
[Federal Register: July 9, 2008 (Volume 73, Number 132)]
[Notices]               
[Page 39367-39368]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09jy08-115]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58059; File No. SR-OCC-2008-10]

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to the New Methodology for Adjusting Options Contracts for 
Cash Dividends and Distributions

June 30, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on June 2, 2008, The Options 
Clearing Corporation (``OCC'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change described in Items 
I, II, and III below, which items have been prepared primarily by OCC. 
OCC filed the proposed rule change pursuant to Section 19(b)(3)(A)(i) 
of the Act \2\ and Rule 19b-4(f)(1) thereunder \3\ so that the proposal 
was effective upon filing with the Commission. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested parties.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78s(b)(3)(A)(i).
    \3\ 17 CFR 240.19b-4(f)(1).
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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 adopt interpretative guidance 
relating to the new adjustment method for adjusting options contracts 
for cash dividends or distributions (``New Methodology'').

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.\4\
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    \4\ 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

Background
    Generally, options are not adjusted to reflect ``ordinary'' cash 
dividends or distributions. Under OCC's existing By-Laws, which remain 
operative until the New Methodology becomes effective, a cash dividend 
is considered ordinary unless it is greater than 10% of the value of 
the underlying security on the dividend declaration date. Dividends 
greater than 10% under this definition usually trigger an options 
contract adjustment, with the criterion for adjustment being the size 
of the cash dividend. Under the New Methodology, a cash dividend or 
distribution will be deemed to be ordinary (regardless of size) if it 
is declared pursuant to a policy or practice of paying such dividends 
on a quarterly or other regular basis. Dividends paid outside such 
practice would be considered extraordinary. Extraordinary dividends 
usually would trigger a contract adjustment unless the amount is less 
than $12.50 per contract (i.e., the minimum size threshold). The New 
Methodology will be effective for cash dividends and distributions 
announced on or after February 1, 2009, but will not be applied to 
certain grandfathered flex options as described in File No. SR-OCC-
2006-01.\5\
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    \5\ Securities Exchange Act Release No. 55258 (February 8, 
2007), 72 FR 7701 (February 16, 2007).
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Interpretative Guidance
    OCC's adoption of the New Methodology has prompted market 
participants to ask how the New Methodology would be administered and 
applied. The OCC Securities Committee has reviewed those questions and 
has developed responses thereto, which OCC is proposing to adopt as a 
stated policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule (i.e., Article VI, 
Section 11A of OCC's By-Laws). The responses are intended to provide 
investors with useful guidance on how the New Methodology would be 
applied in practice, subject to an adjustment panel's authority to make 
adjustment decisions on a case-by-case basis and to make exceptions to 
the general adjustment rules in cases where such exceptions are 
determined appropriate.\6\ The interpretative guidance, which is 
attached as Exhibit 5 to the proposed rule change, reviews the 
mechanics of adjustments, the definition of ordinary cash dividends and 
distributions, the rationale for the New Methodology, the impact of the 
minimum size threshold, and actual and hypothetical examples to 
illustrate the application of the New Methodology.\7\ OCC, however, 
does not propose to publish the interpretative guidance in its By-Laws 
and Rules. Rather, it would be published on OCC's public website, made 
available in an information memorandum accessible to clearing members 
or otherwise available in hard copy form on request.
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    \6\ Adjustments are individually determined by an adjustment 
panel of the OCC Securities Committee. Actions of an adjustment 
panel constitute the action of the Securities Committee. See Article 
VI, Section 11(c) of OCC's By-Laws.
    \7\ Exhibit 5 of the proposed rule change can be found on OCC's 
Web site at http://www.theocc.com/publications/rules/proposed_
changes/sr_occ_08_10.pdf.
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    The proposed rule change is consistent with the requirements of 
Section 17A of the Act \8\ and the rules and regulations thereunder 
applicable to OCC because it provides market participants with 
interpretative guidance on the application of the New Methodology which 
will be applied to adjustments for cash dividends and distributions. 
The proposed rule change is not inconsistent with the existing rules of 
OCC, including any other rules proposed to be amended.
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    \8\ 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 were not and are not intended to be solicited with 
respect to the proposed rule change, and none have been received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective upon filing pursuant 
to Section 19(b)(3)(A)(i) of the Act \9\ and Rule 19b-4(f)(1) \10\ 
thereunder because the

[[Page 39368]]

proposal constitutes an interpretation with respect to the meaning, 
administration, or enforcement of an existing rule of OCC. At any time 
within sixty days of the filing of such rule change, the Commission may 
summarily abrogate such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(i).
    \10\ 17 CFR 240.19b-4(f)(1).
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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 Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml) or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-OCC-2008-10 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-OCC-2008-10. 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 Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. The text of the proposed rule change is available at 
OCC, the Commission's Public Reference Room, and http://www.theocc.com/
publications/rules/proposed_changes/sr_occ_08_10.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-2008-10 and should be 
submitted on or before July 30, 2008.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-15483 Filed 7-8-08; 8:45 am]

BILLING CODE 8010-01-P
