[Federal Register Volume 76, Number 61 (Wednesday, March 30, 2011)]
[Notices]
[Page 17727]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-7366]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64119; File No. SR-OCC-2011-02]
Self-Regulatory Organizations; The Options Clearing Corporation;
Order Approving Proposed Rule Change To Accommodate the Clearance of
Relative Performance Options
March 24, 2011.
I. Introduction
On January 19, 2011, The Options Clearing Corporation (``OCC'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change SR-OCC-2011-02 pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'').\1\ The proposed rule change
was published for comment in the Federal Register on February 7,
2011.\2\ No comment letters were received on the proposal. This order
approves the proposal.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 34-63811 (February 1,
2011), 76 FR 6648 (February 7, 2011).
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II. Description
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'').\3\ The
revised rules have been broadly drafted to cover Alpha Options, a
Relative Performance Option described below, and any similar product
that may be listed on any participant exchange in the future.
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\3\ A reference security may be an exchange-traded fund
(``ETF'').
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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 measure relative total returns of one
underlying stock and one underlying ETF, which are also traded on the
Phlx.\5\ An 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\ Securities Exchange Act Release No. 34-63575 (December 17,
2010), 75 FR 81320 (December 27, 2010) [File No. SR-Phlx-2010-176].
\5\ The combination of the two components is referred to as an
``Alpha Pair.'' The first component of each Alpha Pair is referred
to as the ``Target Component'' and the second component is referred
to as the ``Benchmark Component.''
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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 the clearance and settlement of
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 is modifying its By-Laws to provide for
such potential adjustments 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.
Therefore, OCC 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.
III. Discussion
Section 17A(b)(3)(F) of the Act \6\ requires, among other things,
that the rules of a clearing agency be designed to remove impediments
to and perfect the mechanism of a national system for the prompt and
accurate clearance and settlement of securities transactions. Because
the proposed rule change modifies OCC's Rules and By-Laws to support
the clearance of Alpha Options and other types of Relative Performance
Options that may be introduced in the future, the proposed rule change
is facilitating the perfection of the national system for the clearance
and settlement of securities transactions and therefore is consistent
with the requirements of Section 17A(b)(3)(F) of the Act.
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\6\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act \7\ and the
rules and regulations thereunder.
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\7\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\8\ that the proposed rule change (File No. SR-OCC-2011-02) be, and
hereby is, approved.\9\
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\8\ 15 U.S.C. 78s(b)(2).
\9\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition and
capital formation. 15 U.S.C. 78c(f).
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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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-7366 Filed 3-29-11; 8:45 am]
BILLING CODE 8011-01-P