
[Federal Register: October 29, 2009 (Volume 74, Number 208)]
[Notices]               
[Page 55878-55879]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29oc09-119]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60872; File No. SR-OCC-2009-14]

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving Proposed Rule Change To Clear Options Based on Index-
Linked Securities

October 23, 2009.

I. Introduction

    On August 12, 2009, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') 
proposed rule change SR-OCC-2009-14 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 September 8, 
2009.\2\ No comment letters were received on the proposal. This order 
approves the proposal.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 60602 (Sep. 1, 2009), 74 
FR 46278.
---------------------------------------------------------------------------

II. Description

    The proposed rule change permits OCC to clear options based on 
index-linked securities (``Index-Linked Securities'').
    Index-Linked Securities are non-convertible debt of major financial 
institutions that typically have a term of at least one year but not 
greater than thirty years and that provide for payment at maturity 
based upon the performance of an index or indices of equity securities 
or futures contracts, one or more physical commodities, currencies or 
debt securities, or a combination of any of the foregoing. Index-Linked 
Securities are traded on national securities exchanges and meet the 
definition of ``NMS Stock'' under regulation NMS.\3\ The options 
exchanges will treat options on Index-Linked Securities (``Index-Linked 
Security Options'') as standardized equity options for listing and 
trading purposes and will generally govern their trading by the same 
rules that are applicable to trading in other equity options. Exercises 
of Index-Linked Security Options will be settled by delivery of the 
underlying securities in the same manner as exercises of equity 
options.
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 51808 (Jun. 9, 2005), 70 
FR 37496 (Jun. 29, 2005). ``NMS Stock'' is defined in Rule 
600(b)(47) of Regulation NMS as ``any NMS security other than an 
option.'' The definition of ``NMS Security'' in Rule 600(b)(46) of 
Regulation NMS includes any security for which transaction reports 
are collected and disseminated under an effective national market 
system plan. Because Index-Linked Securities are exchange traded, 
they fall within this definition.
---------------------------------------------------------------------------

    OCC is amending its By-Laws and Rules to accommodate Index-Linked 
Security Options. OCC is adding a definition of ``index-linked 
security'' to Article I of its By-Laws, amending the definition of 
``stock option contract'' in Article I of its By-Laws to include Index-
Linked Security Options, and amending the definition of ``non-equity 
securities option contract'' in Article I of its By-Laws to clarify 
that Index-Linked Security Options are excluded from the definition. 
OCC is amending Interpretation and Policy .05 to Article VI, Section 
11A of its By-Laws to clarify that a call of an entire class of Index-
Linked Securities will result in an adjustment of Index-Linked Security 
Options in the event of a cash merger but that a partial call will not 
result in an adjustment. OCC is adding Interpretation and Policy .10 to 
Article VI, Section 11A of the By-Laws that would state that interest 
payments on Index-Linked Securities generally will be considered 
``ordinary cash dividends or distributions'' within the meaning of 
paragraph (c) Article VI, Section 11A. OCC is adding language to Rule 
604(b)(4)(iii) to state that for the purposes of Rule 604, Index-Linked 
Securities will be treated as stock, assuming they meet the basic 
listing requirement applicable to stocks. OCC is amending Rule 
604(b)(4) to conform its language to its practice of limiting the value 
of securities with the same CUSIP number, as opposed to securities of 
the same issuer, to 10% of the margin requirement of an account. OCC is 
adding Interpretation and Policy .14 to Rule 604(b)(4), which states 
that OCC may disapprove for margin credit a security that otherwise 
meets the Rule 604(b) criteria if other factors warrant such a 
disapproval.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a registered clearing agency. In particular, 
the Commission believes that by amending its By-Laws and Rules to 
provide for the clearance and settlement of Index-Linked Security

[[Page 55879]]

Options, the proposal is consistent with the requirements of Section 
17A(b)(3)(F),\4\ which requires, among other things, that the rules of 
a clearing agency are designed to promote the prompt and accurate 
clearance and settlement of securities transactions.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

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 \5\ and the 
rules and regulations thereunder.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\6\ that the proposed rule change (File No. SR-OCC-2009-14) be, and 
hereby is, approved.\7\
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78s(b)(2).
    \7\ 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.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-26027 Filed 10-28-09; 8:45 am]

BILLING CODE 8011-01-P
