Self-Regulatory Organizations; The Options Clearing Corporation; Order Granting Approval of Accelerated Delivery of Supplement to the Options Disclosure Document Reflecting Changes to Disclosure Regarding Certain Binary Options and Delayed Start Option Series; and Amendment to the Options Disclosure Document Front Cover Page To Update the Markets in Which Options Are Traded, 25072-25073 [E8-9909]

Download as PDF 25072 Federal Register / Vol. 73, No. 88 / Tuesday, May 6, 2008 / Notices Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–57744; File No. SR–ODD– 2008–01] Self-Regulatory Organizations; The Options Clearing Corporation; Order Granting Approval of Accelerated All submissions should refer to File Delivery of Supplement to the Options Number SR–ISE–2008–35. This file Disclosure Document Reflecting number should be included on the subject line if e-mail is used. To help the Changes to Disclosure Regarding Certain Binary Options and Delayed Commission process and review your Start Option Series; and Amendment comments more efficiently, please use to the Options Disclosure Document only one method. The Commission will Front Cover Page To Update the post all comments on the Commission’s Markets in Which Options Are Traded Internet Web site (http://www.sec.gov/ April 30, 2008. rules/sro.shtml). Copies of the On December 21, 2007, The Options submission, all subsequent Clearing Corporation (‘‘OCC’’) submitted amendments, all written statements to the Securities and Exchange with respect to the proposed rule Commission (‘‘Commission’’), pursuant change that are filed with the to Rule 9b–1 under the Securities Commission, and all written Exchange Act of 1934 (‘‘Act’’),1 five communications relating to the preliminary copies of a supplement to proposed rule change between the Commission and any person, other than its options disclosure document (‘‘ODD’’) reflecting changes to those that may be withheld from the disclosure regarding certain binary public in accordance with the options and delayed start option series provisions of 5 U.S.C. 552, will be (‘‘DSOs’’).2 The ODD would also be available for inspection and copying in amended to update its front inside cover the Commission’s Public Reference page so that it contains a current list of Room, 100 F Street, NE., Washington, the U.S. exchanges that trade options DC 20549, on official business days issued by the OCC. On April 25, 2008, between the hours of 10 a.m. and 3 p.m. the OCC submitted to the Commission Copies of such filing also will be five definitive copies of the available for inspection and copying at supplement.3 the principal office of the Exchange. All The ODD currently contains general comments received will be posted disclosures on the characteristics and risks of trading standardized options. without change; the Commission does Recently, the American Stock Exchange, not edit personal identifying LLC amended its rules to permit the information from submissions. You listing and trading of binary options on should submit only information that you wish to make available publicly. All individual stocks and exchange-traded funds, also known as fixed return submissions should refer to File 4 Number SR–ISE–2008–35 and should be options. The Chicago Board Options Exchange, Incorporated amended its submitted on or before May 27, 2008. rules to permit the listing and trading of For the Commission, by the Division of certain DSOs.5 The NASDAQ Stock Trading and Markets, pursuant to delegated Market LLC (‘‘Nasdaq’’) began trading authority.16 options March 31, 2008.6 The proposed Florence E. Harmon, Deputy Secretary. [FR Doc. E8–9907 Filed 5–5–08; 8:45 am] rwilkins on PROD1PC63 with NOTICES BILLING CODE 8010–01–P 16 17 CFR 200.30–3(a)(12). VerDate Aug<31>2005 17:11 May 05, 2008 Jkt 214001 1 17 CFR 240.9b–1. letter from Jean M. Cawley, Senior Vice President and Deputy General Counsel, OCC, to Sharon Lawson, Senior Special Counsel, Division of Trading and Markets (‘‘Division’’), Commission, dated December 20, 2007. 3 See letter from Jean M. Cawley, Senior Vice President and Deputy General Counsel, OCC, to Sharon Lawson, Senior Special Counsel, Division, Commission, dated April 25, 2008. 4 See Securities Exchange Act Release No. 56251 (August 14, 2007), 72 FR 46523 (August 20, 2007) (SR–Amex–2004–27). 5 See Securities Exchange Act Release No. 56855 (November 28, 2007), 72 FR 68610 (December 5, 2007) (SR–CBOE–2006–90). CBOE Rule 24.9(d)(1) permits it to trade DSOs on any security index approved for options trading on the CBOE. 6 See Securities Exchange Act Release No. 57478 (March 12, 2008), 73 FR 14521 (March 18, 2008) 2 See PO 00000 Frm 00135 Fmt 4703 Sfmt 4703 supplement amends the ODD to accommodate these changes by providing disclosure regarding certain binary options and DSOs, and to update the front cover page of the ODD. Specifically, the proposed supplement to the ODD adds new disclosure regarding the characteristics of binary options on individual equity securities, which includes fund shares, as well as the special risks of these binary options other than credit default options.7 The proposed supplement to the ODD also adds new disclosure regarding the characteristics of DSOs and the risks associated with their purchase and sale. Finally, the ODD would be amended to add Nasdaq, which currently trades options issued by OCC, and its corporate address to the front cover page of the ODD. This change will ensure that the ODD accurately identifies the markets on which options currently trade. The proposed supplement is intended to be read in conjunction with the more general ODD, which, as described above, discusses the characteristics and risks of options generally.8 Rule 9b–1(b)(2)(i) under the Act 9 provides that an options market must file five copies of an amendment or supplement to the ODD with the Commission at least 30 days prior to the date definitive copies are furnished to customers, unless the Commission determines otherwise, having due regard to the adequacy of information disclosed and the public interest and protection of investors.10 In addition, five copies of the definitive ODD, as amended or supplemented, must be filed with the Commission not later than the date the amendment or supplement, or the amended options disclosure document, is furnished to customers. (order approving File Nos. SR–NASDAQ–2007–004 and SR–NASDAQ–2007–080). 7 As noted above, the proposed supplement provides disclosure that addresses binary options on individual stock options and exchange-traded fund shares. The Commission also notes that disclosure on credit default options, which are also binary options, is currently addressed in the ODD through the previously issued June 2007 supplement. See Securities Exchange Act Release No. 55921 (June 18, 2007), 72 FR 34495 (June 22, 2007) (SR–ODD–2007–03). 8 The Commission notes that the options markets must continue to ensure that the ODD is in compliance with the requirements of Rule 9b– 1(b)(2)(i) under the Act, 17 CFR 240.9b–1(b)(2)(i), including when future changes regarding binary options and/or DSOs are made. Any future changes to the rules of the options markets concerning binary options and/or DSOs would need to be submitted to the Commission under Section 19(b) of the Act. 15 U.S.C. 78s(b). 9 17 CFR 240.9b–1(b)(2)(i). 10 This provision permits the Commission to shorten or lengthen the period of time which must elapse before definitive copies may be furnished to customers. E:\FR\FM\06MYN1.SGM 06MYN1 Federal Register / Vol. 73, No. 88 / Tuesday, May 6, 2008 / Notices The Commission has reviewed the proposed supplement and finds, having due regard to the adequacy of information disclosed and the public interest and protection of investors, that the proposed supplement may be furnished to customers as of the date of this order. It is therefore ordered, pursuant to Rule 9b–1 under the Act,11 that definitive copies of the proposed supplement to the ODD (SR–ODD– 2008–01), reflecting changes to disclosure regarding binary options, DSOs and the front cover page, may be furnished to customers as of the date of this order. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Florence E. Harmon, Deputy Secretary. [FR Doc. E8–9909 Filed 5–5–08; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–57737; File No. SR–Phlx– 2008–28] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Position and Exercise Limits for Options on the DIAMONDS Trust April 29, 2008. rwilkins on PROD1PC63 with NOTICES 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 April 24, 2008, the Philadelphia Stock Exchange, Inc. (‘‘Exchange’’ or ‘‘Phlx’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been substantially prepared by the Exchange. The Exchange has designated this proposal as non-controversial under Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b–4(f)(6) thereunder,4 which renders the proposed rule change effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 11 17 CFR 240.9b–1. CFR 200.30–3(a)(39). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b–4(f)(6). 12 17 VerDate Aug<31>2005 17:11 May 05, 2008 Jkt 214001 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 1001 (Position Limits) to establish increased position limits for options on the Diamonds Trust, Series 1 (‘‘DIA’’ or ‘‘DIA Options’’). The text of the proposed rule change is available on the Exchange’s Web site (http://www.Phlx.com), at the offices of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange 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 Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange is proposing to amend Phlx Rule 1001 pertaining to position limits for options on DIA. In particular, the Exchange proposes to increase position limits for DIA Options to 300,000 contracts on the same side of the market, which should encourage a more liquid and competitive market environment to the benefit of customers interested in the product. The Commission previously approved a similar proposal of the Chicago Board Options Exchange (‘‘CBOE’’).5 The Exchange also recently made permanent increased position limits for certain equity options on Phlx, which 5 See Securities Exchange Act Release No. 47346 (February 11, 2003), 68 FR 8316 (February 20, 2003) (SR–CBOE–2002–26) (approving an increase in the position limits and exercise limits to 300,000 for DIA options). The Commission stated that ‘‘given the surveillance capabilities of the [CBOE] and the depth and liquidity in both the DIA options and the underlying cash market in DIAs, the Commission believes it is permissible to significantly raise position and exercise limits for DIA options without risk of disruption to the options or underlying cash markets.’’ The Commission also stated that ‘‘financial and reporting requirements . . . should allow [CBOE] to detect and deter trading abuses arising from the increased position and exercise limits, and will also allow [CBOE] to monitor large positions in order to identify instances of potential risk and to assess additional margin and/or capital charges, if deemed necessary.’’ PO 00000 Frm 00136 Fmt 4703 Sfmt 4703 25073 were in effect on a pilot basis.6 The Exchange stipulated, as part of its proposal for such permanent approval, that ‘‘its surveillance procedures . . . and reporting procedures, in conjunction with the financial requirements and risk management review procedures already in place at the clearing firms and the Options Clearing Corporation, will serve to adequately address any concerns the Commission may have respecting account(s) engaging in manipulative schemes or assuming too high a level of risk exposure.’’ 7 These representations also apply to the current proposal to increase the position limits for DIA Options. The Exchange now seeks to increase the position and exercise limits for options on DIA on Phlx to the level that such limits are in effect on other options exchanges such as BOX and CBOE (300,000 contracts on the same side of the market). The Exchange believes that the justifications behind the Commission’s approval of CBOE’s proposal to increase position limits on DIA Options should support the same increased position limits on such options on Phlx. Specifically, the Exchange believes that the ‘‘structure of the DIA options and the considerable liquidity of both the underlying cash and options market for DIA options lessen the opportunity for manipulation of this product and disruption in the underlying market that a lower position limit may protect against.’’ 8 The Exchange believes that the reporting requirements imposed under the Phlx rules will help protect against potential manipulation.9 Additionally, the Exchange believes that an increase in position limits on DIA Options on Phlx is also required for competitive purposes as well as for purposes of consistency and uniformity among the competing options exchanges. This, taken in conjunction with the permanent establishment of other increased position limits for certain equity options on Phlx,10 supports the Exchange’s proposal related to increased position limits applicable to DIA Options. 6 See Securities Exchange Act Release No. 57418 (March 3, 2008), 73 FR 12493 (March 7, 2008) (SR– Phlx–2008–14). 7 Id. 8 See Securities Exchange Act Release No. 47346, supra note 5. 9 See Phlx Rule 1003. 10 See Securities Exchange Act Release No. 57418, supra note 6. See also Securities Exchange Act Release No. 57597 (April 1, 2008), 73 FR 18846 (April 7, 2008) (SR–Phlx–2008–24) (IWM position limits). E:\FR\FM\06MYN1.SGM 06MYN1

Agencies

[Federal Register Volume 73, Number 88 (Tuesday, May 6, 2008)]
[Notices]
[Pages 25072-25073]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-9909]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57744; File No. SR-ODD-2008-01]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Granting Approval of Accelerated Delivery of Supplement to the 
Options Disclosure Document Reflecting Changes to Disclosure Regarding 
Certain Binary Options and Delayed Start Option Series; and Amendment 
to the Options Disclosure Document Front Cover Page To Update the 
Markets in Which Options Are Traded

April 30, 2008.
    On December 21, 2007, The Options Clearing Corporation (``OCC'') 
submitted to the Securities and Exchange Commission (``Commission''), 
pursuant to Rule 9b-1 under the Securities Exchange Act of 1934 
(``Act''),\1\ five preliminary copies of a supplement to its options 
disclosure document (``ODD'') reflecting changes to disclosure 
regarding certain binary options and delayed start option series 
(``DSOs'').\2\ The ODD would also be amended to update its front inside 
cover page so that it contains a current list of the U.S. exchanges 
that trade options issued by the OCC. On April 25, 2008, the OCC 
submitted to the Commission five definitive copies of the 
supplement.\3\
---------------------------------------------------------------------------

    \1\ 17 CFR 240.9b-1.
    \2\ See letter from Jean M. Cawley, Senior Vice President and 
Deputy General Counsel, OCC, to Sharon Lawson, Senior Special 
Counsel, Division of Trading and Markets (``Division''), Commission, 
dated December 20, 2007.
    \3\ See letter from Jean M. Cawley, Senior Vice President and 
Deputy General Counsel, OCC, to Sharon Lawson, Senior Special 
Counsel, Division, Commission, dated April 25, 2008.
---------------------------------------------------------------------------

    The ODD currently contains general disclosures on the 
characteristics and risks of trading standardized options. Recently, 
the American Stock Exchange, LLC amended its rules to permit the 
listing and trading of binary options on individual stocks and 
exchange-traded funds, also known as fixed return options.\4\ The 
Chicago Board Options Exchange, Incorporated amended its rules to 
permit the listing and trading of certain DSOs.\5\ The NASDAQ Stock 
Market LLC (``Nasdaq'') began trading options March 31, 2008.\6\ The 
proposed supplement amends the ODD to accommodate these changes by 
providing disclosure regarding certain binary options and DSOs, and to 
update the front cover page of the ODD.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 56251 (August 14, 
2007), 72 FR 46523 (August 20, 2007) (SR-Amex-2004-27).
    \5\ See Securities Exchange Act Release No. 56855 (November 28, 
2007), 72 FR 68610 (December 5, 2007) (SR-CBOE-2006-90). CBOE Rule 
24.9(d)(1) permits it to trade DSOs on any security index approved 
for options trading on the CBOE.
    \6\ See Securities Exchange Act Release No. 57478 (March 12, 
2008), 73 FR 14521 (March 18, 2008) (order approving File Nos. SR-
NASDAQ-2007-004 and SR-NASDAQ-2007-080).
---------------------------------------------------------------------------

    Specifically, the proposed supplement to the ODD adds new 
disclosure regarding the characteristics of binary options on 
individual equity securities, which includes fund shares, as well as 
the special risks of these binary options other than credit default 
options.\7\ The proposed supplement to the ODD also adds new disclosure 
regarding the characteristics of DSOs and the risks associated with 
their purchase and sale. Finally, the ODD would be amended to add 
Nasdaq, which currently trades options issued by OCC, and its corporate 
address to the front cover page of the ODD. This change will ensure 
that the ODD accurately identifies the markets on which options 
currently trade. The proposed supplement is intended to be read in 
conjunction with the more general ODD, which, as described above, 
discusses the characteristics and risks of options generally.\8\
---------------------------------------------------------------------------

    \7\ As noted above, the proposed supplement provides disclosure 
that addresses binary options on individual stock options and 
exchange-traded fund shares. The Commission also notes that 
disclosure on credit default options, which are also binary options, 
is currently addressed in the ODD through the previously issued June 
2007 supplement. See Securities Exchange Act Release No. 55921 (June 
18, 2007), 72 FR 34495 (June 22, 2007) (SR-ODD-2007-03).
    \8\ The Commission notes that the options markets must continue 
to ensure that the ODD is in compliance with the requirements of 
Rule 9b-1(b)(2)(i) under the Act, 17 CFR 240.9b-1(b)(2)(i), 
including when future changes regarding binary options and/or DSOs 
are made. Any future changes to the rules of the options markets 
concerning binary options and/or DSOs would need to be submitted to 
the Commission under Section 19(b) of the Act. 15 U.S.C. 78s(b).
---------------------------------------------------------------------------

    Rule 9b-1(b)(2)(i) under the Act \9\ provides that an options 
market must file five copies of an amendment or supplement to the ODD 
with the Commission at least 30 days prior to the date definitive 
copies are furnished to customers, unless the Commission determines 
otherwise, having due regard to the adequacy of information disclosed 
and the public interest and protection of investors.\10\ In addition, 
five copies of the definitive ODD, as amended or supplemented, must be 
filed with the Commission not later than the date the amendment or 
supplement, or the amended options disclosure document, is furnished to 
customers.

[[Page 25073]]

The Commission has reviewed the proposed supplement and finds, having 
due regard to the adequacy of information disclosed and the public 
interest and protection of investors, that the proposed supplement may 
be furnished to customers as of the date of this order.
---------------------------------------------------------------------------

    \9\ 17 CFR 240.9b-1(b)(2)(i).
    \10\ This provision permits the Commission to shorten or 
lengthen the period of time which must elapse before definitive 
copies may be furnished to customers.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Rule 9b-1 under the Act,\11\ 
that definitive copies of the proposed supplement to the ODD (SR-ODD-
2008-01), reflecting changes to disclosure regarding binary options, 
DSOs and the front cover page, may be furnished to customers as of the 
date of this order.
---------------------------------------------------------------------------

    \11\ 17 CFR 240.9b-1.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(39).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-9909 Filed 5-5-08; 8:45 am]
BILLING CODE 8010-01-P