[Federal Register Volume 76, Number 25 (Monday, February 7, 2011)]
[Notices]
[Pages 6648-6650]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-2570]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63811; File No. SR-OCC-2011-02]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change To Accommodate the Clearance
of Relative Performance Options
February 1, 2011.
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 January 19, 2011, The Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission'') 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 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
The proposed rule change would accommodate the clearance of options
on certain indexes measuring the relative performance of one reference
[[Page 6649]]
security or reference index relative to a second reference security or
reference index.
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 this rule change is to accommodate the clearance of
options on certain indexes measuring the relative performance of one
reference security or reference index relative to a second reference
security or reference index (``Relative Performance Options''). A
reference security may be an exchange-traded fund (``ETF''). The
revised rules have been broadly drafted to cover Alpha Options
(described below) and any similar product that may be listed on any
participant exchange in the future.
NASDAQ OMX PHLX LLC (``Phlx'') is proposing to list options
(``Alpha Options'') \4\ on NASDAQ OMX Alpha Indexes (``Alpha
Indexes''), a family of indexes developed by NASDAQ OMX Group, Inc.
(``Nasdaq''). Alpha Indexes are calculated based on two ETFs or other
reference securities underlying options that are also traded on Phlx.
For example, an Alpha Index may measure the relative total return of
two non-ETF securities, two ETFs, or one ETF and one non-ETF security
(the first component of each pair is referred to as the ``Target
Component,'' and the second component is referred to as the ``Benchmark
Component''). The Alpha Index is calculated by measuring the total
return performance of the Target Component relative to the total return
performance of the Benchmark Component based upon prices of
transactions on the primary listing exchange of each underlying
component. Each Alpha Index will initially be set at 100.00. Alpha
Options will be cash-settled, European-style options. In the event of a
corporate event that eliminates one of the underlying components of an
Alpha Index, Nasdaq will cease calculation of the Alpha Index for that
pair of underlying components, and all outstanding option positions
will be immediately settled at the last disseminated price of that
Alpha Index.
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\4\ See SR-Phlx-2010-176, Release No. 34-63575, December 17,
2010.
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Relative Performance Options are highly similar to other index
options cleared by OCC except for the identity and nature of the
underlying index. Therefore, OCC believes that the provisions of its
By-Laws and Rules governing index options, as they are currently in
effect, are generally sufficient to support the clearance and
settlement of Relative Performance Options. However, minor
modifications are needed to support Alpha Options and other types of
Relative Performance Options that may be introduced in the future. For
example, OCC's current Rules do not account for the possibility of an
index having a negative value as could occur for certain Relative
Performance Indexes. If this should ever occur, the index value would
be deemed to be equal to zero or, because certain systems may not
accept a zero index value, a near-zero positive amount. Therefore, OCC
proposes to modify its By-Laws to provide for such potential adjustment
of the index value by either the listing exchange or OCC.
In addition, OCC's current By-Laws do not account for the
possibility that an expiration date may be accelerated when a reference
security (i.e., an individual reference security and not a reference
index) that is one of the components of an underlying relative
performance index ceases to be published as a result of a cash-out
merger or similar corporate event. If the value of an underlying
Relative Performance Index ceases to be published as a result of such
an event, the value of the overlying options would become fixed. OCC
therefore proposes to modify its By-Laws to provide that OCC will
either accelerate or not accelerate the expiration in consultation with
the relevant exchange on which the index underlying a Relative
Performance Option is listed.
OCC believes the proposed rule change is consistent with the
requirements of Section 17A of the Act \5\ because it is designed to
promote the prompt and accurate clearance and settlement of
transactions in, including the expiry of, Relative Performance Options,
and to foster cooperation and coordination with persons engaged in the
clearance and settlement of such transactions, to remove impediments to
and perfect the mechanism of a national system for the prompt and
accurate clearance and settlement of such transactions, and, in
general, to protect investors and the public interest. The proposed
rule change accomplishes this purpose by applying substantially the
same rules and procedures to these transactions as OCC applies to
transactions in other index options. The proposed rule change is not
inconsistent with the existing rules of OCC, including any rules
proposed to be amended.
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\5\ 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 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
Written comments relating to the proposed rule change have not 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 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
Use the Commissions Internet comment form (http://www.sec.gov/rules/sro.shtml) or
Send an e-mail to [email protected]. Please include File Number
SR-OCC-2011-02 on the subject line.
[[Page 6650]]
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-2011-02. 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 Web site viewing and
printing in the Commission's Public Reference Section, 100 F Street,
NE., Washington, DC 20549-1090, on official business days between the
hours of 10 a.m. and 3 p.m. Copies of such filings will also be
available for inspection and copying at the principal office of OCC and
on OCC's Web site at http://www.optionsclearing.com/components/docs/legal/rules_and_bylaws/sr_occ_11_02.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-2011-02
and should be submitted on or before February 22, 2011.
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-2570 Filed 2-4-11; 8:45 am]
BILLING CODE 8011-01-P