Notice2022-19919
Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Partial Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Partial Amendment No. 1, by The Options Clearing Corporation Concerning One Multiplier Options
Primary source
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Published
September 15, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 178 (Thursday, September 15, 2022)</title>
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[Federal Register Volume 87, Number 178 (Thursday, September 15, 2022)]
[Notices]
[Pages 56719-56721]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-19919]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95717; File No. SR-OCC-2022-009]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Partial Amendment No. 1 and Order Granting
Accelerated Approval of a Proposed Rule Change, as Modified by Partial
Amendment No. 1, by The Options Clearing Corporation Concerning One
Multiplier Options
September 9, 2022.
I. Introduction
On July 18, 2022, the Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change SR-OCC-2022-009 pursuant to Section 19(b) of the
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
\2\ thereunder. The 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.\3\ The proposed rule change was published for public comment in
the Federal Register on August 1, 2022.\4\ On August 10, 2022, OCC
filed Partial Amendment No. 1 to the proposed rule change.\5\ The
Commission has received no comments regarding the proposed rule change.
The Commission is publishing this notice to solicit comments on Partial
Amendment No. 1 from interested persons, and is approving the proposed
rule change, as
[[Page 56720]]
modified by Partial Amendment No. 1, on an accelerated basis.\6\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Notice of Filing infra note 4, 87 FR at 47016.
\4\ Securities Exchange Act Release No. 95364 (July 26, 2022),
87 FR 47016 (Aug. 1, 2022) (File No. SR-OCC-2022-009) (``Notice of
Filing'').
\5\ In Partial Amendment No. 1, OCC updated the description of
Information Memo #50046 contained in Footnote 6 of SR-OCC-2022-009
to align with the proposed language for OCC Rule 1804 contained in
Exhibit 5 to SR-OCC-2022-009 that an index or flexibly-structured
index option with a multiplier of one will have an automatic
exercise threshold amount of $0.01 per contract. Partial Amendment
No. 1 included a similar update to Item 4 of SR-OCC-2022-009.
\6\ References to the proposed rule change from this point
forward refer to the proposed rule change as modified by Partial
Amendment No. 1.
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II. Background <SUP>7</SUP>
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\7\ Capitalized terms used but not defined herein have the
meanings specified in OCC's Rules and By-Laws, available at <a href="https://www.theocc.com/about/publications/bylaws.jsp">https://www.theocc.com/about/publications/bylaws.jsp</a>.
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In 2021, the Commission approved a rule change proposed by the Cboe
Exchange, Inc. (``Cboe'') providing for the listing of non-FLEX options
with a multiplier of one (``micro-options'').\8\ In September 2021, the
Commission approved a rule change proposed by Cboe to accommodate the
listing and trading of a new product, namely flexible exchange
(``FLEX'') index options with an index multiplier of one (``Micro FLEX
Index Options'').\9\ Micro FLEX Index Options differ from other FLEX
index options permitted under Cboe's rules, which have a multiplier of
100. Now, OCC proposes to amend its rules related to the automatic
exercise of index options and flexibly-structured index options with an
index multiplier of one (collectively ``One Multiplier Options'').
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\8\ Securities Exchange Release No. 91528 (Apr. 9, 2021), 86 FR
19933 (Apr. 15, 2021) (File No. SR-CBOE-2020-117).
\9\ Securities Exchange Act Release No. 93122 (Sept. 24, 2021),
87 FR 54269 (Sept. 30, 2021) (File No. SR-CBOE-2021-041).
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Currently, OCC's rules provide for the automatic exercise of index
options and flexibly-structured index options with a settlement value
of $1 or more without regard to the size of the index multiplier.\10\
OCC states that, 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.\11\
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\10\ See OCC Rule 1804.
\11\ Notice of Filing, 87 FR at 47017.
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A. Current Rule 1804 Generally Does Not Account for Index Multipliers
OCC proposes to amend Rule 1804, which provides expiration exercise
procedures for cash-settled options, to accommodate the automatic
exercise of One Multiplier Options by adding a new threshold for
automatic exercise. Currently, Rule 1804(b) allows for the automatic
exercise of expiring cash-settled index options with standard
expiration dates that are listed in a Clearing Member's Expiration
Exercise Report if the option's expiration date is in-the-money by
$1.00 or more per contract.\12\ Under the current Rule 1804(c), with
the exception of OTC index options, which have an automatic exercise
threshold of one cent, the same $1.00 automatic exercise threshold
exists for expiring flexibly-structured index options, quarterly index
options, monthly index options, weekly index options, and short-term
index options that are listed in a Clearing Member's Expiration
Exercise Report.\13\ Generally, Rule 1804, which is silent regarding
the size of index multipliers, does not set automatic exercise
thresholds below one dollar, except for OTC index options.
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\12\ OCC states that options are exercised under Rule 1804(b) as
an operational convenience for its Clearing Members, but that
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. Notice of Filing, 87 FR
at 47017.
\13\ By product design, the flexibly-structured options covered
by Rule 1804(c) are automatically exercised if they are in-the-money
by the exercise threshold amount, and Clearing Members are not
permitted to submit instructions to prevent such exercise.
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B. Amending Expiration Exercise Procedures for One Multiplier Options
OCC's proposed amendments to Rule 1804(b) and (c) would facilitate
automatic exercise procedures for One Multiplier Options. OCC proposes
to add a new threshold that would trigger automatic exercise of One
Multiplier Options. Specifically, proposed Rule 1804(b) would
explicitly state that for cash-settled options with a multiplier of
one, each option contract that has an exercise settlement amount of
$0.01 or more per contract would be automatically exercised. Proposed
Rule 1804(c) would maintain the current treatment of all other cash-
settled options with a multiplier of other than one, by explicitly
stating that each such option contract that has an exercise settlement
amount of $1.00 or more per contract would be automatically exercised.
OCC's proposed amendments would apply to cash-settled index options
with standard expiration dates under Rule 1804(b); and to flexibly-
structured index options, quarterly index options, monthly index
options, weekly index options, and short-term index options under Rule
1804(c). OCC's proposed changes would also ensure that the one-cent
automatic exercise threshold for OTC index options would remain the
same.
OCC believes the amendments to Rule 1804 are necessary to
accommodate the decrease in product size as the result of the smaller
multiplier.\14\ One Multiplier Options are 1/100th the size of most
index options or index flex options on the same underlying index. OCC
explained that, due to the difference in product size as the result of
the smaller multiplier, Cboe requested a proportionate reduction to the
exercise threshold amount as established in OCC's Rule 1804(b) and
(c).\15\
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\14\ Notice of Filing, 87 FR at 47017.
\15\ Id.
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III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Exchange 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 Exchange Act and the rules and regulations
thereunder applicable to such organization.\16\ After carefully
considering the proposed rule change, the Commission finds that the
proposal is consistent with the requirements of the Exchange Act and
the rules and regulations thereunder applicable to OCC. More
specifically, the Commission finds that the proposal is consistent with
Section 17A(b)(3)(F) of the Exchange Act,\17\ as described in detail
below.
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\16\ 15 U.S.C. 78s(b)(2)(C).
\17\ 15 U.S.C. 78q-1(b)(3)(F).
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Section 17A(b)(3)(F) of the Exchange Act requires, among other
things, that a clearing agency's rules are designed to promote the
prompt and accurate clearance and settlement of securities transactions
and, to the extent applicable, derivative agreements, contracts, and
transactions.\18\ Based on its review of the record, and for the
reasons described below, the Commission believes that the proposed rule
change is consistent with facilitating the prompt and accurate
clearance and settlement of securities transactions and derivative
agreements, contracts, and transactions.
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\18\ 15 U.S.C. 78q-1(b)(3)(F).
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The Commission believes that, in amending Rule 1804(b) and (c) to
introduce a $0.01 automatic exercise threshold for One Multiplier
Options, the proposed rule aligns OCC's expiration processing of One
Multiplier Options with already-existing procedures applicable to
options with multipliers other than one, including multipliers of 100.
The introduction of an automatic exercise threshold consistent with the
size of One Multiplier Options would extend the operational convenience
provided for other options to One Multiplier Options without removing a
Clearing Member's ability to prevent the exercise of an in-the-money
option that would otherwise be deemed exercised by submitting
[[Page 56721]]
contrary exercise instructions. The Commission believes that the
introduction of such processes would reduce the likelihood that a
Clearing Member would lose the value of a contract that is in-the-money
due to the failure to exercise such a contract. Further, the Commission
believes that the reduction of such likelihood of loss would, in turn,
facilitate the prompt and accurate clearance and settlement of
securities transactions.
The Commission believes, therefore, that the proposal is consistent
with the requirements of Section 17A(b)(3)(F) of the Exchange Act.\19\
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\19\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Solicitation of Comments on Partial Amendment No. 1 to the Proposed
Rule Change
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Partial Amendment No. 1, is consistent with the
Exchange Act. Comments may be submitted by any of the following
methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#6b191e070e46080406060e051f182b180e08450c041d"><span class="__cf_email__" data-cfemail="bdcfc8d1d890ded2d0d0d8d3c9cefdced8de93dad2cb">[email protected]</span></a>. Please include
File Number SR-OCC-2022-009 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to: 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 the filing also will be available for inspection
and copying at the principal office of the Exchange. 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 October 6, 2022.
V. Accelerated Approval of Proposed Rule Change, as Modified by Partial
Amendment No. 1
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Exchange Act,\20\ to approve the proposed rule change prior to the
30th day after the date of publication of notice of the filing of
Partial Amendment No. 1 in the Federal Register. As discussed above,
Partial Amendment No. 1 modified the original proposed rule change by
updating the description of Information Memo #50046 contained in
Footnote 6 of SR-OCC-2022-009 to align with the proposed language for
OCC Rule 1804. Partial Amendment No. 1 does not change the purpose of
or basis for the proposed changes.
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\20\ 15 U.S.C. 78s(b)(2).
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For similar reasons as discussed above, the Commission finds that
Partial Amendment No. 1 is consistent with the requirement that OCC's
rules be designed to promote the prompt and accurate clearance and
settlement of securities transactions under Section 17A(b)(3)(F) of the
Exchange Act.\21\ Accordingly, the Commission finds good cause,
pursuant to Section 19(b)(2) of the Exchange Act, to approve the
proposed rule change, as modified by Partial Amendment No. 1, on an
accelerated basis, pursuant to Section 19(b)(2) of the Exchange
Act.\22\
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\21\ 15 U.S.C. 78q- 1(b)(3)(F).
\22\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change, as modified by Partial Amendment No. 1, is
consistent with the requirements of the Exchange Act, and in
particular, the requirements of Section 17A of the Exchange Act \23\
and the rules and regulations thereunder.
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\23\ In approving this proposed rule change, the Commission has
considered the proposed rules' impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\24\ that the proposed rule change (SR-OCC-2022-009), as
modified by Partial Amendment No. 1, be, and hereby is, approved on an
accelerated basis.
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\24\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19919 Filed 9-14-22; 8:45 am]
BILLING CODE 8011-01-P
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