[Federal Register Volume 73, Number 188 (Friday, September 26, 2008)]
[Notices]
[Page 55890]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-22638]
[[Page 55890]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58604; File No. SR-ODD-2008-04]
Self-Regulatory Organizations; the Options Clearing Corporation;
Order Granting Approval of Accelerated Delivery of Supplement to the
Options Disclosure Document Reflecting Changes to Disclosure Regarding
Certain Variability Index Options, Strategy-Based Index Options, and
Adjustments of Stock Option Contracts
September 19, 2008.
On August 21, 2008, 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 preliminary copies of a supplement to its options
disclosure document (``ODD'') reflecting changes to disclosure
regarding certain options on variability indexes \2\ and strategy-based
indexes and adjustments of stock option contracts, among other
changes.\3\ On September 19, 2008, the OCC submitted to the Commission
five definitive copies of the supplement.\4\
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\1\ 17 CFR 240.9b-1.
\2\ In the proposed September 2008 supplement to the ODD and
this Order, the term ``variability indexes'' refers to implied
volatility, realized variance, and realized volatility indexes. See
infra notes 5 and 7.
\3\ See letter from Jean M. Cawley, Senior Vice President and
Deputy General Counsel, OCC, to Sharon Lawson, Senior Special
Counsel, Division of Trading and Markets (``Division''), Commission,
dated August 13, 2008.
\4\ See letter from Jean M. Cawley, Senior Vice President and
Deputy General Counsel, OCC, to Sharon Lawson, Senior Special
Counsel, Division, Commission, dated September 19, 2008.
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The ODD currently contains general disclosures on the
characteristics and risks of trading standardized options. Recently,
the Chicago Board Options Exchange, Incorporated (``CBOE'') amended its
rules to permit the listing and trading of realized variance and
realized volatility index options.\5\ The CBOE also recently amended
its rules to permit the listing and trading of certain strategy-based
index options, specifically options that overlie an index that is equal
to \1/10\th of the value of the CBOE S&P 500 BuyWrite Index (``BXM
options'').\6\ The proposed supplement amends the ODD to accommodate
these changes by providing disclosure regarding realized variance index
options, realized volatility index options, and strategy-based index
options.\7\
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\5\ See Securities Exchange Act Release No. 58171 (July 16,
2008), 73 FR 42841 (July 23, 2008) (SR-CBOE-2008-31).
\6\ See Securities Exchange Act Release No. 58207 (July 22,
2008), 73 FR 43963 (July 29, 2008) (SR-CBOE-2008-26).
\7\ The proposed September supplement is divided into two parts.
Part I supersedes and replaces the March 2005 supplement to the ODD
to accommodate the approval of trading of certain realized variance
index options, realized volatility index options, and BXM options.
See notes 4 and 5, supra. The March 2005 supplement contained
disclosure on implied volatility options previously approved for
trading by the Commission, and the September 2008 supplement
includes disclosure on these products. See note 2 supra and
Securities Exchange Act Release No. 49563 (April 14, 2004) 69 FR
21589 (April 21, 2004) (order approving SR-CBOE-2003-40 to list and
trade implied volatility options on the CBOE Volatility Index (VIX);
the CBOE Nasdaq 100 Volatility Index (VXN); and CBOE Dow Jones
Industrial Average Volatility Index, (VXD)). See also Securities
Exchange Act Release No. 55425 (March 8, 2007), 72 FR 12238 (March
15, 2007) (order approving SR-CBOE-2006-73 to list and trade implied
volatility options on the CBOE Russell 2000 Volatility Index (RVX)).
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Specifically, the proposed supplement to the ODD adds new
disclosure regarding the characteristics of realized variance and
realized volatility index options as well as the special risks of these
options. The proposed supplement to the ODD also adds new disclosure
regarding the characteristics and special risks of strategy-based index
options. 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.\8\
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\8\ The Commission notes that the options markets 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 regarding variability index options
and/or strategy-based index options are made. Any future changes to
the rules of the options markets concerning variability index
options and/or strategy-based index 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 proposed supplement also is revised to: (1) Accommodate a
change in the application of the new methodology for adjusting equity
options for cash dividends; \9\ (2) add new language to describe
reduced-value index options; \10\ and (3) delete a paragraph regarding
the NASDAQ Stock Market LLC's (``Nasdaq'') opening and closing
procedure, which has become outdated and inaccurate.\11\
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\9\ This proposed change amends the May 2007 supplement to the
ODD. See OCC-2008-16.
\10\ This proposed new language amends the June 2008 supplement
to the ODD.
\11\ The language being deleted relates to the opening and
closing price for securities trading on Nasdaq, but is no longer
accurate because Nasdaq has since changed its opening and closing
procedures.
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Rule 9b-1(b)(2)(i) under the Act \12\ 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.\13\ In addition,
five copies of the definitive ODD, as amended or supplemented, must 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 information disclosed and
the public interest and protection of investors, that the proposed
supplement may be furnished to customers as of the date of this order.
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\12\ 17 CFR 240.9b-1(b)(2)(i).
\13\ This provision permits the Commission to shorten or
lengthen the period of time which must elapse before definitive
copies may be furnished to customers.
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It is therefore ordered, pursuant to Rule 9b-1 under the Act,\14\
that definitive copies of the proposed supplement to the ODD (SR-ODD-
2008-03), reflecting changes to disclosure regarding certain options on
variability indexes and strategy-based indexes, as well as the other
changes noted above, may be furnished to customers as of the date of
this order.
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\14\ 17 CFR 240.9b-1.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(39).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-22638 Filed 9-25-08; 8:45 am]
BILLING CODE 8010-01-P