[Federal Register Volume 68, Number 1 (Thursday, January 2, 2003)]
[Rules and Regulations]
[Pages 188-193]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-32912]



[[Page 187]]

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Part III





Securities and Exchange Commission





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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; Final Rule

  Federal Register / Vol. 68, No. 1 / Thursday, January 2, 2003 / Rules 
and Regulations  

[[Page 188]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230 and 240

[Release Nos. 33-8171; 34-47082; 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: Final rule.

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SUMMARY: We are adopting new exemptions under the Securities Act of 
1933 and the Securities Exchange Act of 1934 for most standardized 
options. The rules adopted today exempt standardized options issued by 
registered clearing agencies and traded on a registered national 
securities exchange or 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 rules also clarify that a security futures product 
that is cleared by a registered clearing agency or that is exempt from 
registration and traded on a registered national securities exchange or 
a registered national securities association is exempt from the 
registration requirements of Exchange Act section 12(g). The rules 
ensure comparable regulatory treatment of standardized options and 
security futures products.

EFFECTIVE DATE: The rules are effective January 2, 2003.

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 adopting new rule 238 \1\ under the 
Securities Act of 1933 \2\ and new rule 12a-9 \3\ under the Securities 
Exchange Act of 1934.\4\ We also are amending Exchange Act rules 9b-
1\5\ and 12h-1.\6\
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    \1\ 17 CFR 230.238.
    \2\ 15 U.S.C. 77a et seq.
    \3\ 17 CFR 240.12a-9.
    \4\ 15 U.S.C. 78a et seq.
    \5\ 17 CFR 240.9b-1.
    \6\ 17 CFR 240.12h-1.
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I. Background

    In July 2002, we proposed amendments that 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.\7\ 
The purpose of the proposals was to harmonize the treatment of 
standardized options with security futures products under the 
Securities Act and the Exchange Act, and to remedy the longstanding 
paradox of applying the registration provisions to standardized 
options.
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    \7\ Release No. 33-8114 (July 25, 2002) (67 FR 50326).
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    In 1973, we first permitted national securities exchanges to 
establish pilot programs for the trading of standardized options.\8\ 
The Commission determined that the Options Clearing Corporation 
(``OCC'') \9\ should be deemed to be the issuer of the standardized 
options to be listed on the Chicago Board Options Exchange 
(``CBOE'').\10\ Therefore, OCC registered standardized options under 
both the Securities Act and the Exchange Act. 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 \11\ to register standardized options 
under the Exchange Act.\12\
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    \8\ 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.'' CBOE established the first of 
these pilot programs. See Release No. 34-9985. The American Stock 
Exchange (see Release No. 34-11144 (December 19, 1974) (40 FR 
3258)), Philadelphia Stock Exchange (see Release No. 34-11423 (May 
15, 1975)), Pacific Exchange (see Release No. 34-12283 (March 30, 
1976) (41 FR 14454)) and the Midwest Stock Exchange (see Release No. 
34-13045 (December 8, 1976) (41 FR 54783)) also later began to list 
standardized options. In 1974, OCC became the common clearing agency 
for all exchange listed options (see Release No. 34-11146 (December 
19, 1974)).
    \9\ 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.
    \10\ See Release No. 33-6411 (June 24, 1982) (47 FR 28688).
    \11\ 17 CFR 249.210.
    \12\ 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). This order will 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)). OCC would incur a reporting 
obligation under section 15(d) in the event that standardized 
options issued under a previously filed registration statement were 
held of record by more than 300 persons.
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    In 1982, following recommendations of the Report of the Special 
Study of Options Markets (``Options Study''),\13\ we extensively 
revised our system of regulation of standardized options.\14\ First, we 
adopted form S-20 as a simplified Securities Act registration form 
customized for standardized options.\15\ Form S-20 requires limited 
information about the clearing agency registrant and the options being 
registered.\16\ We also adopted Securities Act rule 153b \17\ to 
provide that the prospectus delivery requirement in Securities Act 
section 5(b)(2) \18\ is satisfied by delivery of copies of the form S-
20 prospectus to each options market trading the options covered by the 
prospectus.\19\ 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.
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    \13\ 96th Cong., 1st Sess. (Comm. Print 1978).
    \14\ See Release No. 33-6426 (September 16, 1982) (47 FR 41950).
    \15\ 17 CFR 239.20.
    \16\ 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.
    \17\ 17 CFR 230.153b.
    \18\ 15 U.S.C. 77e(b)(2).
    \19\ The options market must deliver the prospectus to any 
investor requesting it.
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    The central element of the reformed registration system was the 
newly

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created options disclosure document (``ODD''), required by Exchange Act 
rule 9b-1.\20\ The ODD discloses information relevant to standardized 
options trading generally, instead of information about the issuing 
clearing agency.\21\ 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 
become the primary disclosure document with respect to trading in 
standardized options.\22\ After today's adoption of the exemptions for 
standardized options, broker-dealers will continue to be required to 
furnish the ODD to their customers investing in standardized options.
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    \20\ 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. We are revising 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.
    \21\ 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).
    \22\ 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 
remains unchanged. Similarly, although rule 134a does not apply to 
standardized options exempted under rule 238, it continues to apply 
to any standardized options that remain subject to the registration 
provisions of the Securities Act.
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    Although our 1982 rulemaking streamlined and improved disclosure 
regarding standardized options, the Securities Act registration 
requirement continued to apply to offers and sales of standardized 
options. While this result was dictated by the statutory scheme, under 
which options are securities, it was anomalous because, in its role as 
an issuer of standardized options, a registered clearing agency is 
fundamentally different from a conventional issuer that registers 
transactions in its securities under the Securities Act. For example, 
the purchaser of a standardized option does not, except in the most 
formal sense, make an investment decision regarding 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.\23\ In standardized option transactions, the 
investment risk is determined by the market performance of the 
underlying security rather than the performance of the clearing agency. 
Moreover, registered clearing agencies are self-regulatory 
organizations subject to Commission oversight under section 17A of the 
Exchange Act. Furthermore, unlike a conventional issuer, a registered 
clearing agency does not receive the proceeds from sales of the 
standardized options that it issues.\24\ Registration does not appear 
to provide any additional protections to investors in standardized 
options.\25\
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    \23\ Options Study at 378.
    \24\ OCC does receive a clearing fee of up to $0.09 per option 
contract from its members.
    \25\ Information that is required in the form S-20 registration 
statement but is not required in the ODD, such as OCC's financial 
statements and a description of OCC's backup system, is publicly 
available on OCC's website, located at www.optionsclearing.com.
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    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),\26\ 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.
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    \26\ 15 U.S.C. 78l(g)(1).
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    Rule 12b-1 of the Exchange Act \27\ prescribes the procedures for 
registration under both section 12(b) and section 12(g).\28\ 
Standardized options are listed on national securities exchanges and, 
therefore, must be registered under section 12(b) of the Exchange Act. 
As the issuer of standardized options, OCC has registered the options 
on form 8-A.\29\ Whenever an exchange has introduced options on a new 
underlying security or index of securities, OCC has filed 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 
has provided an updated list of all classes of options being traded on 
all exchanges as part of the amendment. Because it has had to file a 
form 8-A amendment every time a new class of options has opened for 
trading, OCC typically has filed more than 200 form 8-A amendments each 
year. It is not clear that these numerous amendments have benefited 
investors.
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    \27\ 17 CFR 240.12b-1.
    \28\ 15 U.S.C. 78l(b) and (g).
    \29\ 17 CFR 240.208a.
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    The National Securities Markets Improvement Act of 1996 \30\ 
conferred on the Commission authority to adopt exemptive rules under 
the Securities Act and the Exchange Act. By virtue of this authority, 
we are now able to 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.\31\ 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. \32\
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    \30\ Pub. L. 104-290, 110 Stat. 3416 (1996).
    \31\ 15 U.S.C. 77z-3.
    \32\ 15 U.S.C. 78mm.
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    The enactment of the Commodity Futures Modernization Act of 2000 
(``CFMA'') \33\ is another significant factor

[[Page 190]]

motivating the adoption of these exemptions. The CFMA addressed the 
regulation of security futures products,\34\ and permits the trading of 
futures on individual securities and on narrow-based security indices. 
The CFMA, among other things:
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    \33\ Pub. L. No. 106-554 Stat. 2763 (2000).
    \34\ 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.
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    [sbull] Exempted from all provisions of the Securities Act, except 
the antifraud provisions of section 17 of the Securities Act; \35\ 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 \36\ 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);
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    \35\ 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.
    \36\ 15 U.S.C. 78o-3.
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    [sbull] Exempted security futures products from the provisions of 
section 12(a) of the Exchange Act; \37\
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    \37\ 15 U.S.C. 78l(a).
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    [sbull] Amended section 12(g)(5) of the Exchange Act \38\ to state 
that, for purposes of section 12(g) of the Exchange Act, a security 
futures product will not be considered a class of equity security of 
the issuer of the securities underlying the security futures product; 
and
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    \38\ 15 U.S.C. 78l(g)(5).
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    [sbull] Amended section 2(a)(3) of the Securities Act \39\ 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.\40\
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    \39\ 15 U.S.C. 77b(a)(3).
    \40\ 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.''
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    Because security futures products can be used for financial 
purposes similar to those served by standardized options, we believe 
that it is appropriate to establish comparable regulatory treatment for 
standardized options by adopting parallel exemptions under the 
Securities Act and Exchange Act. By doing so, we eliminate any 
unjustified or unintended consequences that could result from differing 
regulatory treatment of these two types of securities.

II. Discussion of the Amendments

    We are adopting the new exemptions under the Securities Act and the 
Exchange Act for most standardized options substantially as proposed. 
The amendments:
    [sbull] 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 on 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; \41\ and
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    \41\ Securities Act rule 238(a) and (b) (17 CFR 230.238(a) and 
(b)).
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    [sbull] Make clear that 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 (as these terms are defined in section 2(a)(3) of the 
Securities Act) the underlying securities.\42\
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    \42\ Securities Act rule 238(c) (17 CFR 230.238(c)). 
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.
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    We also are adopting new Exchange Act rule 12a-9 \43\ and revisions 
to rule 12h-1 to exempt standardized options from the registration 
requirements of section 12 of the Exchange Act,\44\ and to clarify that 
any security futures product that is traded on a registered national 
securities exchange or on a national securities association registered 
pursuant to section 15A(a) of the Exchange Act and cleared by a 
clearing agency that is registered under section 17A of the Exchange 
Act or is exempt from registration under section 17A(b)(7) of the 
Exchange Act is exempt from registration under section 12(g).\45\ The 
revisions to rule 12h-1 relating to security futures products have been 
modified slightly from the proposal so that the exemption under the 
rule is consistent with the statutory exemption from Securities Act 
registration for security futures products.
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    \43\ Rule 12a-9 provides an exemption from section 12(a) of the 
Exchange Act for standardized options.
    \44\ Rule 12h-1(d) (17 CFR 240.12h-1(d)] provides an exemption 
from Exchange Act section 12(g) for standardized options. The 
exemption is necessary, even though standardized options currently 
are registered only pursuant to section 12(b) of the Exchange Act, 
because standardized options issued by a registered clearing agency 
and traded on a national securities exchange will no longer 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. Rule 12h-1(d) 
exempts 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.
    \45\ Rule 12h-1(e) (17 CFR 240.12h-1(e)) eliminates any 
uncertainty concerning the application of the section 12(g) 
registration requirements to security futures products. See note 
above.
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    We received four letters of comment on the proposals.\46\ Each 
commenter supported the proposals and our objective to establish 
comparable regulatory treatment of security futures and standardized 
options. One commenter, however, advocated a broadening of the proposed 
exemptions to cover standardized options issued by foreign clearing 
agencies and traded on foreign exchanges that are subject to the 
oversight of a foreign regulatory authority that is acceptable to the 
Commission.\47\ We have considered the views of the commenters and are 
adopting the proposed amendments substantially as proposed.\48\
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    \46\ See comment letters of OCC, CBOE, the Canadian Derivative 
Clearing Corporation (``CDCC''), and Mr. Bernard E. Klein. These 
letters are available in our Public Reference Room at 450 Fifth 
Street, NW., Washington, DC, 20549, in File No. S7-29-02. Public 
comments submitted by electronic mail also are available on our 
website, www.sec.gov.
    \47\ See comment letter of CDCC.
    \48\ We are not extending the new exemptions to standardized 
options issued by a foreign clearing agency and traded on a foreign 
exchange at this time. We believe that the issues involving 
standardized options that are not issued by a registered clearing 
agency or traded on a registered national securities exchange are 
sufficiently different to warrant separate study. Nevertheless, once 
we have gained experience with the new exemptions, we may consider 
the issue further.
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    The terms of the adopted rules are substantively comparable to the 
Securities Act and Exchange Act exemptions provided by the CFMA for 
security futures products. New Securities Act rule 238 does not make 
form S-20 obsolete. We are retaining 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 as a

[[Page 191]]

foreign clearing agency,\49\ or for use by issuers of standardized 
options that do not trade on a registered national securities exchange 
or on a registered national securities association.
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    \49\ Presently, no foreign clearing agencies are registered 
under section 17A. Securities Act rule 153b prospectus delivery 
requirements currently apply and will continue to apply in 
connection with standardized option transactions registered on form 
S-20.
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    Similarly, new 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 in rule 9b-1(a)(4),\50\ 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. Exchange Act rule 12h-1(d) exempts 
issuers from the provisions of section 12(g) of the Exchange Act with 
respect to a standardized option, as defined by rule 9b-1(a)(4), 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 a national securities 
association registered pursuant to section 15A(a) of the Exchange Act.
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    \50\ Rule 9b-1(a)(4) under the Exchange Act (17 CFR 240.9b-
1(a)(4)) defines standardized options as ``options contracts trading 
on a national securities exchange, an automated quotations system of 
a registered securities association, or a foreign securities 
exchange which relate to options classes the terms of which are 
limited to specific expiration dates and exercise prices, or such 
other securities as the Commission may, by order, designate.''
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    The amendments do not affect the requirements under Exchange Act 
rule 9b-1(d)(1) \51\ 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 are exempt from Securities Act registration.
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    \51\ 17 CFR 240.9b-1(d)(1).
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    For the reasons stated above, including that investors will still 
receive the ODD informing them about standardized options trading in 
general, and that Securities Act registration provides little benefit 
relative to its costs, we believe that the amendments are in the public 
interest and consistent with the protection of investors.

III. Paperwork Reduction Act

    The amendments affect ``collection of information'' requirements 
within the meaning of the Paperwork Reduction Act of 1995 
(``PRA'').\52\ The title for the collection of information affected by 
the amendments is ``Form 8-A'' (OMB Control No. 3235-0056).\53\ We 
published a notice requesting comment on the proposed change to the 
form 8-A collection of information requirements, and submitted a 
request to the Office of Management and Budget for approval of the 
change in accordance with the PRA.\54\ The Office of Management and 
Budget approved the proposed change. We did not receive any comments on 
the PRA analysis contained in the proposing release. An agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information requirement unless it displays a currently 
valid OMB control number.
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    \52\ 44 U.S.C. 3501 et seq.
    \53\ 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.
    \54\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
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    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 actual 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).
    The amendments will 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, we estimate that the total annual 
burden for form 8-A is 5,280 hours, a decrease of 654 hours.

IV. Cost-Benefit Analysis

    The amendments 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 
amendments will 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. We solicited comment to assist us in our 
evaluation of the costs and benefits associated with the amendments. In 
response, we received four comment letters. All of the commenters 
supported the amendments. Two noted that the amendments would eliminate 
unnecessary regulatory filings and reduce costs imposed on persons 
engaged in standardized options trading without compromising investor 
protection.\55\
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    \55\ See comment letters of CBOE and OCC. OCC estimates that 
form 8-A filings, and amendments to form 8-A, result in an annual 
compliance cost to it of $23,000. It further 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.
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    The Securities Act and Exchange Act exemptions we are adopting 
today 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 a 
registered national securities association and imposes costs on options 
market participants that are not justified by the marginal benefits to 
investors.

V. Regulatory Flexibility Act Certification

    Pursuant to 5 U.S.C. 605(b), the Commission has certified that rule 
238 under the Securities Act, rule 12a-9 under the Exchange Act, and 
amendments to rules 9b-1 and 12h-1 under the Exchange Act, will not 
have a significant economic impact on a substantial number of small 
entities. This certification, including our basis for requesting the 
certification, was included in the proposing release. We solicited 
comments on the potential impact of the amendments on small entities, 
but received none.

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

    Section 23(a)(2) of the Exchange Act \56\ 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 \57\ and section 3(f) of the

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Exchange Act \58\ require us, when engaging in rulemaking to consider 
or determine whether an action is necessary or appropriate in the 
public interest, and consider whether the action will promote 
efficiency, competition, and capital formation.
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    \56\ 15 U.S.C. 78w(a)(2).
    \57\ 15 U.S.C 77b(b).
    \58\ 15 U.S.C. 78c(f).
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    We requested comment on any anti-competitive effects of the 
proposals. One commenter indicated that, without the exemptions, 
dissimilar regulatory treatment between standardized options and 
security futures products would result in a competitive advantage for 
security futures products. Another suggested that the exemptions would 
improve efficiency by eliminating the costs associated with compliance 
with the Securities Act registration requirements. The purpose of these 
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 amendments will promote efficiency by 
eliminating the potential for regulatory arbitrage opportunities that 
could result from discordant treatment of security futures products and 
standardized options, and by removing regulatory obstacles to trading 
of these securities. We believe the amendments will have a positive, 
but unquantifiable, effect on efficiency, competition, and capital 
formation.

VII. Effective Date

    The new rules are effective upon publication in the Federal 
Register. Generally, the Administrative Procedure Act requires that, 
unless an exception applies, a substantive rule be published in the 
Federal Register at least 30 days prior to its effective date.\59\ One 
exception to the 30-day publication requirement is if a substantive 
rule grants or recognizes an exemption or relieves a restriction.\60\ 
New Securities Act rule 238 and Exchange Act rule 12a-9 would exempt 
certain standardized options from most of the provisions of the 
Securities Act and the registration provisions of the Exchange Act. The 
effect of the exemptions would be to remove most of the registration 
restrictions currently placed on covered issuers of standardized 
options that trade on a national securities exchange or registered 
national securities associations. In addition, new Exchange Act rule 
12h-1(e) provides that covered security futures products are exempt 
from registration under section 12(g). The rule is intended to clarify 
that security futures products are not subject to the registration 
requirements of section 12(g).
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    \59\ 5 U.S.C. 553(d).
    \60\ 5 U.S.C. 553(d)(1).
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VIII. Statutory Authority

    The amendments contained in this release are being adopted 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 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 section 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. 780-3(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 section 
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 section 
240.9b-1(a)(4), that is issued by a clearing

[[Page 193]]

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. 
780-3(a)); and
    (e) Any security futures product that is traded on a national 
securities exchange registered pursuant to section 6 of the Act (15 
U.S.C. 78f) or on a national securities association registered pursuant 
to section 15A(a) of the Act (15 U.S.C. 780-3(a)) and cleared by a 
clearing agency that is registered pursuant to section 17A of the Act 
(15 U.S.C. 78q-1) or is exempt from registration under section 
17A(b)(7) of the Act (15 U.S.C. 78q-1(b)(7)).

    Dated: December 23, 2002.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-32912 Filed 12-31-02; 8:45 am]
BILLING CODE 8010-01-P