
[Federal Register Volume 77, Number 142 (Tuesday, July 24, 2012)]
[Notices]
[Pages 43407-43408]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17978]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67459; File No. SR-OCC-2012-08]


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

July 18, 2012.

I. Introduction

    On May 24, 2012, The Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') proposed 
rule change SR-OCC-2012-08 pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder.\2\ The proposed rule change was published for comment in 
the Federal Register on June 7, 2012.\3\ The Commission received no 
comment letters on the proposal. For the reasons discussed below, the 
Commission is granting approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 34-67095 (Jun. 1, 2012), 
77 FR 33794 (Jun. 7, 2012).
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II. Description

    The proposed rule change would 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 amending 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 adding 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 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 proposed rule change also would 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 amending Interpretation and Policy .08 to eliminate 
the de minimis exception.
    Additionally, OCC is making 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 is amending 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 deleting 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.

III. Discussion

    Section 19(b)(2)(B) of the Act directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
such proposed rule change is consistent with the requirements of the 
Act and the

[[Page 43408]]

rules and regulations thereunder applicable to such organization.\7\ 
Section 17A(b)(3)(F) of the Act requires that a clearing agency, among 
other things, have the capacity to facilitate the prompt and accurate 
clearance and settlement of securities transactions for which it is 
responsible.\8\
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    \7\ 15 U.S.C. 78s(b)(2)(B).
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission believes that the change is consistent with the 
purposes and requirements of Section 17A of the Act \9\ and the rules 
and regulations thereunder applicable to OCC. In particular, the 
Commission believes that clarifying the applicability of OCC's By-Laws 
and Rules to security futures on index-linked securities should 
facilitate the clearance and settlement of such products and, thus, 
should help promote the prompt and accurate clearance and settlement of 
securities transactions for which OCC is responsible.
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    \9\ 15 U.S.C. 78q-1.
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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 \10\ and the 
rules and regulations thereunder.
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    \10\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (File No. SR-OCC-2012-08) be, 
and hereby is, approved.\12\
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    \11\ 15 U.S.C. 78s(b)(2).
    \12\ 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.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-17978 Filed 7-23-12; 8:45 am]
BILLING CODE 8011-01-P


