
[Federal Register: June 1, 2010 (Volume 75, Number 104)]
[Notices]               
[Page 30451-30452]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01jn10-121]                         

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SECURITIES AND EXCHANGE COMMISSION

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Granting Approval of Accelerated Delivery of Supplement to the 
Options Disclosure Document Reflecting Certain Changes to Disclosure 
Regarding Options on Conventional Index-Linked Securities and Amendment 
to the Options Disclosure Document Inside Front Cover

May 24, 2010.
    On October 27, 2009, The Options Clearing Corporation (``OCC'') 
submitted to the Securities and Exchange Commission (``Commission''), 
pursuant to Rule 9b-1 under the Securities and Exchange Act of 1934 
(``Act''),\1\ five preliminary copies of a supplement to its options 
disclosure document (``ODD'') reflecting certain changes to disclosure 
regarding options on conventional index-linked securities.\2\ The ODD 
would also be amended to update its front inside cover page so that it 
contains a current list of the U.S. exchanges that trade options issued 
by the OCC. On May 18, 2010, the OCC submitted to the Commission five 
definitive copies of the supplement.\3\
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    \1\ 17 CFR 240.9b-1.
    \2\ 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 October 27, 2009.
    \3\ See letter from Jean M. Cawley, Senior Vice President and 
Deputy General Counsel, OCC, to Sharon Lawson, Senior Special 
Counsel, Division, Commission, dated May 14, 2010.
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    The ODD currently contains general disclosures on the 
characteristics and risks of trading standardized options. Since July 
2008, eight options exchanges amended their respective rules to permit 
the listing and trading of options on conventional index-linked 
securities.\4\ Further, BATS began trading options in February of 
2010.\5\ The proposed supplement amends the ODD to accommodate these 
changes by providing disclosures regarding options on conventional 
index-linked securities and to update the inside front cover page of 
the ODD to include BATS.\6\
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    \4\ BATS Exchange, Inc. (``BATS''), Chicago Board Options 
Exchange, Incorporated, International Securities Exchange, LLC, 
NASDAQ OMX BX, Inc, NASDAQ OMX PHLX, Inc., NASDAQ Stock Market, LLC, 
NYSE Amex LLC, and NYSE Arca, Inc. each have provisions in their 
respective rules for the listing and trading of options on 
conventional index-linked securities. See e.g., Securities Exchange 
Act Release Nos. 58203 (July 22, 2008), 73 FR 43812 (July 28, 2008) 
(SR-NYSEArca-2008-57) (approving listing and trading options on 
conventional index-linked securities); 58204 (July 22, 2008), 73 FR 
43807 (July 28, 2008) (SR-CBOE-2008-64); and 58985 (November 20, 
2008), 73 FR 72538 (November 28, 2008) (SR-ISE-2008-86); and see 
e.g., Securities Exchange Act Release Nos. 60822 (October 14, 2009), 
74 FR 54114 (October 21, 2009) (SR-NYSEArca-2009-77) (permitting the 
listing and trading of options on conventional index-linked 
securities linked to CBOE VIX); 60823 (October 14, 2009), 74 FR 
54112 (October 21, 2009) (SR-NYSEAmex-2009-59); and 60857 (October 
21, 2009), 74 FR 55611 (October 28, 2009) (SR-CBOE-2009-74).
    \5\ See Securities Exchange Act Release No. 61419 (January 26, 
2010), 75 FR 5157 (February 1, 2010) (SR-BATS-2009-31).
    \6\ The proposed May 2010 Supplement to the ODD amends the 
February 1994 version of the booklet entitled ``Characteristics and 
Risks of Standardized Options,'' and portions of the May 2007, June 
2007, June 2008, and September 2008 Supplement thereto.
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    Specifically, the proposed supplement to the ODD adds new 
disclosure regarding the characteristics of options on conventional 
index-linked securities,\7\ as well as the special risks of these 
options. In addition, the ODD is amended to add BATS, which currently 
trades options issued by the OCC, and its corporate address to the 
front inside cover page of the ODD. This change will ensure that the 
ODD accurately identifies the markets on which options currently trade. 
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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    \7\ For purposes of the ODD, conventional index-linked 
securities refer to non-convertible debt of an issuer (with a term 
of at least one year but not greater than thirty years) that 
provides for the payment at maturity of a cash amount based directly 
on the performance of a specified underlying ``reference asset.'' 
Unlike conventional index-linked securities, leveraged or inverse 
index-linked securities provide for a cash payment at maturity based 
on a multiple or inverse of the performance of a specified 
underlying ``reference asset.'' The Commission notes that, to date, 
it has only approved trading of options on conventional index-linked 
securities, and not on leveraged or inverse index-linked securities. 
Accordingly, the ODD disclosure only covers the characteristics and 
risks of options on conventional index-linked securities.
    \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 options on conventional 
index-linked securities are made. Any future changes to the rules of 
the options markets concerning options on index linked securities 
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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[[Page 30452]]

    Rule 9b-1(b)(2)(i) under the Act \9\ 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.\10\ 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 
amendment and finds, having due regard to the adequacy of information 
disclosed and the public interest and protection of investors, that 
they may be furnished to customers as of the date of this order.
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    \9\ 17 CFR 240.9b-1(b)(2)(i).
    \10\ 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,\11\ 
that definitive copies of the proposed supplement and amendment to the 
ODD (SR-ODD-2010-01), reflecting changes to disclosure regarding 
certain options on conventional index-linked securities and to the 
inside front cover of the ODD, may be furnished to customers as of the 
date of this order.
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    \11\ 17 CFR 240.9b-1.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(39).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-12986 Filed 5-28-10; 8:45 am]
BILLING CODE 8010-01-P

