

[Federal Register: March 5, 2007 (Volume 72, Number 42)]
[Notices]               
[Page 9825-9826]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05mr07-99]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55349; File No. SR-OCC-2006-08]

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving Proposed Rule Change To Revise Stock Futures Adjustment 
Methodology

February 26, 2007.

I. Introduction

    On May 19, 2006, The Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') proposed 
rule change SR-OCC-2006-08 pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal 
was published in the Federal Register on December 14, 2006.\2\ The 
Commission received no comment letters. For the reasons discussed 
below, the Commission is approving the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 54898 (December 8, 
2006), 71 FR 75287.
---------------------------------------------------------------------------

II. Description

    OCC is seeking to amend Article XII (Futures and Futures Options), 
Section 3 (Adjustments to Futures and Futures Options) of OCC's By-Laws 
to conform to the changes adopted in rule change SR-OCC-2006-01, which 
amended Article VI (Clearance of Exchange Transactions), Section 11A 
(Adjustments for Stock Option Contracts).\3\
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release Nos. 55258 (February 8, 
2007), 72 FR 7701 [File No. SR-OCC-2006-01] (order approving 
proposed rule change to revise stock options adjustment methodology) 
and 53400 (March 2, 2006), 71 FR 12226 [File No. SR-OCC-2006-01] 
(notice of filing of proposed rule change to revise stock options 
adjustment methodology).
---------------------------------------------------------------------------

    On January 12, 2006, OCC filed with the Commission proposed rule 
change SR-OCC-2006-01. Pursuant to SR-OCC-2006-01, OCC proposed, among 
other things, to amend its adjustment rules in Article VI, Section 11A 
for stock option contracts with respect to stock dividends, stock 
distributions, and stock splits. Subject to the Commission approving 
proposed rule change SR-OCC-2006-01, OCC proposed to amend Article XII, 
Section 3 to ensure stock futures contracts can be adjusted in a manner 
consistent with adjustments made to stock option contracts on the same 
underlying security.
    As described in rule change SR-OCC-2006-01, OCC amended certain of 
its adjustment rules with respect to stock option contracts to 
eliminate the need to round strike prices and/or units of trading in 
the event of certain stock dividends, stock distributions, and stock 
splits.\4\ The adjustment rules for stock futures as currently provided 
in Article XII, Section 3 parallel the adjustment rules for stock 
options provided in Article VI, Section 11A. Uniformity of the two 
provisions would ensure that stock futures contracts can be adjusted in 
a manner consistent with adjustments made to stock option contracts on 
the same underlying security. The changes to Article XII, Section 3 
that are the subject of this proposed rule change are made solely to 
track the changes made to Article VI, Section 11A and are intended to 
ensure that adjustments to stock options and to stock futures made for 
stock dividends, stock distributions, and stock splits will remain 
consistent with respect to an underlying security.
---------------------------------------------------------------------------

    \4\ The notice and order for SR-OCC-2006-01 describes OCC's 
proposed changes to and the rationale for the rule change to its 
adjustment rules for stock options.
---------------------------------------------------------------------------

    As noted above, the central purpose of the rule change in SR-OCC-
2006-01 was to eliminate inequities which resulted from certain 
rounding practices previously required by OCC's By-Laws because stock 
option strike prices are quoted in and are therefore rounded to the 
nearest one-eighth. Stock futures do not have the same inequities 
because they are quoted in decimals. Nevertheless, in order to ensure 
adjustments for stock options and for stock futures remain consistent, 
OCC proposes to revise the adjustment rules with respect to stock 
futures to match the revised adjustment rules with respect to stock 
options for stock dividends, stock distributions, and stock splits.
    OCC will implement the proposed rule change described herein 
concurrently with the implementation of the changes approved in SR-OCC-
2006-01.

III. Discussion

    Section 19(b) of the Act directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
such proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to such 
organization. Section 17A(b)(3)(F) of the Act requires that the rules 
of a clearing agency be designed, in general, to protect investors and 
the public interest.\5\ The Commission believes that OCC's rule change 
is consistent with this Section because it is intended solely to keep 
the adjustment rules for stock futures with respect to stock

[[Page 9826]]

dividends, stock distributions, and stock splits consistent with the 
adjustment rules for stock options with respect to stock dividends, 
stock distributions, and stock splits and thus should protect investors 
and the public interest.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular Section 17A of the Act and the rules and regulations 
thereunder. In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition and capital 
formation.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-OCC-2006-08) be and hereby 
is approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-3747 Filed 3-2-07; 8:45 am]

BILLING CODE 8010-01-P
