
[Federal Register Volume 77, Number 211 (Wednesday, October 31, 2012)]
[Notices]
[Pages 65917-65918]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-26711]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68104; File No. SR-OCC-2012-16]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Granting Accelerated Approval of Proposed Rule Change To 
Accommodate Equity Options That Have a Unit of Trading of 10 Shares

 October 25, 2012.

I. Introduction

    On September 12, 2012, the Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') 
proposed rule change SR-OCC-2012-16. The proposed rule change, which 
was filed pursuant to Section 19(b)(1) of the Securities Exchange Act 
of 1934 (``Act''),\1\ was published for comment in the Federal Register 
on September 28, 2012.\2\ The Commission received no comment letters 
regarding the proposal. For the reasons discussed below, the Commission 
is granting approval of the proposed rule change on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 67917 (September 24, 
2012), 77 FR 59687 (September 28, 2012). In its filing with the 
Commission, OCC included statements concerning the purpose of and 
basis for the proposed rule change. The text of these statements, 
which the Commission has modified, is incorporated into the 
discussion of the proposed rule change in Section II below.
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II. Description

    The proposed rule change will accommodate Mini Options, which are 
equity options that have a unit of trading of 10 shares.\3\ OCC 
proposes to amend its By-Law provision that sets forth the minimum 
amount of a cash dividend or distribution (``Distri- bution'') on an 
underlying equity security that will result in an adjustment of 
outstanding options on that underlying equity security.
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    \3\ No other changes to OCC's rules are needed to clear Mini 
Options, as the definition of ``unit of trading'' in Article I of 
OCC's By-Laws is sufficiently flexible to permit OCC to designate a 
unit of trading other than the standard 100 shares for particular 
series or classes of options. Similarly, OCC's risk management 
systems will take the number of underlying shares into 
consideration.
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    In June 2012, the International Securities Exchange and NYSE Arca 
filed proposed rule changes with the Commission to list and trade Mini 
Options on a select number of liquid, high-priced and actively traded 
securities.\4\ Mini Options are intended

[[Page 65918]]

to expand the choices available to participants in the options markets. 
Other than the difference in the unit of trading, Mini Options have the 
same terms, use, and characteristics as standard equity options 
(``Standard Options''), which cover 100 shares. The Commission approved 
the exchanges' request to list and trade Mini Options on September 28, 
2012.\5\
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    \4\ Securities Exchange Act Release Nos. 67284 (June 27, 2012), 
77 FR 39545 (July 3, 2012) (SR-ISE-2012-58); 67283 (June 27, 2012), 
77 FR 39535 (July 3, 2012) (SR-NYSE Arca-2012-64). For example, Mini 
Options are proposed to be listed on SPY (SPDR S&P 500), GLD (SPDR 
Gold Trust) and AAPL (Apple, Inc.).
    \5\ See Securities Exchange Act Release No. 67948 (September 28, 
2012), 77 FR 60753 (October 4, 2012).
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    Under OCC's By-Laws, equity options may be adjusted upon the 
occurrence of certain corporate actions, including Distributions. 
Currently, OCC's By-Laws stipulate that a Distribution must be in 
excess of $12.50 per contract in order for OCC to consider adjusting 
any type of option contract. Some Distributions, however, would exceed 
the adjustment threshold in the case of Standard Options, but would not 
exceed the adjustment threshold in the case of a Mini Option. The 
reason for this is that the per contract Distribution on the Mini 
Option would be only 1/10th of the Distribution on the Standard Option, 
and the adjustment threshold is stated on a per contract basis rather 
than a per share basis. OCC does not believe this result to be 
appropriate given that Mini Options are intended to be identical to 
Standard Options, but for the smaller unit of trading.
    Instead, OCC believes that it is appropriate to fashion a new 
adjustment policy such that a Distribution that would result in an 
adjustment on a Standard Option would also result in an adjustment on a 
Mini Option. Moreover, the exchanges that will list Mini Options, as 
well as OCC clearing members, have expressed a preference for OCC to 
design an adjustment policy under which OCC makes consistent and 
parallel adjustments to both Mini Options and Standard Options. 
Therefore, OCC has proposed to amend the adjustment threshold in 
Article VI, Section 11A of OCC's By-Laws to $.125 per share from $12.50 
per contract.
    Furthermore, OCC does not intend for this rule change to affect 
options contracts that were originally listed with units of trading in 
excess of 100 shares. The Securities Committee\6\ made this 
determination because, if OCC applied a $.125 per share threshold to 
all option contracts, OCC might not adjust an option contract that has 
a unit of trading of 1,000 shares for certain Distributions even though 
such a Distribution may represent a significant dollar amount on a per 
contract basis.\7\ For example, in the case of an option contract with 
a unit of trading of 1,000 shares, a Distribution of $.12 per share 
would not trigger an adjustment even though the amount of the 
Distribution would be $120 on a single 1,000 share contract--far in 
excess of the existing $12.50 per contract de minimis threshold. To 
address this adjustment issue, OCC has proposed to retain the existing 
adjustment threshold of $12.50 per contract in Article VI, Section 11A 
of its By-Laws for options contracts that were originally listed in 
share amounts greater than 100 shares.
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    \6\ The Securities Committee is authorized under OCC By-Law 
Article VI Section 11(a) to determine contract adjustments in 
particular cases and to formulate adjustment policy or 
interpretations having general applicability. The Securities 
Committee is comprised of representatives of OCC's participant 
options exchanges and authorized representatives of OCC.
    \7\ OCC has rules to accommodate options with a unit of trading 
of 1,000 shares, although no such options currently trade.
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III. Discussion

    Section 19(b)(2)(C) of the Act\8\ directs the Commission to approve 
a self-regulatory organization's proposed rule change if it determines 
that the proposed rule change is consistent with the requirements of 
the Act and the rules and regulations thereunder applicable to such 
organization. Section 17A(b)(3)(F) of the Act\9\ requires, among other 
things, that the rules of a clearing agency be designed to further 
several goals, including, among other things: (i) Promoting the prompt 
and accurate clearance and settlement of securities transactions and, 
to the extent applicable, derivative agreements, contracts and 
transactions; (ii) encouraging cooperation and coordination with 
persons engaged in the clearance and settlement of securities 
transactions; and (iii) safeguarding securities and funds that are in a 
clearing agency's custody or control, or for which it is responsible.
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    \8\ 15 U.S.C. 78s(b)(2)(C).
    \9\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission concludes that the proposed rule change is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to OCC. By assuring that traders of 
Mini Options will receive appropriate adjustments when corporate 
Distributions are made, the proposed rule change will foster the prompt 
and accurate clearance and settlement of options contracts, facilitate 
cooperation with exchanges and others involved in the clearance and 
settlement of these contracts, and ensure the safety and proper 
allocation of securities and funds for which OCC is responsible.
    Further, the Commission concludes that there is good cause, 
pursuant to Section 19(b)(2) of the Act,\10\ for approving the proposed 
rule change prior to the 30th day after the date of publication of 
notice in the Federal Register. As noted above, the Commission has 
approved proposals by the International Securities Exchange and NYSE 
Arca to list and trade Mini Options.\11\ Accelerated approval of this 
proposed rule change will facilitate the prompt and accurate clearance 
and settlement of options contracts by ensuring that OCC is fully 
prepared to clear and settle Mini Options as soon as they begin to 
trade.
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    \10\ 15 U.S.C. 78s(b)(2).
    \11\ See Securities Exchange Act Release No. 67948 (September 
28, 2012), 77 FR 60753 (October 4, 2012).
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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, in particular 
with the requirements of Section 17A of the Act\12\ and the rules and 
regulations thereunder.
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    \12\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-OCC-2012-16) be, and hereby 
is, approved on an accelerated basis.\14\
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    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 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.\15\
Kevin M. O'Neill,
Deputy Secretary.
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    \15\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2012-26711 Filed 10-30-12; 8:45 am]
BILLING CODE 8011-01-P


