Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Interpret By-Laws as to Dividend Adjustments, 56631-56633 [2010-23106]

Download as PDF Federal Register / Vol. 75, No. 179 / Thursday, September 16, 2010 / Notices C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange neither solicited nor received comments on the proposal. 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. 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: mstockstill on DSKH9S0YB1PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–CBOE–2010–080 on the subject line. provisions of 5 U.S.C. 552, will be available for Web site 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 a.m. and 3 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; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–CBOE– 2010–080 and should be submitted on or before October 7, 2010. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.8 Elizabeth M. Murphy, Secretary. [FR Doc. 2010–23107 Filed 9–15–10; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–62879; File No. SR–OCC– 2010–15] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Interpret By-Laws as to Dividend Adjustments September 9, 2010. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 Paper Comments (‘‘Act’’),1 notice is hereby given that on • Send paper comments in triplicate August 31, 2010, The Options Clearing to Elizabeth M. Murphy, Secretary, Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission, Securities and Exchange Commission 100 F Street, NE., Washington, DC (‘‘Commission’’) the proposed rule 20549–1090. change described in Items I and II All submissions should refer to File below, which items have been prepared Number SR–CBOE–2010–080. This file primarily by OCC. The Commission is number should be included on the publishing this notice to solicit subject line if e-mail is used. To help the comments on the proposed rule change Commission process and review your from interested parties. comments more efficiently, please use only one method. The Commission will I. Self-Regulatory Organization’s post all comments on the Commission’s Statement of the Terms of Substance of the Proposed Rule Change Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the The purpose of the proposed rule submission, all subsequent change is to amend Interpretation and amendments, all written statements Policy .01 under Article VI, Section 11A with respect to the proposed rule of OCC’s By-Laws to allow the change that are filed with the Securities Committee under certain Commission, and all written conditions to cease adjusting for communications relating to the recurring cash dividends previously proposed rule change between the deemed to be non-ordinary dividends. Commission and any person, other than 8 17 CFR 200.30–3(a)(12). those that may be withheld from the 1 15 U.S.C. 78s(b)(1). public in accordance with the VerDate Mar<15>2010 19:19 Sep 15, 2010 Jkt 220001 PO 00000 Frm 00131 Fmt 4703 Sfmt 4703 56631 II. Self-Regulatory Organization’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.2 (A) Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change The principal purpose of this rule change is to amend Interpretation and Policy .01 under Article VI, Section 11A of OCC’s By-Laws. Under that Interpretation, cash dividends or distributions of an issuer which are deemed by the Securities Committee 3 to be non-ordinary will usually result in an adjustment to the terms of listed stock options.4 OCC is proposing to amend Interpretation .01 to allow the Securities Committee under certain conditions to cease adjusting for recurring cash dividends previously deemed to be nonordinary dividends. Interpretation .01 under Section 3 of Article XII of OCC’s By-Laws, which provides that nonordinary (as determined by OCC) cash dividends or distributions of an issuer will usually occasion an adjustment to the terms of listed stock futures, would similarly be amended. The discussion below addresses the proposed amendments to Interpretation .01 of Section 11A of Article VI, but the purpose behind those changes is equally applicable to the changes proposed to Interpretation .01 of Section 3 of Article XII.5 2 The Commission has modified the text of the summaries prepared by OCC. 3 The Securities Committee is comprised of one designated representative of each participant exchange and the Chairman of OCC or his designee. The OCC representative is not a voting member of the Committee except in cases of tie votes. Article VI, Section 11(c) of OCC’s By-Laws. 4 Generally speaking, a cash dividend or distribution would be deemed to be ‘‘ordinary’’ if it is declared pursuant to a policy or practice of paying such dividends on a quarterly or other regular basis. Dividends paid outside such practice would be considered ‘‘non-ordinary.’’ Non-ordinary cash dividends usually would trigger an adjustment to options contracts subject to the minimum size requirement. Article VI, Section 11A, Interpretation and Policy .01 of OCC’s By-Laws. See Securities Exchange Act Release No. 55258 (February 8, 2007). 5 Stock futures likewise are adjusted in response to non-ordinary cash dividends or distributions. See E:\FR\FM\16SEN1.SGM Continued 16SEN1 56632 Federal Register / Vol. 75, No. 179 / Thursday, September 16, 2010 / Notices mstockstill on DSKH9S0YB1PROD with NOTICES The amendment was prompted by a series of cash dividends declared by Diamond Offshore Corporation (‘‘DO’’). DO characterized these dividends as ‘‘special’’ and differentiated them from the company’s ‘‘regular’’ cash dividends. These ‘‘special’’ and ‘‘regular’’ DO dividends have customarily gone ‘‘exdistribution’’ on the same date. Initially, the Securities Committee deemed these ‘‘special’’ dividends to be non-ordinary under Interpretation .01 and appropriately adjusted listed options in response.6 Since Interpretation .01 was revised effective February 1, 2009, DO options have been adjusted for five successive quarterly ‘‘special’’ dividends. Notwithstanding that these dividends were characterized by DO as ‘‘special’’ dividends and clearly differentiated from the company’s ‘‘regular’’ dividends, OCC and the options exchanges have received strong feedback from investors that such dividends have been declared so consistently and thereby have achieved such predictability that they should no longer be considered ‘‘non-ordinary’’ for adjustment purposes. Furthermore, the options exchanges and many OCC clearing member firms believe that the proliferation of option strikes caused by successive quarterly adjustments will have an adverse affect on liquidity and occasion other adverse operational effects.7 The Securities Committee also solicited the opinion of participant members of the OCC Clearing Member Roundtable regarding this issue.8 The Roundtable strongly supported authorizing the Securities Committee to cease adjusting for ‘‘special’’ cash dividends whose consistency and predictability of payment have been demonstrated. The proposed amended Interpretation .01 enumerates factors that the Securities Committee may take into account in determining whether a Article XII, Section 3, Interpretation and Policy .01, of OCC’s By-Laws. See Securities Exchange Act Release No. 46595 (October 3, 2002). 6 In like manner, options on Oil Service HLDRS Trust (OIH) which contain DO as a component security and make pro-rata distributions in response to DO dividends, were also adjusted. 7 The standard method of adjustment is to reduce strike prices by the amount of the dividend. Options with ‘‘standard’’ strike prices are then reintroduced by the listing option exchange(s). With each successive adjustment, this process is repeated, proliferating strike prices. Liquidity naturally gravitates to the options with standard strike prices at the expense of liquidity for options with non-standard strikes. 8 The OCC Roundtable is an OCC sponsored advisory group comprised of representatives from OCC’s participant exchanges, OCC, a cross-section of OCC clearing members, and industry service bureaus. The Roundtable considers operational improvements that may be made to increase efficiencies and lower costs in the options industry. VerDate Mar<15>2010 19:19 Sep 15, 2010 Jkt 220001 dividend is ‘‘ordinary.’’ Importantly, it allows the Securities Committee to reclassify as ‘‘ordinary’’ dividends previously deemed ‘‘non-ordinary.’’ The conditions under which this may occur are as follows: (1) The issuer discloses that it intends to pay such dividends or distributions on a quarterly or other regular basis, (2) the issuer has paid such dividends or distributions for four or more consecutive months or quarters or two or more years after the initial payment, whether or not the amounts paid were the same from period to period, or (3) the Securities Committee determines for other reasons that the issuer has a policy or practice of paying such dividends or distributions on a quarterly or other regular basis.9 It is the intent of the Securities Committee that any such recharacterization of a dividend as ‘‘ordinary’’ would be announced in advance to investors. For example, after adjusting for a given dividend, OCC would announce that subsequent dividends of the same nature would no longer occasion adjustment.10 A discussion of the new adjustment approach also will be included in published interpretative guidance.11 Clean and marked copies of the interpretative guidance are attached as Exhibit 5 to the OCC filing of the proposed rule change. The marked copy shows changes from the current language. In fairness to existing holders of open interest (especially DO and OIH) who may have assumed option positions with the belief that OCC would continue to adjust for recurring ‘‘special’’ dividends, OCC has determined that the portion of Interpretation .01, which allows recharacterization of dividends as ordinary will be effective only for dividends and distributions announced after February 1, 2012. This date is chosen because it occurs after the latest expiration of all existing open interest in DO and OIH options (inclusive of LEAPS options). All existing open interest and any positions created with new expiration dates occurring before February 1, 2012, will thus be 9 These same factors would be used by OCC to reclassify a recurrent non-ordinary dividend as ‘‘ordinary’’ with respect to its determination to adjust stock futures. 10 OCC will follow a similar practice with respect to stock futures. 11 Securities Exchange Act Release Nos. 58059 (June 30, 2008) and 59442 (February 24, 2009). Consistent with past practice, the interpretative guidance will be available on OCC’s public Web site but not incorporated into OCC’s By-Laws and Rules. Other technical or clarifying changes have also been made to update the guidance. For example, the use of the term ‘‘special dividend’’ has been removed in favor of the term ‘‘non-ordinary.’’ PO 00000 Frm 00132 Fmt 4703 Sfmt 4703 ‘‘grandfathered’’ under the current adjustment approach for these dividends.12 OCC believes that the proposed rule change is consistent with the requirements of Section 17A of the Act 13 and the rules and regulations thereunder applicable to OCC because it provides for the prompt and accurate clearance and settlement of securities transactions, ensures the protection of investors and reduces unnecessary costs and burdens on them and persons facilitating transactions on their behalf. It does so by responding to strong investor feedback regarding the need to cease treating certain cash dividends or distributions as ‘‘non-ordinary’’ for adjustment purposes based on the consistent declaration of such dividends, by publishing information regarding those factors which would lead OCC to make such a determination, and by reducing the likelihood of series proliferation in the case of options contracts. The proposed rule change is not inconsistent with the existing rules of OCC, including any other rules proposed to be amended. (B) Self-Regulatory Organization’s Statement on Burden on Competition OCC does not believe that the proposed rule change will have any impact on or impose any burden on competition. (C) Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments relating to the proposed rule change have been solicited or received. OCC will notify the Commission of any written comments received by OCC. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective upon filing pursuant to Section 19(b)(3)(A)(i) of the Act 14 and Rule 19b– 4(f)(1) 15 thereunder because the proposed rule constitutes an interpretation with respect to the meaning, administration, or enforcement of an existing rule. At any time within sixty days of the filing of such rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is 12 For consistency, the changes to the Interpretation relating to stock futures also will not be effective until February 1, 2012. 13 15 U.S.C. 78q–1. 14 15 U.S.C. 78s(b)(3)(A)(i). 15 17 CFR 240.19b–4(f)(1). E:\FR\FM\16SEN1.SGM 16SEN1 Federal Register / Vol. 75, No. 179 / Thursday, September 16, 2010 / Notices necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 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 (https://www.sec.gov/ rules/sro.shtml) or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–OCC–2010–15 on the subject line. Paper Comments mstockstill on DSKH9S0YB1PROD with NOTICES • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. 2010–15 and should be submitted on or before October 7, 2010. For the Commission by the Division of Trading and Markets, pursuant to delegated authority.16 Elizabeth M. Murphy, Secretary. [FR Doc. 2010–23106 Filed 9–15–10; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–62877; File No. SR–PHLX– 2010–79] Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Order Approving a Proposed Rule Change, as Modified by Amendment No. 1, Relating to the Establishment of NASDAQ OMX PSX as a Platform for Trading NMS Stocks September 9, 2010. I. Introduction On June 8, 2010, NASDAQ OMX PHLX, Inc. (‘‘PHLX’’ or ‘‘Exchange’’), filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant All submissions should refer to File to Section 19(b)(1) of the Securities Number SR–OCC–2010–15. This file Exchange Act of 1934 (‘‘Act’’),1 and Rule number should be included on the 2 subject line if e-mail is used. To help the 19b–4 thereunder, a proposed rule change to establish NASDAQ OMX PSX Commission process and review your as a new electronic platform for trading comments more efficiently, please use only one method. The Commission will NMS stocks. The proposed rule change post all comments on the Commission’s was published for comment in the3 Federal Register on July 26, 2010. On Internet Web site (https://www.sec.gov/ August 5, 2010, the Exchange filed rules/sro.shtml). Copies of the Amendment No. 1 to the proposed rule submission, all subsequent change.4 The Commission received no amendments, all written statements comment letters regarding the proposed with respect to the proposed rule rule change. This order approves the changes that are filed with the proposed rule change, as modified by Commission, and all written Amendment No. 1. communications relating to the proposed rule change between the II. Background Commission and any person, other than The Exchange proposes to establish a those that may be withheld from the new cash equities trading platform, to public in accordance with the be called NASDAQ OMX PSX (‘‘PSX or provisions of 5 U.S.C. 552, will be ‘‘System’’).5 The System will be an openavailable for inspection and copying in the Commission’s Public Reference 16 17 CFR 200.30–3(a)(12). Section, 100 F Street, NE., Washington, 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. DC 20549, on official business days 3 See Securities Exchange Act Release No. 62519 between the hours of 10 a.m. and 3 p.m. (July 16, 2010), 75 FR 43597 (‘‘Notice’’). Copies of such filings also will be 4 Amendment No. 1 clarifies that the proposal to available for inspection and copying at accept orders routed by Nasdaq Execution Services, the principal office of OCC and on LLC to the Exchange on a one-year pilot basis is OCC’s Web site at https:// made by the Exchange, rather than by The NASDAQ Stock Market, LLC (‘‘Nasdaq’’). This is a www.theocc.com. All comments received will be posted without change; technical amendment and is not subject to notice and comment. the Commission does not edit personal 5 The Exchange previously operated an electronic identifying information from trading facility, XLE, for the trading of cash equity securities. XLE ceased its operations in October submissions. You should submit only 2008 following the acquisition of the Exchange by information that you wish to make The NASDAQ OMX Group, Inc. (‘‘NASDAQ OMX’’), available publicly. All submissions the parent corporation of Nasdaq. See Securities should refer to File Number SR–OCC– Exchange Act Release No. 58613 (September 22, VerDate Mar<15>2010 19:19 Sep 15, 2010 Jkt 220001 PO 00000 Frm 00133 Fmt 4703 Sfmt 4703 56633 access fully electronic integrated order display and execution system for NMS stocks. PSX will not list securities, but rather will trade NMS stocks listed on other exchanges on an unlisted trading privileges basis. The System will allow PSX participants to enter orders at multiple price levels. Orders will be integrated and displayed via data feeds to participants and other data subscribers. PSX participants will be able to access the aggregated trading interest of all other PSX participants in accordance with non-discretionary order execution algorithms. The System will not route orders to other market centers. In contrast with most markets, which employ a price/time execution priority system (where the displayed order on the book that is first in time at the best price is satisfied fully, then the next in time at that price, and so on), PSX will use a price/pro rata execution priority system,with displayed orders receiving priority over non-displayed orders. Specifically, multiple orders displayed on the PSX book at the best price would be allocated shares of an incoming order pro rata based on the proportion of the size of the displayed order to the total size of all displayed orders at that price. Once all displayed size at any price level is exhausted, the same pro rata logic would apply to non-displayed orders at that price level. The Exchange proposes to adopt new rules governing trading on the System. The proposed new rules are based to a substantial extent on the rules of Nasdaq 6 and NASDAQ OMX BX, Inc. (‘‘BX’’). In addition, the Exchanges proposes to apply the PHLX rules listed in proposed PHLX Rule 3202, including certain rules that governed XLE when it was operational, to PHLX members with respect to their activities on the System.7 The Exchange also proposes to amend PHLX Rule 803 (Criteria For Listing—Tier I) to support unlisted trading privileges for NMS stocks on PSX and PHLX Rule 985 (Affiliate and Ownership Restrictions) to address potential competitive advantage and conflict of interest concerns regarding 2008), 73 FR 57181 (October 1, 2008) (SR–Phlx2008–65). Since ceasing operations of XLE, the Exchange has solely operated an options market. 6 Unlike Nasdaq, PSX will not route orders to other exchanges and will not have market makers. As a result, the PSX rules do not contain provisions related to outbound routing or market makers that are found in Nasdaq’s rules. 7 The Exchange also proposes to delete two existing PHLX Rules relating to XLE, PHLX Rule 160 (NMS Stock Execution on the Exchange) and PHLX Rule 188 (Trade Execution and Reporting), and to move their content to the proposed rules governing PSX. See proposed PHLX Rules 3301(a), 3305(a)(1) and 3309). E:\FR\FM\16SEN1.SGM 16SEN1

Agencies

[Federal Register Volume 75, Number 179 (Thursday, September 16, 2010)]
[Notices]
[Pages 56631-56633]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-23106]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62879; File No. SR-OCC-2010-15]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Interpret By-Laws as to Dividend Adjustments

September 9, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 31, 2010, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change described 
in Items I and II 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 parties.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of the proposed rule change is to amend Interpretation 
and Policy .01 under Article VI, Section 11A of OCC's By-Laws to allow 
the Securities Committee under certain conditions to cease adjusting 
for recurring cash dividends previously deemed to be non-ordinary 
dividends.

II. Self-Regulatory Organization'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.\2\
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    \2\ The Commission has modified the text of the summaries 
prepared by OCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The principal purpose of this rule change is to amend 
Interpretation and Policy .01 under Article VI, Section 11A of OCC's 
By-Laws. Under that Interpretation, cash dividends or distributions of 
an issuer which are deemed by the Securities Committee \3\ to be non-
ordinary will usually result in an adjustment to the terms of listed 
stock options.\4\
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    \3\ The Securities Committee is comprised of one designated 
representative of each participant exchange and the Chairman of OCC 
or his designee. The OCC representative is not a voting member of 
the Committee except in cases of tie votes. Article VI, Section 
11(c) of OCC's By-Laws.
    \4\ Generally speaking, a cash dividend or distribution would be 
deemed to be ``ordinary'' if it is declared pursuant to a policy or 
practice of paying such dividends on a quarterly or other regular 
basis. Dividends paid outside such practice would be considered 
``non-ordinary.'' Non-ordinary cash dividends usually would trigger 
an adjustment to options contracts subject to the minimum size 
requirement. Article VI, Section 11A, Interpretation and Policy .01 
of OCC's By-Laws. See Securities Exchange Act Release No. 55258 
(February 8, 2007).
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    OCC is proposing to amend Interpretation .01 to allow the 
Securities Committee under certain conditions to cease adjusting for 
recurring cash dividends previously deemed to be non-ordinary 
dividends. Interpretation .01 under Section 3 of Article XII of OCC's 
By-Laws, which provides that non-ordinary (as determined by OCC) cash 
dividends or distributions of an issuer will usually occasion an 
adjustment to the terms of listed stock futures, would similarly be 
amended. The discussion below addresses the proposed amendments to 
Interpretation .01 of Section 11A of Article VI, but the purpose behind 
those changes is equally applicable to the changes proposed to 
Interpretation .01 of Section 3 of Article XII.\5\
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    \5\ Stock futures likewise are adjusted in response to non-
ordinary cash dividends or distributions. See Article XII, Section 
3, Interpretation and Policy .01, of OCC's By-Laws. See Securities 
Exchange Act Release No. 46595 (October 3, 2002).

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[[Page 56632]]

    The amendment was prompted by a series of cash dividends declared 
by Diamond Offshore Corporation (``DO''). DO characterized these 
dividends as ``special'' and differentiated them from the company's 
``regular'' cash dividends. These ``special'' and ``regular'' DO 
dividends have customarily gone ``ex-distribution'' on the same date. 
Initially, the Securities Committee deemed these ``special'' dividends 
to be non-ordinary under Interpretation .01 and appropriately adjusted 
listed options in response.\6\ Since Interpretation .01 was revised 
effective February 1, 2009, DO options have been adjusted for five 
successive quarterly ``special'' dividends. Notwithstanding that these 
dividends were characterized by DO as ``special'' dividends and clearly 
differentiated from the company's ``regular'' dividends, OCC and the 
options exchanges have received strong feedback from investors that 
such dividends have been declared so consistently and thereby have 
achieved such predictability that they should no longer be considered 
``non-ordinary'' for adjustment purposes. Furthermore, the options 
exchanges and many OCC clearing member firms believe that the 
proliferation of option strikes caused by successive quarterly 
adjustments will have an adverse affect on liquidity and occasion other 
adverse operational effects.\7\ The Securities Committee also solicited 
the opinion of participant members of the OCC Clearing Member 
Roundtable regarding this issue.\8\ The Roundtable strongly supported 
authorizing the Securities Committee to cease adjusting for ``special'' 
cash dividends whose consistency and predictability of payment have 
been demonstrated.
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    \6\ In like manner, options on Oil Service HLDRS Trust (OIH) 
which contain DO as a component security and make pro-rata 
distributions in response to DO dividends, were also adjusted.
    \7\ The standard method of adjustment is to reduce strike prices 
by the amount of the dividend. Options with ``standard'' strike 
prices are then reintroduced by the listing option exchange(s). With 
each successive adjustment, this process is repeated, proliferating 
strike prices. Liquidity naturally gravitates to the options with 
standard strike prices at the expense of liquidity for options with 
non-standard strikes.
    \8\ The OCC Roundtable is an OCC sponsored advisory group 
comprised of representatives from OCC's participant exchanges, OCC, 
a cross-section of OCC clearing members, and industry service 
bureaus. The Roundtable considers operational improvements that may 
be made to increase efficiencies and lower costs in the options 
industry.
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    The proposed amended Interpretation .01 enumerates factors that the 
Securities Committee may take into account in determining whether a 
dividend is ``ordinary.'' Importantly, it allows the Securities 
Committee to reclassify as ``ordinary'' dividends previously deemed 
``non-ordinary.'' The conditions under which this may occur are as 
follows: (1) The issuer discloses that it intends to pay such dividends 
or distributions on a quarterly or other regular basis, (2) the issuer 
has paid such dividends or distributions for four or more consecutive 
months or quarters or two or more years after the initial payment, 
whether or not the amounts paid were the same from period to period, or 
(3) the Securities Committee determines for other reasons that the 
issuer has a policy or practice of paying such dividends or 
distributions on a quarterly or other regular basis.\9\
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    \9\ These same factors would be used by OCC to reclassify a 
recurrent non-ordinary dividend as ``ordinary'' with respect to its 
determination to adjust stock futures.
---------------------------------------------------------------------------

    It is the intent of the Securities Committee that any such 
recharacterization of a dividend as ``ordinary'' would be announced in 
advance to investors. For example, after adjusting for a given 
dividend, OCC would announce that subsequent dividends of the same 
nature would no longer occasion adjustment.\10\ A discussion of the new 
adjustment approach also will be included in published interpretative 
guidance.\11\ Clean and marked copies of the interpretative guidance 
are attached as Exhibit 5 to the OCC filing of the proposed rule 
change. The marked copy shows changes from the current language.
---------------------------------------------------------------------------

    \10\ OCC will follow a similar practice with respect to stock 
futures.
    \11\ Securities Exchange Act Release Nos. 58059 (June 30, 2008) 
and 59442 (February 24, 2009). Consistent with past practice, the 
interpretative guidance will be available on OCC's public Web site 
but not incorporated into OCC's By-Laws and Rules. Other technical 
or clarifying changes have also been made to update the guidance. 
For example, the use of the term ``special dividend'' has been 
removed in favor of the term ``non-ordinary.''
---------------------------------------------------------------------------

    In fairness to existing holders of open interest (especially DO and 
OIH) who may have assumed option positions with the belief that OCC 
would continue to adjust for recurring ``special'' dividends, OCC has 
determined that the portion of Interpretation .01, which allows 
recharacterization of dividends as ordinary will be effective only for 
dividends and distributions announced after February 1, 2012. This date 
is chosen because it occurs after the latest expiration of all existing 
open interest in DO and OIH options (inclusive of LEAPS options). All 
existing open interest and any positions created with new expiration 
dates occurring before February 1, 2012, will thus be ``grandfathered'' 
under the current adjustment approach for these dividends.\12\
---------------------------------------------------------------------------

    \12\ For consistency, the changes to the Interpretation relating 
to stock futures also will not be effective until February 1, 2012.
---------------------------------------------------------------------------

    OCC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \13\ and the rules and 
regulations thereunder applicable to OCC because it provides for the 
prompt and accurate clearance and settlement of securities 
transactions, ensures the protection of investors and reduces 
unnecessary costs and burdens on them and persons facilitating 
transactions on their behalf. It does so by responding to strong 
investor feedback regarding the need to cease treating certain cash 
dividends or distributions as ``non-ordinary'' for adjustment purposes 
based on the consistent declaration of such dividends, by publishing 
information regarding those factors which would lead OCC to make such a 
determination, and by reducing the likelihood of series proliferation 
in the case of options contracts. The proposed rule change is not 
inconsistent with the existing rules of OCC, including any other rules 
proposed to be amended.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

(B) Self-Regulatory Organization's Statement on Burden on Competition

    OCC does not believe that the proposed rule change will have any 
impact on or impose any burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others

    No written comments relating to the proposed rule change have been 
solicited or received. OCC will notify the Commission of any written 
comments received by OCC.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective upon filing pursuant 
to Section 19(b)(3)(A)(i) of the Act \14\ and Rule 19b-4(f)(1) \15\ 
thereunder because the proposed rule constitutes an interpretation with 
respect to the meaning, administration, or enforcement of an existing 
rule. At any time within sixty days of the filing of such rule change, 
the Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is

[[Page 56633]]

necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.
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    \14\ 15 U.S.C. 78s(b)(3)(A)(i).
    \15\ 17 CFR 240.19b-4(f)(1).
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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 (https://www.sec.gov/rules/sro.shtml) or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-OCC-2010-15 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-OCC-2010-15. This file 
number should be included on the subject line if e-mail 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 Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule changes 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 inspection and 
copying in the Commission's Public Reference Section, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of such filings also will be available for 
inspection and copying at the principal office of OCC and on OCC's Web 
site at https://www.theocc.com. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-OCC-2010-15 and should be submitted on or before October 
7, 2010.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-23106 Filed 9-15-10; 8:45 am]
BILLING CODE 8010-01-P
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