[Federal Register Volume 87, Number 146 (Monday, August 1, 2022)]
[Notices]
[Pages 47016-47018]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-16352]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95364; File No. SR-OCC-2022-009]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change by The Options Clearing 
Corporation Concerning One Multiplier Options

July 26, 2022.
    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 July 18, 2022, The Options Clearing Corporation (``OCC'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared primarily by OCC. The Commission is publishing this 
notice to solicit comments on the 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. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    This proposed rule change would amend provisions of OCC Rules to 
accommodate the issuance, clearance and settlement of index options and 
flexibly structured index options with an index multiplier of one 
(collectively ``One Multiplier Options''). The proposed changes to 
OCC's Rules are contained in Exhibit 5 to filing number SR-OCC-2022-
009. Material proposed to be added to OCC's Rules as currently in 
effect is marked by underlining, and material proposed to be deleted is 
marked with strikethrough text. All terms with initial capitalization 
that are not otherwise defined herein have the same meaning as set 
forth in the By-Laws and Rules.\3\
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    \3\ OCC's By-Laws and Rules can be found on OCC's public 
website: https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.

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[[Page 47017]]

II. Clearing Agency'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. OCC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of these 
statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, The Proposed Rule Change

(1) Purpose
    The Cboe Exchange (``Cboe'') received approval from the Commission 
to list One Multiplier Options as a variation of currently-traded index 
and index flex options.\4\ One Multiplier Options will be similar to 
currently traded index and index flex options except that the 
multiplier for such options will be one rather than 100. With the 
proliferation of options with multipliers less than 100, OCC is 
proposing to modify its Rules to explicitly allow for a corresponding 
reduction in the automatic exercise threshold used for expiration 
processing for these products.
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    \4\ See Securities Exchange Act Release No. 34-91528 (April 9, 
2021), 86 FR 19933 (April 15, 2021) (SR-CBOE-2020-117), and 
Securities Exchange Act Release No. 34-993122 [sic] (September 24, 
2021), 86 FR 54269 (September 30, 2021) (SR-CBOE-2021-041).
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    OCC Rule 1804 provides expiration procedures for cash-settled 
options. Rule 1804(b) establishes that expiring index options with 
standard expiration dates will be automatically exercised on an 
option's expiration date if it is in-the-money by $1.00 or more per 
contract unless a Clearing Member instructs that any such option 
contract should not be exercised. Options are exercised under this 
section as an operational convenience for Clearing Members to 
automatically exercise an option that is in-the-money by $1.00 or more, 
but Clearing Members have the ability to prevent the exercise of an in-
the-money option that would otherwise be deemed exercised by submitting 
contrary exercise instructions. OCC proposes to make Rule 1804(b) 
applicable to One Multiplier Options that are not flexibly structured 
index options. Rule 1804(c) addresses expiration processing for 
expiring OTC index option contracts, flexibly structured index option 
contracts, quarterly index option contracts, monthly index option 
contracts, weekly index option contracts, and short term index options, 
and these products will be subject to automatic exercise on an option's 
expiration date if the option is in-the-money by the threshold amount 
specified in the rule.\5\ By product design, the index product types 
covered by Rule 1804(c) are automatically exercised if expiring option 
contracts meets the exercise threshold established therein, and 
Clearing Members do not have the ability to submit instructions to 
prevent the exercise of an option that is in-the-money by the exercise 
threshold amount. OCC proposes to make Rule 1804(c) applicable to 
flexibly-structured One Multiplier Options.
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    \5\ Currently, Rule 1804(c) establishes a $0.01 per contract 
automatic exercise amount for OTC index options and a $1.00 per 
contract automatic exercise amount for all other index option types 
addressed in Rule 1804(c).
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    With the exception of OTC index options, Rule 1804(b) and (c) set 
$1.00 per contract as the threshold amount to determine if an expiring 
index option contract will be deemed exercised immediately prior to the 
expiration time of the index option, meaning such options will be 
exercised if the Exercise Settlement Amount of such option is $1.00 or 
more. As defined in Article XVII Section 1 of the OCC By-Laws, the 
Exercise Settlement Amount is the difference between the aggregate 
exercise price and the aggregate index value on the day of exercise. 
The $1.00 amount provided in Rule 1804(b) and (c) serves as a threshold 
amount to determine which option positions will be automatically 
exercised. In other words, index option positions, other than OTC index 
option positions which have an exercise threshold amount of $0.01 per 
contract, will be deemed automatically exercised if the option is in-
the-money by $1.00 or more per contract on an option's expiration date.
    One Multiplier Options are 1/100th the size of most index option or 
index flex option on the same underlying index. Whereas the standard 
option has a multiplier of 100, One Multiplier Options will have a 
multiplier of one, meaning that the exercise settlement amount for One 
Multiplier Options will be determined as the difference between the 
strike price (multiplied by one) and the index value (multiplied by 
one). Due to the decrease in product size as the result of the smaller 
multiplier, Cboe has requested a proportionate reduction to the 
exercise threshold amount as established in Rule 1804(b) and (c).\6\ 
Consequently, OCC proposes to amend Rule 1804(b) and (c) to establish 
an exercise threshold that is 1/100th the size of a standard option, or 
$0.01 per contract for the One Multiplier Options.
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    \6\ Pursuant to Rule 1804, OCC may change the exercise threshold 
amounts by providing Clearing Members with notice of the new 
threshold amount not less than 30 days prior to the effective date 
of the new threshold amount. OCC provided such notice to Clearing 
Members by posting OCC Information Memo #50046 on the OCC website on 
February 11, 2022, stating that index options with a multiplier less 
than 100 will have an exercise threshold of $0.01 per contract. Cboe 
launched standard One Multiplier Options on March 14, 2022 and OCC 
applied the $0.01 exercise threshold to the product at that time. 
Given the proliferation of options with multipliers less than 100, 
OCC is proposing this change to its Rules to explicitly state an 
exercise threshold that should apply to each product with this 
characteristic.
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    To achieve this outcome, OCC proposes to amend Rule 1804 to state 
that any index option with a multiplier of one will have an exercise 
threshold of $0.01 per contract. The threshold amount for all other 
options included in Rule 1804 will remain unchanged. To clearly 
differentiate between the exercise amounts for options with a 
multiplier of one from other options, OCC proposes to modify Rule 
1804(b) and (c) to include separate subsections in Rule 1804(b)(1) and 
(2) and Rule 1804(c)(1), (2) and (3).
    As noted previously, Rule 1804(b) and (c) allow OCC to establish a 
different threshold amount by providing 30 days' prior notice to Index 
Clearing Members. The proposed rule change will subsequently align the 
exercise threshold in the rule with the exercise threshold for One 
Multiplier Options established by previously providing the required 30 
days' advance notice in the form of an Information Memo.
(2) Statutory Basis
    OCC believes that the proposed rule change is consistent with 
Section 17A of the Act \7\ and the rules thereunder applicable to OCC. 
Section 17A(b)(3)(F) of the Act \8\ requires, among other things, that 
the rules of a clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions and, to 
the extent applicable, derivative agreements, contracts, and 
transactions. As described in greater detail above, the proposed rule 
aligns OCC's Rules with respect to expiration processing with the 
specifications of One Multiplier Options as established by Cboe. 
Accordingly, OCC believes the proposed rule change is designed to 
promote the prompt and accurate clearance and settlement of securities 
and derivatives transactions in accordance with Section 17A(b)(3)(F) of 
the Act.
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    \7\ 15 U.S.C. 78q-1.
    \8\ 15 U.S.C. 78q-1(b)(3)(F).

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[[Page 47018]]

(B) Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of the Act \9\ requires that the rules of a 
clearing agency not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act. OCC does not 
believe that the proposed rule change would impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act. The proposed rule change would apply the automatic exercise 
threshold of $0.01 uniformly to any index product with a multiplier 
less than 100 traded on any exchange. Furthermore, the automatic 
exercise threshold is used in expiration processing solely for the 
operational convenience of OCC Clearing Members and thus does not 
impact or impose any burden on competition.
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    \9\ 15 U.S.C. 78q-1(b)(3)(I).
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    Written comments on the proposed rule change were not and are not 
intended to be solicited with respect to the proposed rule change and 
none have been received.

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 such proposed rule change, or (B) 
institute proceedings to determine whether the proposed rule change 
should be disapproved. The proposal shall not take effect until all 
regulatory actions required with respect to the proposal are completed.

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 [email protected]. Please include 
File Number SR-OCC-2022-009 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-OCC-2022-009. 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 website (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 website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of OCC and on OCC's website at 
https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
    All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly.
    All submissions should refer to File Number SR-OCC-2022-009 and 
should be submitted on or before August 22, 2022.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-16352 Filed 7-29-22; 8:45 am]
BILLING CODE 8011-01-P


