    \20\ See Release No. 33-6426 (September 16, 1982) [47 FR 41950].
    \21\ 17 CFR 239.20.
    \22\ Part I of Form S-20 requires the prospectus to include a 
description of the registrant and a brief summary of the securities 
being registered. Part II specifies information required to be 
included in the registration statement but not in the prospectus, 
including information as to the directors and executive officers of 
the registrant, material legal proceedings involving the registrant, 
certain exhibits and undertakings, and the registrant's financial 
statements.
    \23\ 17 CFR 230.153b.
    \24\ 15 U.S.C. 77e(b)(2).
    \25\ The options market must deliver the prospectus to any 
investor requesting it.
---------------------------------------------------------------------------

    The central element of the reformed registration system was the 
newly created options disclosure document (``ODD''), required by 
Exchange Act Rule 9b-1.\26\ The ODD discloses information relevant to 
standardized options trading generally, instead of information about 
the issuing clearing agency.\27\ Broker-dealers are precluded from 
accepting orders to purchase or sell standardized options from a 
customer or from approving a customer's account for trading in these 
options unless the broker-dealer has furnished the customer with the 
ODD. The ODD is the only document required to be provided to options 
investors and thus has supplanted the options prospectus as the primary 
disclosure document with respect to trading in standardized 
options.\28\ Under these proposals, broker-dealers would continue to be 
required to furnish the ODD to their customers investing in 
standardized options.
---------------------------------------------------------------------------

    \26\ 17 CFR 240.9b-1. Rule 9b-1 requires an options market, 
defined in Rule 9b-1(a)(1) as a national securities exchange, an 
automated quotation system of a registered securities association or 
a foreign securities exchange on which standardized options are 
traded, to file the ODD with the Commission at least 60 days before 
the date that definitive copies are furnished to customers, or at 
least 30 days before that date with respect to an amended ODD if the 
information contained in the ODD becomes or will become materially 
inaccurate or incomplete or there is or will be an omission of 
material information necessary to make the ODD not misleading. Form 
S-20 prohibits the issuance of an option registered on the form 
unless a definitive ODD meeting the requirements of Rule 9b-1 for 
the options class is available. As a practical matter, OCC works 
with the options markets to prepare and file the ODD. Rule 9b-1 
allows an options exchange to use an ODD only if there is also an 
effective Form S-20 registration statement for the same options 
classes that are the subject of the ODD. The proposals would revise 
Rules 9b-1(b)(1) and 9b-1(c)(8) [17 CFR 240.9b-1(b)(1) and 9b-
1(c)(8)] to permit use of the ODD if the option class is the subject 
of an effective Form S-20 registration statement or is exempt from 
registration.
    \27\ The ODD describes: the mechanics of buying, writing and 
exercising standardized options; the risks of trading these options; 
the market for the options; the tax consequences of standardized 
options trading; the issuer of standardized options; the instruments 
underlying an options class; the Form S-20 registration process; and 
the availability of the options prospectus. We revised Rule 9b-1 to 
explicitly state that amendments and supplements to the ODD are part 
of the ODD, and to describe more clearly the type of information to 
be included in the ODD. See Release No. 34-43461 (October 19, 2000) 
[65 FR 64137].
    \28\ Securities Act Rules 134a and 135b also are part of the 
revised options disclosure regime [17 CFR 230.134a and 135b]. Rule 
134a provides that written materials, including advertisements, 
containing limited information concerning standardized options may 
be disseminated without being deemed to be a prospectus. Rule 135b 
provides that, solely for purposes of section 5 of the Securities 
Act, materials meeting the requirements of Rule 9b-1 of the Exchange 
Act will not be deemed an ``offer to sell'' or ``offer to buy'' a 
security, nor will the materials be deemed a prospectus for purposes 
of sections 2(a)(10) and 12(a)(2) of the Securities Act. Rule 135b 
would remain in effect if we adopt these proposals. Similarly, 
although Rule 134a would not apply to standardized options exempted 
under proposed Rule 238, it would continue to apply to any 
standardized options that remain subject to the registration 
provisions of the Securities Act.
---------------------------------------------------------------------------

II. Reasons for the Proposals

    Although our 1982 rulemaking streamlined and improved disclosure 
regarding standardized options, it continued to apply the Securities 
Act registration provisions to offers and sales of standardized 
options. This always has been somewhat anomalous because, in its role 
as an issuer, a registered clearing agency is fundamentally different 
than a conventional issuer that registers transactions in its 
securities under the Securities Act. For example, the purchaser of a 
standardized option does not invest in the clearing agency that 
registers transactions in standardized options. As a result, 
information about the registrant's business, its officers and 
directors, and its financial statements, is less relevant to investors 
in standardized options.\29\ In standardized options transactions, the 
investment risk is determined by the market performance of the 
underlying security rather than the performance of the clearing agency 
registrant.
---------------------------------------------------------------------------

    \29\ Options Study at 378.
---------------------------------------------------------------------------

    Moreover, registered clearing agencies are self-regulatory 
organizations subject to Commission oversight under section 17A of the 
Exchange Act.\30\ Furthermore, unlike a conventional issuer, a 
registered clearing agency does not receive the proceeds from sales of 
the securities that it issues.\31\ Registration does not appear to 
provide any additional protections to investors in standardized 
options. In this regard, as a result of the proposals, registered 
clearing agencies would not be subject to sections 11 and 12 of the 
Securities Act.\32\
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78q-1.
    \31\ OCC does receive a clearing fee of up to $0.09 per option 
contract from its members.
    \32\ 15 U.S.C. 77k and 771.
---------------------------------------------------------------------------

    Compliance with Exchange Act registration requirements also has 
been more burdensome for the clearing agency issuer of standardized 
options than for a conventional issuer. Section 12(a) of the Exchange 
Act makes it unlawful for any broker or dealer to effect a transaction 
in a non-exempt security on a national securities exchange unless the 
security has been registered for trading on that exchange. Section 
12(g)(1),\33\ as modified by rule, requires any issuer with more than 
$10,000,000 in total assets and a class of equity securities held by 
500 or more persons to register such security with the Commission.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78l(g)(1).
---------------------------------------------------------------------------

    Regulation 12B prescribes the procedures for registration under 
both Section 12(b) and Section 12(g).\34\ Standardized options are 
listed on national securities exchanges and, therefore, must be 
registered under section 12(b) of the Exchange Act. OCC, a clearing 
agency registered under Exchange Act Section 17A, currently acts as the 
issuer of all standardized

[[Page 50328]]

options listed on national securities exchanges. As the issuer, OCC 
registers standardized options on Form 8-A.\35\ Whenever an exchange 
introduces options on a new underlying security or index of securities, 
OCC files an amended Form 8-A to identify the underlying security or 
index of securities and the exchange or exchanges on which the option 
is to be traded. OCC also provides an updated list of all classes of 
options being traded on all exchanges as part of the amendment. Because 
it must file a Form 8-A amendment every time a new class of options 
opens for trading, OCC typically files more than 200 Form 8-A 
amendments each year. It is not clear that these numerous amendments 
benefit investors.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78l(b) and (g).
    \35\ 17 CFR 240.208a.
---------------------------------------------------------------------------

    The National Securities Markets Improvement Act of 1996 
(``NSMIA'')\36\ conferred on the Commission authority to adopt 
exemptive rules under the Securities Act and the Exchange Act. By 
virtue of this authority, we can resolve the anomalies associated with 
registration of standardized options that we were unable to resolve 
when standardized options began to trade nearly three decades ago or 
when we streamlined the registration of standardized options 20 years 
ago. Section 28 of the Securities Act authorizes us to exempt any 
person, security or transaction from any provision of the Securities 
Act by rule or regulation to the extent that the exemption is necessary 
or appropriate in the public interest and consistent with the 
protection of investors.\37\ Similarly, Section 36 of the Exchange Act 
gives us the authority to exempt any person, security or transaction 
from any Exchange Act provision by rule, regulation or order, to the 
extent that the exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors. \38\
---------------------------------------------------------------------------

    \36\ Pub. L. 104-290, 110 Stat. 3416 (1996).
    \37\ 15 U.S.C. 77z-3.
    \38\ 15 U.S.C. 78mm.
---------------------------------------------------------------------------

    The enactment of the Commodity Futures Modernization Act of 2000 
(''CFMA'')\39\ is another factor motivating the issuance of these 
proposals. The CFMA addressed the regulation of security futures 
products.\40\ Because these products are both securities and futures, 
the CFMA established a framework for the joint regulation of these 
products by the Commission and the Commodity Futures Trading 
Commission.
---------------------------------------------------------------------------

    \39\ Pub. L. 106-554 Stat. 2763 (2000).
    \40\ Securities Act Section 2(a)(16) [15 U.S.C. 77b(a)(16)], 
Exchange Act Section 3(a)(56) [15 U.S.C. 78c(a)(56)], and CEA 
Section 1a(32) [7 U.S.C. 1a(32)] define ``security futures product'' 
as a security future or an option on a security future.
---------------------------------------------------------------------------

    The CFMA permits national securities exchanges registered under 
section 6(a) of the Exchange Act \41\ and national securities 
associations registered under Section 15A(a) to trade futures on 
individual securities and on narrow-based security indices. The CFMA 
amended the Securities Act in the following manner:
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78f(a).
---------------------------------------------------------------------------

     It amended Section 2(a)(1)\42\ to include a security 
future \43\ within the definition of ``security.''
---------------------------------------------------------------------------

    \42\ 15 U.S.C. 77b(a)(1).
    \43\ Securities Act Section 2(a)(16) [15 U.S.C. 77b(a)(16)] 
states that the term ``security future'' has the same meaning as 
provided in section 3(a)(55) of the Exchange Act [15 U.S.C. 
78c(a)(55)]. Section 3(a)(55) defines a ``security future'' as a 
contact of sale for future delivery of a single security or of a 
narrow-based security index.
---------------------------------------------------------------------------

     It added Section 3(a)(14) \44\ to exempt from all 
provisions of the Securities Act, except as expressly provided,\45\ any 
security futures product that is traded on a national securities 
exchange or a national securities association registered under section 
15A(a) of the Exchange Act, \46\ and cleared by a clearing agency that 
is registered under section 17A of the Exchange Act or exempt from 
registration under Section 17A(b)(7).\47\
---------------------------------------------------------------------------

    \44\ 15 U.S.C. 77c(a)(14).
    \45\ Section 17(c) of the Securities Act [15 U.S.C. 77q(c)] 
states that the exemptions provided in section 3 of the Securities 
Act, including the exemption for security futures products, do not 
apply to the provisions of Section 17.
    \46\ 15 U.S.C. 78o-3.
    \47\ 15 U.S.C. 78q-l(b)(7).
---------------------------------------------------------------------------

     It amended Section 2(a)(3)\48\ to ensure that a security 
futures product could not be used by an issuer, affiliate of an issuer 
or underwriter to circumvent the registration requirements of Section 5 
with respect to an issuer's securities underlying the security futures 
product.\49\
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 77b(a)(3).
    \49\ As amended, Section 2(a)(3) provides ``Any offer or sale of 
a security futures product by or on behalf of the issuer of the 
securities underlying the security futures product, an affiliate of 
the issuer, or an underwriter, shall constitute a contract for sale 
of, sale of, offer for sale, or offer to sell the underlying 
securities.''
---------------------------------------------------------------------------

    In addition, the CFMA exempted security futures products from the 
provisions of section 12(a) of the Exchange Act \50\ and stated that a 
security futures product will not be considered a class of equity 
security of the issuer of the securities underlying the security 
futures product.\51\ Because security futures products can be used for 
financial purposes similar to those served by standardized options, 
such as portfolio management and risk reduction, we believe that it is 
appropriate to propose comparable regulatory treatment for standardized 
options by adopting parallel exemptions under the Securities Act and 
Exchange Act.
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 78l(a).
    \51\ See Exchange Act Section 12(g)(5) [15 U.S.C. 78l(g)(5)].
---------------------------------------------------------------------------

    Like security futures products, standardized options are derivative 
securities whose value is derived principally from the underlying 
security or index. Furthermore, standardized options represent the 
obligation of a registered clearing organization and are otherwise more 
similar to other exchange-traded derivative products than they are to 
conventional debt and equity securities. For these reasons, it seems 
appropriate to provide the same types of exemptions under the 
Securities Act and the Exchange Act for standardized options as were 
statutorily created for security futures products. By harmonizing the 
treatment of standardized options and security futures products in this 
respect, we would eliminate any unintended consequences that could 
result from differing regulatory treatment of these two types of 
securities.

III. Description of the Proposals

    We propose new Securities Act Rule 238 to exempt standardized 
options that are issued by a registered clearing agency and traded on a 
national securities exchange registered under section 6(a) of the 
Exchange Act, or a national securities association registered under 
section 15A(a) of the Exchange Act, from all provisions of the 
Securities Act except:
     The antifraud provisions of section 17 of the Securities 
Act still would apply; and
     Any offer or sale of a standardized option by or on behalf 
of the issuer of the securities underlying the standardized option, an 
affiliate of the issuer, or an underwriter, would constitute a contract 
for sale of, sale of, offer for sale, or offer to sell (as these terms 
are defined in section 2(a)(3) of the Securities Act) the underlying 
securities.\52\
---------------------------------------------------------------------------

    \52\ Consequently, a transaction in a standardized option on the 
securities of an issuer by such persons also is a transaction in the 
issuer's securities that must be registered under the Securities Act 
unless an exemption from registration is available.
---------------------------------------------------------------------------

    The proposed Rule 238 exemption would not make Form S-20 obsolete. 
We would retain Form S-20 for use by an issuer of standardized options 
that is not a clearing agency registered under section 17A of the 
Exchange Act, such

[[Page 50329]]

as a foreign clearing agency.\53\ Form S-20 also would continue to be 
available for use by issuers of standardized options that do not trade 
on a registered national securities exchange or on an automated 
quotation system of a registered national securities association.
---------------------------------------------------------------------------

    \53\ Presently, no foreign clearing agencies are registered 
under Section 17A. Securities Act Rule 153b prospectus delivery 
requirements would continue to apply in connection with standardized 
option transactions registered on Form S-20.
---------------------------------------------------------------------------

    The proposed rule would not affect the requirements under Exchange 
Act Rule 9b-1(d)(1)\54\ that preclude broker-dealers from accepting 
orders to purchase or sell standardized options from a customer or from 
approving a customer's account for trading in standardized options 
unless the broker-dealer has furnished the customer with an ODD, other 
than to make conforming changes to reflect the fact that some 
standardized options would be exempt from Securities Act registration 
if the proposals are adopted. \55\
---------------------------------------------------------------------------

    \54\ 17 CFR 240.9b-1(d)(1).
    \55\ See Proposed Rule 9b-1(b)(1) and (c)(8).
---------------------------------------------------------------------------

    We also propose to create new Exchange Act Rule 12a-9 and to revise 
Rule 12h-1 to exempt standardized options from the registration 
requirements of section 12 of the Exchange Act.\56\ The terms of the 
proposed rules are substantively comparable to the Securities Act and 
Exchange Act exemptions provided by the CFMA for security futures 
products. Proposed Exchange Act Rule 12a-9 states that the provisions 
of Exchange Act Section 12(a) do not apply in respect of any 
standardized option, as defined by Rule 9b-1, that is issued by a 
clearing agency registered under section 17A of the Exchange Act and 
traded on a national securities exchange registered pursuant to section 
6(a) of the Exchange Act. Proposed Exchange Act Rule 12h-1(d) would 
exempt issuers from the provisions of section 12(g) of the Exchange Act 
with respect to a standardized option, as defined by Rule 9b-1, that is 
issued by a clearing agency registered under section 17A of the 
Exchange Act and traded on a national securities exchange registered 
pursuant to section 6(a) of the Exchange Act or an automated quotation 
system of a national securities association registered pursuant to 
section 15A(a) of the Exchange Act.
---------------------------------------------------------------------------

    \56\ Proposed Rule 12h-1(d) would be necessary even though 
standardized options currently are registered only pursuant to 
section 12(b) of the Exchange Act. In the event that we adopt 
proposed Rule 12a-9, standardized options no longer would qualify 
for the exemption in Section 12(g)(2)(A) [15 U.S.C. 78l(g)(2)(A)], 
which exempts any security listed and registered on a national 
securities exchange from registration under Section 12(g). Pursuant 
to Rule 12g-2 [17 CFR 240.12g-2], a class of securities that no 
longer is entitled to the Section 12(g)(2)(A) exemption is deemed to 
automatically be registered under Section 12(g) if, at the time that 
its Section 12(b) registration terminates, the securities are not 
exempt from registration under Section 12 or rules thereunder, and 
are held of record by 300 or more persons. Even if standardized 
options were not held of record by 300 or more persons when their 
Section 12(b) registration terminated (OCC currently has only 126 
clearing members that would be considered record holders for 
purposes of Rule 12g-2), standardized options nevertheless would be 
required to be registered under Section 12(g) if, at the end of any 
fiscal year, standardized options issued by the registered clearing 
agency were held of record by 500 or more persons. Proposed Rule 
12h-1(d) would exempt standardized options from Section 12(g), 
thereby avoiding the possibility that standardized options might 
automatically be registered or required to be registered under that 
section.
---------------------------------------------------------------------------

    We also propose to include a new paragraph in Rule 12h-1 to clarify 
that any security futures product that is traded on a registered 
national securities exchange or on an automated quotation system of a 
registered national securities association and cleared by a registered 
clearing agency is exempt from registration under Section 12(g).\57\
---------------------------------------------------------------------------

    \57\ Proposed Exchange Act Rule 12h-1(e).
---------------------------------------------------------------------------

Request for Comment

    We request and encourage any interested person to submit comments 
regarding the proposed changes that are the subject of this release.
     Do Securities Act and Exchange Act filings made to 
register standardized options benefit investors?
     Should we treat standardized options comparably to 
security futures products?
     Does registration of standardized options provide investor 
protection?
     Are there any differences between security futures 
products and standardized options that warrant different regulatory 
treatment?
     Should the exemptions for standardized options be broader 
or narrower than proposed? If so, how should we modify them?
     Should the exemptions apply only to standardized options 
cleared by a clearing agency that is registered under Exchange Act 
Section 17A? Should the proposed exemptions be available for 
standardized options issued by a clearing agency that qualifies for an 
exemption from Section 17A registration?
     Should the proposed exemptions be available for 
standardized options that are not traded on a registered national 
securities exchange or automated quotation system of a registered 
national securities association?
     Is there any information contained in the Form S-20 about 
the clearing agency issuer of standardized options that should be 
disclosed in the ODD? Should we otherwise amend the ODD in light of 
these proposals?
    We request comment from the point of view of exchanges, clearing 
agencies, registrants, investors and other users of information about 
the sale of standardized options. With regard to any comments, we note 
that such comments are of greatest assistance to our rulemaking 
initiative if accompanied by supporting data and analysis of the issues 
addressed in those comments.

IV. Paperwork Reduction Act

    The proposed amendments affect ``collection of information'' 
requirements within the meaning of the Paperwork Reduction Act of 1995 
(''PRA'').\58\ We are submitting the proposed amendments to the Office 
of Management and Budget (``OMB'') for review in accordance with the 
PRA.\59\ An agency may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless it displays 
a currently valid control number. The title for the collection of 
information affected by the proposed amendments is ``Form 8-A'' (OMB 
Control No. 3235-0056).\60\
---------------------------------------------------------------------------

    \58\ 44 U.S.C. 3501 et seq.
    \59\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
    \60\ The PRA defines a ``collection of information'' as ``the 
obtaining, causing to be obtained, soliciting or requiring the 
disclosure to third parties or the public, of facts or opinions by 
or for an agency, regardless of form or format, calling for * * * 
answers to identical questions posed to, or identical reporting or 
recordkeeping requirements imposed on, ten or more persons * * *'' 
The Form S-20 does not constitute a ``collection of information'' 
under the PRA because fewer than ten entities file Form S-20 
registration statements.
---------------------------------------------------------------------------

    There is no mandatory retention period for the information 
disclosed and Form 8-A is not kept confidential. We currently estimate 
that Form 8-A results in a total annual compliance burden of 5,934 
hours. The burden was calculated by multiplying the estimated number of 
respondents filing Form 8-A annually (1,978) by the estimated average 
number of hours each entity spends completing the form (3 hours).
    If adopted, the proposed amendments would eliminate the need for 
OCC, the only clearing agency currently registered under Exchange Act 
Section 17A that issues standardized options, to file Form 8-A and 
amendments thereto. During fiscal year 2001, OCC filed four Form 8-A 
registration statements and 214 Form 8-A amendments. Therefore, if the 
proposals are adopted, we estimate that the total annual burden for 
Form 8-A would be 5,280 hours, a decrease of 654 hours.

[[Page 50330]]

    We request comment in order to: (a) Evaluate whether the proposed 
collections of information are necessary for the proper performance of 
the functions of the Commission, including whether the information has 
practical utility; (b) evaluate the accuracy of our estimates of the 
burden of the proposed collections of information; (c) determine 
whether there are ways to enhance the quality, utility, and clarity of 
the information to be collected; (d) evaluate whether there are ways to 
minimize the burden of the collections of information on those who 
respond, including through the use of automated collection techniques 
or other forms of information technology; and (e) evaluate whether the 
proposed amendments would have any effects on any other collections of 
information not previously identified in this section.
    Any member of the public may direct to us any comments concerning 
the accuracy of these burden estimates and any suggestions for reducing 
the burdens. Persons who desire to submit comments on the collection of 
information requirements should direct their comments to the OMB, 
Attention: Desk Officer for the Securities and Exchange Commission, 
Office of Information and Regulatory Affairs, Washington, DC 20503, and 
send a copy of the comments to Jonathan G. Katz, Secretary, Securities 
and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-
0609, with reference to File No. S7-29-02. Requests for materials 
submitted to the OMB by us with regard to these collections of 
information should be in writing, refer to File No. S7-29-02, and be 
submitted to the Securities and Exchange Commission, Records 
Management, Office of Filings and Information Services, 450 Fifth 
Street NW, Washington DC 20549. Because the OMB is required to make a 
decision concerning the collections of information between 30 and 60 
days after publication, your comments are best assured of having their 
full effect if the OMB receives them within 30 days of publication.

V. Cost-Benefit Analysis

    The proposed changes are intended to harmonize the regulatory 
treatment of standardized options and security futures products under 
the Securities Act and the Exchange Act. It is anticipated that these 
proposals would benefit registered clearing agencies that issue 
standardized options covered by the exemptions by eliminating Form S-20 
and Form 8-A filing requirements currently applicable to issuers of 
standardized options. No detrimental effects to investors are expected.
    According to data provided to us by OCC, it estimates that Form 8-A 
filings, and amendments to Form 8-A, result in an annual compliance 
cost to it of $23,000. OCC estimates that Form S-20 filings, and post-
effective amendments to Form S-20, result in a total annual compliance 
cost to it of $50,538 which includes $17,500 of in-house costs and 
$33,038 in fees for outside counsel and other expenses.
    The proposed Securities Act and Exchange Act exemptions reflect our 
view that registration provides little useful information to investors 
in standardized options issued by registered clearing agencies and 
traded on a national securities exchange or on an automated quotation 
system of a registered national securities association and imposes 
costs on options market participants that are not justified by the 
benefits to investors. Commenters are requested to provide their views 
and data relating to any costs and benefits associated with these 
proposals to aid us in our evaluation of the costs and benefits that 
may result from the changes proposed in this release.

VI. Regulatory Flexibility Act Certification

    The Commission hereby certifies pursuant to 5 U.S.C. Sec. 605(b), 
that proposed Rule 238 under the Securities Act, proposed Rule 12a-9 
under the Exchange Act, and amendments to Rules 9b-1 and 12h-1 under 
the Exchange Act contained in this release, if adopted, would not have 
a significant economic impact on a substantial number of small 
entities. The proposals would exempt standardized options issued by a 
clearing agency registered pursuant to section 17A of the Exchange Act 
and traded on a national securities exchange registered pursuant to 
section 6(a) of the Exchange Act or an automated quotation system of a 
national securities association registered pursuant to section 15A(a) 
of the Exchange Act from all provisions of the Securities Act, other 
than Section 17, as well as from the Exchange Act registration 
requirements. Standardized options currently are traded on five 
registered national securities exchanges; these exchanges are not small 
entities. OCC is a registered clearing agency that is the sole issuer 
of standardized options trading on these options markets; it is not a 
small entity. For this reason, the proposed amendments should not have 
a significant economic impact on a substantial number of small 
entities.
    We encourage written comments regarding this certification. We 
solicit comment as to whether the proposed changes could have an effect 
that we have not considered. We request that commenters describe the 
nature of any impact on small entities and provide empirical data to 
support the extent of the impact.

VII. Consideration of Impact on the Economy, Burden on Competition 
and Promotion of Efficiency, Competition and Capital Formation

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (``SBREFA''),\61\ a rule is ``major''if it has resulted, or 
is likely to result in:
---------------------------------------------------------------------------

    \61\ Pub. L. No. 104-121, Title II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

     an annual effect on the economy of $100 million or more;
     a major increase in costs or prices for consumers or 
individual industries; or
     significant adverse effects on competition, investment or 
innovation.
    We request comment on the potential impact of the proposed 
amendments on the economy on an annual basis. Commenters are requested 
to provide empirical data and other factual support for their views if 
possible.
    Section 23(a)(2) of the Exchange Act \62\ requires us to consider 
the anti-competitive effects of any rules that we adopt under the 
Exchange Act. Section 23(a)(2) prohibits us from adopting any rule that 
would impose a burden on competition not necessary or appropriate in 
furtherance of the purposes of the Exchange Act. Furthermore, section 
2(b) of the Securities Act \63\ and section 3(f) of the Exchange Act 
\64\ require us, when engaging in rulemaking that requires us to 
consider or determine whether an action is necessary or appropriate in 
the public interest, to consider whether the action will promote 
efficiency, competition, and capital formation.
---------------------------------------------------------------------------

    \62\ 15 U.S.C. 78w(a)(2).
    \63\ 15 U.S.C 77b(b).
    \64\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The purpose of these proposed amendments is to harmonize the 
treatment of standardized options with security futures products under 
the Securities Act and the Exchange Act. We think that the proposals 
would promote efficiency by eliminating the potential for regulatory 
arbitrage opportunities that could result from discordant treatment of 
security futures products and standardized options. In fact, we expect 
that the proposals would encourage competition among issuers of 
standardized options by removing

[[Page 50331]]

regulatory obstacles to trading of these securities. We do not expect 
that the proposals would have any anti-competitive effects.
    We solicit comment on these matters with respect to the proposed 
rules. Would the proposals have an adverse effect on competition that 
is neither necessary nor appropriate in furtherance of the purposes of 
the Securities Act or the Exchange Act? Would the proposed amendments, 
if adopted, promote efficiency, competition and capital formation? 
Commenters are requested to provide empirical data and other factual 
support for their views, if possible.

VIII. Statutory Authority

    The amendments contained in this release are being proposed under 
the authority set forth in sections 19 and 28 of the Securities Act and 
sections 12(h), 23(a) and 36 of the Exchange Act.

List of Subjects in 17 CFR Parts 230 and 240

    Reporting and recordkeeping requirements, Securities.

    In accordance with the foregoing, Title 17, Chapter II of the Code 
of Federal Regulations is proposed to be amended as follows:

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

    1. The general authority citation for Part 230 continues to read in 
part as follows:

    Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 
77s, 77sss, 77z-3, 78c, 78d, 78l, 78m, 78n, 78o, 78t, 78w, 78ll(d), 
78mm, 79t, 80a-8, 80a-24, 80a-28, 80a-29, 80a-30, and 80a-37, unless 
otherwise noted.
* * * * *
    2. Section 230.238 is added to read as follows:


Sec. 230.238  Exemption for standardized options.

    (a) Exemption. Except as expressly provided in paragraphs (b) and 
(c) of this section, the Act does not apply to any standardized option, 
as that term is defined by Sec. 240.9b-1(a)(4) of this chapter, that 
is:
    (1) Issued by a clearing agency registered under section 17A of the 
Securities Exchange Act of 1934 (15 U.S.C. 78q-1); and
    (2) Traded on a national securities exchange registered pursuant to 
section 6(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78f(a)) 
or on a national securities association registered pursuant to section 
15A(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-3(a)).
    (b) Limitation. The exemption provided in paragraph (a) of this 
section does not apply to the provisions of section 17 of the Act (15 
U.S.C. 77q).
    (c) Offers and sales. Any offer or sale of a standardized option by 
or on behalf of the issuer of the securities underlying the 
standardized option, an affiliate of the issuer, or an underwriter, 
will constitute a contract for sale of, sale of, offer for sale, or 
offer to sell the underlying securities as defined in section 2(a)(3) 
of the Act (15 U.S.C. 77b(a)(3)).

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    3. The authority citation for Part 240 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-l, 78k, 78k-l, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 
78w, 78x, 78ll, 78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-
3, 80b-4 and 80b-11, unless otherwise noted.
* * * * *
    4. Section 240.9b-1 is amended by:
    a. Removing the authority citation following Sec. 240.9b-1;
    b. Revising the phrase ``under the Securities Act'' in the last 
sentence of paragraph (b)(1) to read ``under the Securities Act of 
1933, or is exempt from registration under the Securities Act of 1933 
(15 U.S.C. 77a et seq.)''; and
    c. Revising paragraph (c)(8).
    The revisions read as follows:


Sec. 240.9b-1  Options disclosure document.

* * * * *
    (c) * * *
    (8) If the options are not exempt from registration under the 
Securities Act of 1933 (15 U.S.C. 77a et seq.), the registration of the 
options on Form S-20 (17 CFR 239.20) and the availability of the 
prospectus and the information in Part II of the registration 
statement; and
* * * * *
    5. Section 240.12a-9 is added to read as follows:


Sec. 240.12a-9  Exemption of standardized options from section 12(a) of 
the Act.

    The provisions of section 12(a) of the Act (15 U.S.C. 78l(a)) do 
not apply in respect of any standardized option, as defined by 
Sec. 240.9b-1(a)(4), issued by a clearing agency registered under 
section 17A of the Act (15 U.S.C. 78q-1) and traded on a national 
securities exchange registered pursuant to section 6(a) of the Act (15 
U.S.C. 78f(a)).
    6. Section 240.12h-1 is amended by:
    a. Removing the authority citation following Sec. 240.12h-1;
    b. Removing ``and'' at the end of paragraph (b)(2);
    c. Removing the period at the end of paragraph (c) and adding a 
semicolon; and
    d. Adding paragraphs (d) and (e).
    The addition reads as follows:


Sec. 240.12h-1  Exemptions from registration under section 12(g) of the 
Act.

* * * * *
    (d) Any standardized option, as that term is defined in 
Sec. 240.9b-1(a)(4), that is issued by a clearing agency registered 
under section 17A of the Act (15 U.S.C. 78q-1) and traded on a national 
securities exchange registered pursuant to section 6(a) of the Act (15 
U.S.C. 78f(a)) or on a national securities association registered 
pursuant to section 15A(a) of the Act (15 U.S.C. 78o-3(a)); and
    (e) Any security futures product that is traded on a national 
securities exchange registered pursuant to section 6(a) of the Act (15 
U.S.C. 78f(a)) or on a national securities association registered 
pursuant to section 15A(a) of the Act (15 U.S.C. 78o-3(a)).

    Dated: July 25, 2002.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-19393 Filed 7-31-02; 8:45 am]
BILLING CODE 8010-01-P