[Federal Register Volume 70, Number 66 (Thursday, April 7, 2005)]
[Notices]
[Pages 17748-17749]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1581]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51454; File No. SR-ODD-2005-01]


Self-Regulatory Organizations; the Options Clearing Corporation; 
Order Granting Approval of Proposed Supplement to the Options 
Disclosure Document Regarding Volatility Options

March 30, 2005.
    On March 29, 2005, the Options Clearing Corporation (``OCC'') 
submitted to the Securities and Exchange Commission (``Commission''), 
pursuant to Rule 9b-1 under the Securities Exchange Act of 1934 
(``Act''),\1\ five definitive copies of the supplement to its options 
disclosure document (``ODD'') to accommodate trading of options on any 
index intended to measure the predicted volatility of the daily returns 
of a stock index.\2\
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    \1\ 17 CFR 240.9b-1.
    \2\ See letter from James R. McDaniel, Sidley Austin Brown & 
Wood LLP, to Sharon Lawson, Senior Special Counsel, Division of 
Market Regulation, Commission, dated March 23, 2005 (``OCC 
letter'').
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    The ODD currently contains general disclosures on the 
characteristics and risks of trading standardized options. Recently, an 
options exchange amended its rules to permit trading of volatility 
options.\3\ This proposed supplement accommodates this change by 
amending the ODD to provide disclosure relating to indexes intended to 
measure the predicted volatility of the daily returns of a stock index 
(``volatility indexes'') and options on such volatility indexes 
(``volatility options'').\4\
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    \3\ See Securities Exchange Act Release Nos. 49563 (April 14, 
2004), 69 FR 21589 (April 21, 2004) (approving File No. SR-CBOE-
2003-40), and 49698 (May 13, 2004), 69 FR 29152 (May 20, 2004) 
(approving File No. SR-CBOE-2004-09).
    \4\ See OCC Letter, supra note 2.
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    Specifically, the proposed supplement amends existing general 
disclosure regarding the characteristics of indexes to include a 
description of the characteristics of volatility indexes. In addition, 
the proposed supplement adds a new section titled ``Volatility 
Indexes.'' This new section is being added to the ODD to discuss in 
detail the characteristics of volatility indexes and volatility 
options.\5\ Finally, the proposed supplement amends the section of the 
ODD titled ``Special Risks of Index Options'' to include disclosure 
relating to the risks associated with the purchase and sale of 
volatility options.\6\
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    \5\ The Commission notes that the ODD will take existing 
disclosure on stock indexes and options on stock indexes and move it 
to a new, separate section titled ``Stock Indexes.''
    \6\ The Commission notes that OCC must continue to ensure that 
the ODD is in compliance with the requirements of Rule 9b-1(b)(2)(i) 
under the Act, 17 CFR 240.9b-1(b)(2)(i), including when future 
changes relating to volatility indexes or volatility options are 
made. In addition, the Commission notes that any changes to the 
rules of the exchanges concerning volatility indexes or volatility 
options would need to be submitted to the Commission under Section 
19(b) of the Act. 15 U.S.C. 78s(b).
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    The Commission has reviewed the proposed supplement and finds that 
it complies with Rule 9b-1 under the Act.\7\ The proposed supplement is 
intended to be read in conjunction with the more general ODD, which, as 
described above, discusses the characteristics and risks of options 
generally.
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    \7\ 17 CFR 240.9b-1.
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    Rule 9b-1(b)(2)(i) under the Act \8\ provides that an options 
market must file five copies of an amendment or supplement to the ODD 
with the Commission at least 30 days prior to the date definitive 
copies are furnished to customers, unless the Commission determines 
otherwise, having due regard to the adequacy of information disclosed 
and the public interest and protection of investors.\9\ In addition, 
five definitive copies shall be filed with the Commission not later 
than the date the amendment or supplement, or the amended options 
disclosure document, is furnished to customers. The Commission has 
reviewed the proposed supplement, and finds, having due regard to the 
adequacy of the information disclosed, it is consistent with the 
protection of investors and in the public interest to allow the 
distribution of this document as of the date of this order.
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    \8\ 17 CFR 240.9b-1(b)(2)(i).
    \9\ This provision is intended to permit the Commission either 
to accelerate or extend the time period in which definitive copies 
of a disclosure document may be distributed to the public.
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    It is therefore ordered, pursuant to Rule 9b-1 under the Act,\10\ 
that the proposed supplement (SR-ODD-2005-01), which provides 
disclosure relating to volatility indexes and volatility options, is 
approved. The Commission has also determined that definitive

[[Page 17749]]

copies can be furnished to customers as of the date of this order.
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    \10\ 17 CFR 240.9b-1.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(39).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1581 Filed 4-6-05; 8:45 am]
BILLING CODE 8010-01-P