
[Federal Register Volume 77, Number 110 (Thursday, June 7, 2012)]
[Notices]
[Pages 33794-33796]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-13767]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67095; File No. SR-OCC-2012-08]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change Relating to Amendments to 
Certain Rules Applicable to Stock Futures

June 1, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder \2\ notice is hereby given that 
on May 24, 2012, The Options Clearing Corporation (``OCC'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II below, which Items have been 
prepared primarily by OCC. The Commission is publishing this notice to 
solicit comments on the

[[Page 33795]]

proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Several separate purposes underlie the proposed rule change. First, 
the rule change clarifies the applicability of OCC's rules to stock 
futures overlying index-linked securities. Second, it eliminates a de 
minimis exception relating to adjustments to stock futures overlying 
ETFs. Third, it makes a technical change to the rules that permit the 
acceleration of the maturity (expiration) date of stock futures (stock 
options) following an adjustment in response to cash-out events.

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. The self-regulatory organization has prepared summaries, 
set forth in sections (A), (B), and (C) below, of the most significant 
aspects of such statements.\3\
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    \3\ 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

    The first purpose of this proposed rule change is to clarify the 
applicability of OCC's By-Laws and Rules to security futures on index-
linked securities such as exchange-traded notes, which are currently 
traded on OneChicago, LLC. Index-linked securities are non-convertible 
debt of a major financial institution 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 indexes 
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, although they are technically debt 
securities, meet the definition of ``NMS stock'' under Regulation 
NMS.\4\ Furthermore, index-linked securities traded on designated 
contract markets meet the requirements of Commodity Futures Trading 
Commission Regulation 41.21 for the underlying securities of security 
futures products that are eligible to be treated as a single security. 
OneChicago therefore treats security futures on index-linked securities 
as security futures on single securities, or ``single stock futures,'' 
for listing and trading purposes, and trading in them will generally be 
governed by the same rules that are applicable to other single stock 
futures. OCC similarly treats futures on index-linked securities as 
single stock futures, and accordingly is proposing to amend the 
definition of ``stock future'' in Article I of its By-Laws to 
explicitly include index-linked securities.\5\
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    \4\ ``NMS stock'' is defined in Rule 600(b)(47) of Regulation 
NMS to mean ``any NMS security other than an option.'' ``NMS 
security'' is defined in Rule 600(b)(46) to mean any security for 
which transaction reports are collected and disseminated under an 
effective national market system plan, and because index-linked 
securities are exchange traded they fall within this definition.
    \5\ Article I of OCC's By-Laws defines ``index-linked security'' 
to mean ``a debt security listed on a national securities exchange, 
the payment upon maturity of which is based in whole or in part upon 
the performance of an index or indexes of equity securities or 
futures contracts, one or more physical commodities, currencies or 
debt securities, or a combination of any of the foregoing.''
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    In addition to amending the definition of ``stock future'' to 
reference index-linked securities, OCC is proposing to amend 
Interpretation and Policy .05 to Article XII, Section 3 of its By-Laws 
to clarify that a call of an entire class of index-linked securities 
will result in an adjustment of security futures on index-linked 
securities similar to the adjustment that would be made to other stock 
futures in the event of a cash merger, but that a partial call will not 
result in an adjustment. OCC is also proposing to add Interpretation 
and Policy .11 to Article XII, Section 3 of its By-Laws to establish 
that interest payments on index-linked securities will generally be 
considered ``ordinary cash dividends or distributions'' within the 
meaning of paragraph (c) of Section 3. The proposed amendments parallel 
amendments previously made to Article VI, Section 11A of the By-Laws to 
accommodate options on index-linked securities.\6\
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    \6\ Securities Exchange Act Release No. 34-60872 (October 23, 
2009), 74 FR 55878 (October 29, 2009).
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    The second purpose of this proposed rule change is to amend 
Interpretation and Policy .08 to Article XII, Section 3, which provides 
that OCC will ordinarily adjust for capital gains distributions on 
underlying ``fund shares,'' i.e., shares of exchange-traded funds 
(``ETFs'') but with a de minimis exception under which no adjustment 
will be made in respect of distributions of less than $.125 per fund 
share. (An equivalent de minimis provision is contained in the 
Interpretations and Policies to Article VI, Section 11A, governing 
stock options.) However, in the case of stock futures, OneChicago, the 
only futures exchange clearing through OCC that currently trades such 
futures, has requested that adjustments be made for capital gains 
distributions in respect of fund shares without exception in order to 
permit the stock futures on ETFs to more closely reflect the economic 
characteristics of the ETFs' underlying stocks. This revision to the 
provision for fund shares futures will establish consistency with 
Interpretation and Policy .01(b) to Article XII, Section 3 which also 
does not contain a de minimis threshold for stock futures adjusted for 
cash distributions. Accordingly, OCC is proposing to amend 
Interpretation and Policy .08 to eliminate the de minimis exception.
    Additionally, OCC proposes to make a technical correction to Rule 
1304, which permits the acceleration of the maturity date for stock 
futures adjusted to require the delivery of cash, and Rule 807, which 
permits the acceleration of the expiration date of stock options 
adjusted to require the delivery of cash. Rules 1304 and 807 contain 
language that could be read to suggest that such acceleration would 
occur only in the event of a cash-out merger. However, cash-outs also 
may occur as a result of bankruptcies, ADS liquidations and other 
events, and there is no reason to limit such accelerations to cash-out 
merger events. Accordingly, OCC proposes to amend Rules 1304 and 807 to 
delete language that may be perceived to limit OCC's ability to 
accelerate a maturity or expiration date to such events. OCC is also 
proposing to delete as obsolete a version of Rule 807 that was 
effective before January 1, 2008, and related language regarding the 
effective date in what would now be the only version of Rule 807.
    OCC believes that the proposed changes to OCC's By-Laws are 
consistent with the purposes and requirements of Section 17A of the Act 
\7\ and the rules and regulations thereunder applicable to OCC because 
they will promote the prompt and accurate clearance and settlement of 
securities transactions by clarifying that security futures on index-
linked securities will be cleared and settled subject to the same rules 
and procedures that are used successfully by OCC to clear and settle 
stock futures, eliminating an unnecessary de minimis threshold for 
adjusting stock futures on

[[Page 33796]]

ETFs, and clarifying OCC's ability to accelerate maturity dates of 
stock futures or expiration dates of stock options in events other than 
cash-out merger events and eliminating obsolete rules or references. 
The proposed rule change is not inconsistent with any rules of OCC, 
including any that are proposed to be amended.
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    \7\ 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 relating to the proposed rule change have not been 
solicited or received. OCC will notify the Commission of any written 
comments received by OCC.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 email to rule-comments@sec.gov. Please include 
File Number SR-OCC-2012-08 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-OCC-2012-08. This file 
number should be included on the subject line if email 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 Web site viewing and 
printing in the Commission's Public Reference Section, 100 F Street 
NE., Washington, DC 20549-1090, on official business days between the 
hours of 10:00 a.m. and 3:00 p.m. Copies of such filing will also be 
available for inspection and copying at the principal office of OCC and 
on OCC's Web site at http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_12_08.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-2012-08 and should be submitted on 
or before June 28, 2012.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-13767 Filed 6-6-12; 8:45 am]
BILLING CODE 8011-01-P


