
[Federal Register: September 26, 2008 (Volume 73, Number 188)]
[Notices]               
[Page 55890]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26se08-100]                         


[[Page 55890]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58604; File No. SR-ODD-2008-04]

 
Self-Regulatory Organizations; the Options Clearing Corporation; 
Order Granting Approval of Accelerated Delivery of Supplement to the 
Options Disclosure Document Reflecting Changes to Disclosure Regarding 
Certain Variability Index Options, Strategy-Based Index Options, and 
Adjustments of Stock Option Contracts

September 19, 2008.
    On August 21, 2008, the Options Clearing Corporation (``OCC'') 
submitted to the Securities and Exchange Commission (``Commission''), 
pursuant to Rule 9b-1 under the Securities Exchange Act of 1934 
(``Act''),\1\ five preliminary copies of a supplement to its options 
disclosure document (``ODD'') reflecting changes to disclosure 
regarding certain options on variability indexes \2\ and strategy-based 
indexes and adjustments of stock option contracts, among other 
changes.\3\ On September 19, 2008, the OCC submitted to the Commission 
five definitive copies of the supplement.\4\
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    \1\ 17 CFR 240.9b-1.
    \2\ In the proposed September 2008 supplement to the ODD and 
this Order, the term ``variability indexes'' refers to implied 
volatility, realized variance, and realized volatility indexes. See 
infra notes 5 and 7.
    \3\ See letter from Jean M. Cawley, Senior Vice President and 
Deputy General Counsel, OCC, to Sharon Lawson, Senior Special 
Counsel, Division of Trading and Markets (``Division''), Commission, 
dated August 13, 2008.
    \4\ See letter from Jean M. Cawley, Senior Vice President and 
Deputy General Counsel, OCC, to Sharon Lawson, Senior Special 
Counsel, Division, Commission, dated September 19, 2008.
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    The ODD currently contains general disclosures on the 
characteristics and risks of trading standardized options. Recently, 
the Chicago Board Options Exchange, Incorporated (``CBOE'') amended its 
rules to permit the listing and trading of realized variance and 
realized volatility index options.\5\ The CBOE also recently amended 
its rules to permit the listing and trading of certain strategy-based 
index options, specifically options that overlie an index that is equal 
to \1/10\th of the value of the CBOE S&P 500 BuyWrite Index (``BXM 
options'').\6\ The proposed supplement amends the ODD to accommodate 
these changes by providing disclosure regarding realized variance index 
options, realized volatility index options, and strategy-based index 
options.\7\
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    \5\ See Securities Exchange Act Release No. 58171 (July 16, 
2008), 73 FR 42841 (July 23, 2008) (SR-CBOE-2008-31).
    \6\ See Securities Exchange Act Release No. 58207 (July 22, 
2008), 73 FR 43963 (July 29, 2008) (SR-CBOE-2008-26).
    \7\ The proposed September supplement is divided into two parts. 
Part I supersedes and replaces the March 2005 supplement to the ODD 
to accommodate the approval of trading of certain realized variance 
index options, realized volatility index options, and BXM options. 
See notes 4 and 5, supra. The March 2005 supplement contained 
disclosure on implied volatility options previously approved for 
trading by the Commission, and the September 2008 supplement 
includes disclosure on these products. See note 2 supra and 
Securities Exchange Act Release No. 49563 (April 14, 2004) 69 FR 
21589 (April 21, 2004) (order approving SR-CBOE-2003-40 to list and 
trade implied volatility options on the CBOE Volatility Index (VIX); 
the CBOE Nasdaq 100 Volatility Index (VXN); and CBOE Dow Jones 
Industrial Average Volatility Index, (VXD)). See also Securities 
Exchange Act Release No. 55425 (March 8, 2007), 72 FR 12238 (March 
15, 2007) (order approving SR-CBOE-2006-73 to list and trade implied 
volatility options on the CBOE Russell 2000 Volatility Index (RVX)).
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    Specifically, the proposed supplement to the ODD adds new 
disclosure regarding the characteristics of realized variance and 
realized volatility index options as well as the special risks of these 
options. The proposed supplement to the ODD also adds new disclosure 
regarding the characteristics and special risks of strategy-based index 
options. The proposed supplement is intended to be read in conjunction 
with the more general ODD, which, as described above, discusses the 
characteristics and risks of options generally.\8\
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    \8\ The Commission notes that the options markets must continue 
to ensure that the ODD is in compliance with the requirements of 
Rule 9b-1(b)(2)(i) under the Act, 17 CFR 240.9b-1(b)(2)(i), 
including when future changes regarding variability index options 
and/or strategy-based index options are made. Any future changes to 
the rules of the options markets concerning variability index 
options and/or strategy-based index options would need to be 
submitted to the Commission under Section 19(b) of the Act. 15 
U.S.C. 78s(b).
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    The proposed supplement also is revised to: (1) Accommodate a 
change in the application of the new methodology for adjusting equity 
options for cash dividends; \9\ (2) add new language to describe 
reduced-value index options; \10\ and (3) delete a paragraph regarding 
the NASDAQ Stock Market LLC's (``Nasdaq'') opening and closing 
procedure, which has become outdated and inaccurate.\11\
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    \9\ This proposed change amends the May 2007 supplement to the 
ODD. See OCC-2008-16.
    \10\ This proposed new language amends the June 2008 supplement 
to the ODD.
    \11\ The language being deleted relates to the opening and 
closing price for securities trading on Nasdaq, but is no longer 
accurate because Nasdaq has since changed its opening and closing 
procedures.
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    Rule 9b-1(b)(2)(i) under the Act \12\ provides that an options 
market must file five copies of an amendment or supplement to the ODD 
with the Commission at least 30 days prior to the date definitive 
copies are furnished to customers, unless the Commission determines 
otherwise, having due regard to the adequacy of information disclosed 
and the public interest and protection of investors.\13\ In addition, 
five copies of the definitive ODD, as amended or supplemented, must be 
filed with the Commission not later than the date the amendment or 
supplement, or the amended options disclosure document, is furnished to 
customers. The Commission has reviewed the proposed supplement and 
finds, having due regard to the adequacy of information disclosed and 
the public interest and protection of investors, that the proposed 
supplement may be furnished to customers as of the date of this order.
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    \12\ 17 CFR 240.9b-1(b)(2)(i).
    \13\ This provision permits the Commission to shorten or 
lengthen the period of time which must elapse before definitive 
copies may be furnished to customers.
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    It is therefore ordered, pursuant to Rule 9b-1 under the Act,\14\ 
that definitive copies of the proposed supplement to the ODD (SR-ODD-
2008-03), reflecting changes to disclosure regarding certain options on 
variability indexes and strategy-based indexes, as well as the other 
changes noted above, may be furnished to customers as of the date of 
this order.
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    \14\ 17 CFR 240.9b-1.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(39).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-22638 Filed 9-25-08; 8:45 am]

BILLING CODE 8010-01-P
