[Federal Register Volume 75, Number 172 (Tuesday, September 7, 2010)]
[Notices]
[Pages 54410-54411]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-22209]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62801; File No. SR-OCC-2010-13]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of a Proposed Rule Change To Allow for Adjustments to
the Settlement Price of Exchange-Designated Security Futures for All
Cash Dividends or Distributions Paid by the Issuer of the Underlying
Security
August 31, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on August 19, 2010, The
Options Clearing Corporation (``OCC'') filed with the Securities and
Exchange Commission (``Commission'') and on August 25, 2010, amended
the proposed rule change as described in Items I and II below, which
items have been prepared primarily by OCC. The Commission is publishing
this notice to solicit comments from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The purpose of the proposed rule change is to revise OCC's By-Laws
to allow OCC to make adjustments to the settlement price of exchange-
designated security futures for all cash dividends or distributions
paid by the issuer of the underlying security.
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 such
statements.\2\
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\2\ 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 primary purpose of this proposed rule change is to revise OCC's
By-Laws to allow OCC to make adjustments to the settlement price of
exchange-designated security futures for all cash dividends or
distributions paid by the issuer of the underlying security. Under its
current rules, OCC makes such adjustments only for ``non-ordinary''
dividends. However, OneChicago, LLC (``OneChicago'') has informed OCC
that it believes there is a demand for security futures that would be
adjusted in response to all cash dividends or distributions.
Accordingly, OCC is proposing to amend Section 3 of Article XII of its
By-Laws to permit exchanges to designate certain security futures that
would be adjusted for ordinary as well as ``non-ordinary'' dividends.
Exchanges could continue to trade security futures that would be
adjusted only in the event of a ``non-ordinary'' dividend.
For security futures subject to adjustment for all cash dividends
or distributions, it would be the exchange's responsibility to inform
OCC of the issuance of a cash dividend or distribution and the
appropriate adjustment amount. Provided that such information
(including any corrections thereto) is reported to OCC before a
designated cut-off time prior to the ex-date, OCC would then make the
appropriate adjustment to the settlement price of the security futures
contract. Such adjustments would be effective before the opening of
business on the ex-date.\3\ If the exchange failed to report dividend
or distribution information to OCC on a timely basis or reported
incorrect dividend or distribution information to OCC, then the
exchange would be able to report such information or corrected
information to OCC on the ex-date, and OCC would effect the adjustment
as soon as practicable thereafter.\4\ In the event the exchange already
opened trading in the security futures contracts affected thereby, the
exchange would provide OCC with direction on whether such trades should
be cleared or disregarded as provided for in Article VI, Section 7 of
OCC's By-Laws. Pursuant thereto, disregarded transactions would be
deemed null and void and given no effect. These procedures are intended
to preserve OCC's ability to initiate and conduct nightly processing on
a timely basis, but they also provide the exchange with the opportunity
to report to OCC dividend or distribution information that was not
available to it before OCC's processing cut-offs or to correct
erroneously reported information to ensure an appropriate adjustment to
the settlement price for the affected contracts.
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\3\ The standard method for adjusting futures contracts in
response to cash distributions is to decrease the prior day's
settlement price by the amount of the dividend. This adjustment is
effective at the opening of business on the ex-distribution date and
parallels the adjustment made to the price of the underlying stock
by the securities exchanges on the ex-distribution date. It is
intended to ensure that no futures mark-to-the-market attributable
to the adjustment made to the stock price for the dividend will
occur.
\4\ OCC also proposes to add Interpretation and Policy .10 to
Article XII, Section 3 that provides that officially reported
settlement prices will not be adjusted (other than as provided for
in the By-Laws and Rules) except in extraordinary circumstances. The
Interpretation further provides that in no event will a completed
settlement be adjusted due to errors discovered thereafter. This
latter provision is intended to preserve the finality of money
settlements should it be later determined that an officially
reported settlement price was erroneous and is based on existing
provisions of OCC's By-Laws. See, e.g., Article XIV, Section 6,
Interpretation and Policy .01; Article XVI, Section 4,
Interpretation and Policy .01; and Article XVII, Section 4,
Interpretation and Policy .01.
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In connection with OneChicago's proposal, OneChicago and OCC also
have agreed to amend the Security Futures Agreement for Clearing and
Settlement Services, dated April 1, 2002 (the ``Clearing Agreement''),
by entering into Amendment No. 1 thereto.\5\ Amendment No. 1 would
amend Section 5 of the Clearing Agreement to permit OneChicago to
designate those security futures contracts for which adjustments will
be made in response to all cash dividends or distributions and to set
forth for OneChicago's obligation to furnish OCC with notice of all
relevant information regarding such dividends or distributions in order
for
[[Page 54411]]
OCC to adjust the settlement price of the affected security future as
described above. Amended Section 5 further extends the current
indemnification provided by OneChicago to OCC to also cover losses
resulting from adjusting security futures in accordance with dividend
or distribution information supplied by OneChicago or failing to adjust
in the event OneChicago did not supply OCC with information regarding
such an adjustment.
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\5\ Amendment No. 1, which will be executed after the
effectiveness of this filing, would amend and restate Section 5 of
the Clearing Agreement.
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OCC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act,\6\ as amended, and the rules
and regulations thereunder applicable to OCC because it is designed to
promote the prompt and accurate clearance and settlement of security
transactions and generally to protect investors and the public interest
by allowing the clearing and settling of security futures contracts
that reflect the issuance of all cash dividends or distributions on the
underlying security.
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\6\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
OCC does not believe that the proposed rule change will have an
impact on or impose a 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 relating to the proposed rule change have been
solicited or received. OCC will notify the Commission of any written
comments received by OCC.
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 (i) as the Commission may
designate up to ninety days of such date 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, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-OCC-2010-13 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2010-13. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. 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 inspection and
copying in the Commission's Public Reference Section, 100 F Street,
NE., Washington, DC 20549, on official business days between the hours
of 10 a.m. and 3 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. 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-2010-13 and should be submitted on or before
September 28, 2010.
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-22209 Filed 9-3-10; 8:45 am]
BILLING CODE 8010-01-P