[Federal Register Volume 77, Number 189 (Friday, September 28, 2012)]
[Notices]
[Pages 59687-59688]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-23857]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67917; File No. SR-OCC-2012-16]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Accommodate Recently 
Proposed Equity Options That Have a Unit of Trading of 10 Shares

September 24, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on September 12, 2012, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared primarily by OCC. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    OCC proposes to change its rules in order to accommodate recently 
proposed equity options that have a unit of trading of 10 shares 
(``Mini Options'').

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, OCC included statements 
concerning the purpose of and basis for the proposed rule change, and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. OCC has prepared summaries, set forth in sections A, B, 
and C below, of the most significant aspects of these statements.\3\
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    \3\ The Commission has modified the text of the summaries 
prepared by OCC.
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A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The purpose of the proposed rule change is to accommodate Mini 
Options, which are recently proposed equity options that have a unit of 
trading of 10 shares.\4\ OCC proposes to amend its By-Law provision 
that sets forth the minimum amount of a cash dividend or distribution 
(``Distribution'') on an underlying equity security that will result in 
an adjustment of outstanding options on that underlying equity 
security.
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    \4\ No other changes to OCC's rules are needed to clear Mini 
Options, as the definition of ``unit of trading'' in Article I of 
OCC's By-Laws is sufficiently flexible to permit OCC to designate a 
unit of trading other than the standard 100 shares for particular 
series or classes of options. Similarly, OCC's risk management 
systems will take the number of underlying shares into 
consideration.
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    The International Securities Exchange and NYSE Arca recently filed 
proposed rule changes with the Commission to list and trade Mini 
Options on a select number of liquid, high-priced and actively traded 
securities.\5\ Mini Options are intended to expand the choices 
available to participants in the options markets. Other than the 
difference in the unit of trading, Mini Options would have the same 
terms, use, and characteristics as standard equity options (``Standard 
Options''), which cover 100 shares.
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    \5\ Securities Exchange Act Release Nos. 67284 (June 27, 2012), 
77 FR 39545 (July 3, 2012) (SR-ISE-2012-58); 67283 (June 27, 2012), 
77 FR 39535 (July 3, 2012) (SR-NYSE Arca-2012-64). For example, Mini 
Options are proposed to be listed on SPY (SPDR S&P 500), GLD (SPDR 
Gold Trust) and AAPL (Apple, Inc.).
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    Under OCC's By-Laws, equity options may be adjusted upon the 
occurrence of certain corporate actions, including Distributions. 
Currently, OCC's By-Laws stipulate that a Distribution must be in 
excess of $12.50 per contract in order for OCC to consider adjusting 
any type of option contract. Some Distributions, however, would exceed 
the adjustment threshold in the case of Standard Options but would not 
exceed the adjustment threshold in the case of a Mini Option because 
the per contract Distribution on the Mini Option would be only 1/10th 
of the Distribution on the Standard Option and the adjustment threshold 
is stated on a per contract basis rather than a per share basis. OCC 
does not believe that this result is appropriate given that Mini 
Options are intended to be identical to Standard Options, but for the 
unit of trading.
    Instead, OCC believes that it is appropriate to design an 
adjustment policy such that a Distribution that would result in an 
adjustment on a Standard Option would also result in an adjustment on a 
Mini Option. Moreover, the exchanges proposing to list Mini Options, as 
well as OCC clearing members, have expressed a preference for OCC to 
design an adjustment policy under which OCC makes consistent and 
parallel adjustments to both Mini Options and Standard Options. 
Therefore, OCC is proposing to amend the adjustment threshold in 
Article VI, Section 11A of OCC's By-Laws to $.125 per share from $12.50 
per contract.
    Furthermore, OCC does not intend for the rule change to affect 
options contracts that were originally listed with units of trading in 
excess of 100 shares. This determination was made by the Securities 
Committee \6\ because using a threshold of $.125 per share for all 
option contracts would mean that OCC might not adjust an option 
contract that has a unit of trading of 1,000 shares for certain 
Distributions even though such a Distribution may represent a 
significant dollar amount on a per contract basis.\7\ For example, in 
the case of an option contract with a unit of trading of 1,000 shares, 
a Distribution of $.12 per share would not trigger an adjustment even 
though the amount of the Distribution would be $120 on a single 1,000 
share contract--far in excess of the existing $12.50 per contract de 
minimis threshold. To address this adjustment issue, OCC is proposing 
to retain the existing adjustment threshold of $12.50 per

[[Page 59688]]

contract in Article VI, Section 11A of its By-Laws for options 
contracts that were originally listed in share amounts greater than 100 
shares.
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    \6\ The Securities Committee is authorized under OCC By-Law 
Article VI Section 11(a) to determine contract adjustments in 
particular cases and to formulate adjustment policy or 
interpretations having general applicability. The Securities 
Committee is comprised of representatives of OCC's participant 
options exchanges and authorized representatives of OCC.
    \7\ OCC has rules to accommodate options with a unit of trading 
of 1,000 shares, although no such options currently trade.
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    OCC believes the proposed rule change is consistent with the 
purposes and requirements of Section 17A of the Act \8\ and the rules 
and regulations thereunder applicable to OCC because the proposed 
modification would help assure that the By-Laws and Rules of OCC are 
designed to perfect the mechanism of a national system for the prompt 
and accurate clearance and settlement of securities transactions.\9\ 
The proposed change will achieve this by allowing options with a unit 
of trading that is less than 100 shares to be adjusted in response to 
any Distribution that would result in an adjustment of Standard 
Options, while also maintaining an appropriate de minimis threshold for 
options with units of trading that are larger than Standard Options.
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    \8\ 15 U.S.C. 78q-1.
    \9\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    OCC does not believe the proposed rule change would impose any 
burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:
     Electronic comments may be submitted by using the 
Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml 
), or by sending an email to [email protected]. Please include File 
No. SR-OCC-2012-16 on the subject line.
     Paper comments should be sent in triplicate to Elizabeth 
M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street 
NE., Washington, DC 20549-0609.

All submissions should refer to File Number SR-OCC-2012-16. To help the 
Commission process and review your comments more efficiently, please 
use only one method of submission. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml ). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for Web site 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street NE., Washington, DC 20549, on official business days between the 
hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be 
available for inspection and copying at the principal office of OCC and 
on OCC's Web site at: http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_12_16.pdf.
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly.
    All submissions should refer to File Number SR-OCC-2012-16 and 
should be submitted on or before October 19, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-23857 Filed 9-27-12; 8:45 am]
BILLING CODE 8011-01-P