Self-Regulatory Organizations; The Options Clearing Corporation; Notice of No Objection to Advance Notice Filing To Change the Expiration Date For Most Option Contracts to the Third Friday of the Expiration Month Instead of the Saturday Following the Third Friday, 37248-37250 [2013-14685]
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37248
Federal Register / Vol. 78, No. 119 / Thursday, June 20, 2013 / Notices
to comply with this rule and an
aggregate annual external cost of
$160,000.
Rule 15c3–1 does not contain record
retention requirements. Compliance
with the rule is mandatory. The
required records are available only to
the examination staff of the Commission
and the self-regulatory organization of
which the broker-dealer is a member.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid OMB
control number.
The public may view background
documentation for this information
collection at the following Web site,
www.reginfo.gov. Comments should be
directed to: (i) Desk Officer for the
Securities and Exchange Commission,
Office of Information and Regulatory
Affairs, Office of Management and
Budget, Room 10102, New Executive
Office Building, Washington, DC 20503,
or by sending an email to:
Shagufta_Ahmed@omb.eop.gov; and (ii)
Thomas Bayer, Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Remi PavlikSimon, 6432 General Green Way,
Alexandria, VA 22312 or send an email
to: PRA_Mailbox@sec.gov. Comments
must be submitted to OMB within 30
days of this notice.
Dated: June 17, 2013.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–14719 Filed 6–19–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69767; File No. SR–OCC–
2013–802]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of No Objection to Advance Notice
Filing To Change the Expiration Date
For Most Option Contracts to the Third
Friday of the Expiration Month Instead
of the Saturday Following the Third
Friday
June 14, 2013.
TKELLEY on DSK3SPTVN1PROD with NOTICES
I. Introduction
On April 17, 2013, The Options
Clearing Corporation (‘‘OCC’’) 1 filed
1 OCC was designated as a systemically important
financial market utility (‘‘FMU’’) by the Financial
Stability Oversight Council (‘‘FSOC’’) on July 18,
2012. See FSOC 2012 Annual Report, Appendix A,
https://www.treasury.gov/initiatives/fsoc/
Documents/2012%20Annual%20Report.pdf.
Therefore, OCC is required to comply with Title
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17:01 Jun 19, 2013
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with the Securities and Exchange
Commission (‘‘Commission’’) advance
notice SR–OCC–2013–802 pursuant to
Section 806(e) of Title VIII of the DoddFrank Wall Street Reform and Consumer
Protection Act (‘‘Dodd-Frank Act’’),2
entitled the Payment, Clearing, and
Settlement Supervision Act of 2010
(‘‘Title VIII’’ or ‘‘Clearing Supervision
Act’’).3 The advance notice was
published in the Federal Register on
May 23, 2013.4 The Commission
received one comment letter to the
Advance Notice, in which the
commenter expressed support for the
change.5 This publication serves as a
notice of no objection to the advance
notice.
II. Description of Proposed Rule Change
Proposal
OCC filed this advance notice to
change the expiration date for most
option contracts (‘‘Standard Expiration
Contracts’’) to the third Friday of the
specified expiration month (‘‘Expiration
Date’’). Standard Expiration Contracts
currently expire at the ‘‘expiration time’’
(11:59 p.m. Eastern Time) on the
Saturday following the third Friday of
the specified expiration month
(‘‘Expiration Date’’).6
The proposed change applies only to
series of option contracts opened for
trading after the effective date of this
proposed rule change and having
Expiration Dates later than February 1,
2015. Option contracts having nonstandard expiration dates (‘‘Nonstandard Expiration Contracts’’) are
unaffected by this proposed rule
change.7
In order to provide a smooth
transition to the Friday expiration, OCC
VIII of the Dodd-Frank Wall Street Reform and
Consumer Protection Act.
2 Dodd-Frank Wall Street Reform and Consumer
Protection Act, Pub. L. 111–203, 124 Stat. 1376
(2010).
3 OCC also filed the proposals contained in this
advance notice as a proposed rule change, under
Section 19(b)(1) of the Exchange Act and Rule 19b–
4 thereunder, seeking Commission approval to
permit OCC to change its rules to reflect the
proposed changes in this advance notice. 15 U.S.C.
78s(b)(1); 17 CFR 240.19b–4; See Exchange Act
Release No. 69480 (April 30, 2013) (SR–OCC–2013–
04).
4 Securities Exchange Act Release No. 34–69603
(May 17, 2013), 78 FR 30944 (May 23, 2013)
(‘‘Notice of Filing of Advance Notice’’).
5 See Comment from John V. Bruzzese dated May
3, 2013 (stating that the change would be
‘‘beneficial for [the] option expiration process’’)
(https://sec.gov/comments/sr-occ-2013-04/
occ201304-1.htm).
6 See the definition of ‘‘expiration time’’ in
Article I of OCC’s By-Laws.
7 Examples of options with Non-standard
Expiration Contracts include flex options and
quarterly, monthly, and weekly options where the
expiration exercise processing for such options
presently occurs on a weekday.
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Sfmt 4703
intends to, beginning June 21, 2013,
move the expiration exercise procedures
to Friday for all Standard Expiration
Contracts even though the contracts
would continue to expire on Saturday.8
After February 1, 2015, virtually all
Standard Expiration Contracts will
expire on Friday. According to OCC, the
only Standard Expiration Contracts that
will expire on a Saturday after February
1, 2015 are certain options that were
listed prior to the effectiveness of this
rule change,9 and a limited number of
options that may be listed prior to
necessary systems changes of the
options exchanges, which are expected
to be completed in August 2013.10 After
the transition period and the expiration
of all existing Saturday-expiring
options, expiration processing should be
a single operational process and should
run on Friday night for all Standard
Expiration Contracts.
In connection with moving from
Saturday to Friday night processing and
expiration, OCC reviewed other aspects
of its business to confirm that there
would be no unintended consequences,
and concluded that there would be
none. For example, OCC believes the
proposed changes do not affect OCC’s
liquidity forecasting procedures, nor do
they impact OCC’s liquidity needs,
since OCC’s liquidity forecasts and
liquidity needs are driven by settlement
obligations, which occur on the same
day (T+3) irrespective of the move to
Friday night processing and expiration
dates. According to OCC, industry
groups, clearing members, and options
exchanges have been active participants
in planning for the transition to the
Friday expiration. OCC has obtained
8 For contracts having a Saturday expiration date,
exercise requests received after Friday expiration
processing is complete but before the Saturday
contract expiration time will continue to be
processed so long as they are submitted in
accordance with OCC’s procedures governing such
requests.
9 According to OCC, certain option contracts have
already been listed on exchanges with expiration
dates as distant as December 2016. Such options
have Saturday expiration dates and OCC cannot
change the terms of existing option contracts. In
addition, clearing members have expressed a clear
preference not to have open interest in any
particular month with different expiration dates.
Therefore, OCC will designate certain expiration
dates as ‘‘grandfathered,’’ and any option contract
that is listed, or may be listed in the future, that
expires on a grandfathered date will have a
Saturday expiration date even if such expiration
date is after February 1, 2015. After OCC designates
an expiration date as grandfathered, the exchanges
have agreed not to permit the listing of, and OCC
will not accept for clearance, any newly listed
standard expiration option contract with a Friday
expiration in the applicable month.
10 The exchanges have agreed that once these
systems changes are made they will not open for
trading any new series of option contracts with
Saturday expiration dates falling after February 1,
2015.
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Federal Register / Vol. 78, No. 119 / Thursday, June 20, 2013 / Notices
TKELLEY on DSK3SPTVN1PROD with NOTICES
assurances from all options industry
participants that they will be ready to
move to Friday night expiration
processing by June 2013.
Rule Changes
In order to implement the change to
Friday expiration processing and
eventual transition to Friday expiration
for all Standard Expiration Contracts,
OCC is amending the definition of
‘‘expiration date’’ in Article I and
certain other articles of the By-Laws. As
amended, the applicability of the
definition is no longer limited to stock
options, and the definition of
‘‘expiration date’’ in certain articles of
the By-Laws therefore is deleted in
reliance on the Article I definition. OCC
is also amending Rule 805, and all rules
supplementing or replacing Rule 805, to
allow for Friday expiration processing
during the transition to Friday
expiration. OCC is also amending
section 18 of Article VI of the By-Laws
to align procedures for delays in
producing Expiration Exercise Reports
and submission of exercise instructions
with the amended expiration exercise
procedures in Rule 805. OCC is
amending Rule 801 to modify the
prohibition against exercising an
American-style option contract on the
business day prior to its expiration date,
because this prohibition is necessary
only for options expiring on a Saturday,
and to remove clearing members’ ability
to revoke or modify exercise notices in
order to accommodate the compressed
Friday expiration processing expiration
schedule.
Finally, OCC is amending Rules 801
and 805 to allow certain determinations
to be made by high-level officers of
OCC, rather than the Board of Directors,
in order to provide OCC with greater
operational flexibility in processing
exercise requests received after Friday
expiration processing is complete but
before the Saturday contract expiration
time, and to replace various references
to the expiration date of options with
reference to the procedures of Rule 805.
Under the proposed change, OCC is
preserving the ability of the options
exchanges to designate (or, in the case
of flexibly structured options, permit
clearing members to designate) nonstandard expiration dates for options, or
classes or series of options, so long as
the designated expiration date is not a
date OCC has specified as ineligible to
be an expiration date.
III. Analysis of Advance Notice
Although Title VIII does not specify a
standard of review for an Advance
Notice, the Commission believes that
the stated purpose of Title VIII is
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17:01 Jun 19, 2013
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instructive.11 The stated purpose of
Title VIII is to mitigate systemic risk in
the financial system and promote
financial stability by, among other
things, promoting uniform risk
management standards for systemicallyimportant financial market utilities
(‘‘FMU’’) and providing an enhanced
role for the Federal Reserve Board in the
supervision of risk management
standards for systemically-important
FMUs.12
Section 805(a)(2) of the Clearing
Supervision Act 13 authorizes the
Commission to prescribe risk
management standards for the payment,
clearing, and settlement activities of
designated clearing entities and
financial institutions engaged in
designated activities for which it is the
supervisory agency or the appropriate
financial regulator. Section 805(b) of the
Clearing Supervision Act 14 states that
the objectives and principles for the risk
management standards prescribed under
Section 805(a) shall be to:
• Promote robust risk management;
• Promote safety and soundness;
• Reduce systemic risks; and
• Support the stability of the broader
financial system.
The Commission adopted risk
management standards under Section
805(a)(2) of the Clearing Supervision
Act on October 22, 2012 (‘‘Clearing
Agency Standards’’).15 The Clearing
Agency Standards became effective on
January 2, 2013 and require clearing
agencies that perform central
counterparty services to establish,
implement, maintain, and enforce
written policies and procedures that are
reasonably designed to meet certain
minimum requirements for their
operations and risk management
practices on an ongoing basis.16 As
such, the Commission believes it is
appropriate to review Advance Notices
against these risk management
standards that the Commission
promulgated under Section 805(a) and
the objectives and principles of these
11 12
U.S.C. 5461(b).
12 Id.
13 12
U.S.C. 5464(a)(2).
U.S.C. 5464(b).
15 Clearing Agency Standards, Securities
Exchange Act Release No. 34–68080 (October 22,
2012), 77 FR 66219 (November 2, 2012).
16 The Clearing Agency Standards are
substantially similar to the risk management
standards established by the Federal Reserve Board
governing the operations of designated FMUs that
are not clearing entities and financial institutions
engaged in designated activities for which the
Commission or the Commodity Futures Trading
Commission is the Supervisory Agency. See
Financial Market Utilities, 77 FR 45907 (Aug. 2,
2012).
14 12
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37249
risk management standards as described
in Section 805(b).
OCC’s proposal to move the
expiration date of Standard Expiration
Contracts to the third Friday of the
month, as described above, is designed
to help mitigate operational risk that
Saturday expiration imposes on OCC
and its members. Consistent with
Section 805(b) of the Clearing
Supervision Act,17 the Commission
believes the proposed changes should
promote safety and soundness of OCC’s
operations and reduce systemic risks by
allowing OCC to streamline the
expiration process among Standard
Expiration Contracts and Non-Standard
Expiration Contracts and quarterly
options and weekly options. It should
also allow OCC to align the expiration
process for Standard Expiration
Contracts with expiration processing
schedules for European markets and
should allow clearing members to run a
single operational process for all US
equity/index options regardless of
where such options are exercised.
Furthermore, Rule 17Ad–22(d)(4),
adopted as part of the Clearing Agency
Standards, requires clearing agencies to
‘‘establish, implement, maintain, and
enforce written policies and procedures
reasonably designed to identify sources
of operational risk and minimize them
through the development of appropriate
systems, controls, and procedures
. . . .’’ 18 The Commission believes the
proposed rule changes minimize
operational risk through the
development of a system to move the
expiration date of Standard Expiration
Contracts to the third Friday of the
month so that exercise processing across
Standard Expiration Contracts, Nonstandard Expiration Contracts, quarterly
options, and weekly options occur on
the same day in a single operational
process.
IV. Conclusion
It is therefore noticed, pursuant to
Section 806(e)(1)(I) of the Clearing
Supervision Act,19 that, the Commission
does not object to the advance notice
(File No. SR–OCC–2013–802) and that
OCC be and hereby is authorized to
implement proposed rule change (File
No. AN–OCC–2013–802) as of the date
of this notice or the date of an ‘‘Order
Approving Proposed Rule Change to
Change the Expiration Date for Most
Option Contracts to the Third Friday of
the Expiration Month Instead of the
Saturday Following the Third Friday’’
17 See
12 U.S.C. 5464(b).
CFR 240.17Ad–22(d)(4).
19 12 U.S.C. 5465(e)(1)(I).
18 17
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37250
Federal Register / Vol. 78, No. 119 / Thursday, June 20, 2013 / Notices
(File No. SR–OCC–2013–04), whichever
is later.
By the Commission.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–14685 Filed 6–19–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69768; File No. SR–Phlx–
2013–61]
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
Various Sections of the Exchange’s
Pricing Schedule
June 14, 2013.
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 June 3,
2013, NASDAQ OMX PHLX LLC
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
Category
A
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
existing Section B, entitled ‘‘Customer
Rebate Program,’’ Section I, entitled
‘‘Rebates and Fees for Adding and
Removing Liquidity in Select
Symbols,’’ 6 and Section IV, A ‘‘PIXL
Pricing.’’ The Exchange also proposes to
adopt a new Section C, entitled
‘‘Rebates and Fees for Adding and
Removing Liquidity in SPY.’’ Each
proposed amendment is described in
greater detail below.
Customer Rebate Program
Currently, the Exchange has in place
a four tier structure Customer Rebate
Program at Section B of the Pricing
Schedule which pays Customer rebates
on four Categories (A, B, C and D) of
transactions. The four tier structure pays
rebates based on percentage thresholds
of national customer multiply-listed
options volume by month based on the
same four Categories (A, B, C and D) of
transactions. Specifically, the Exchange
bases a market participant’s
qualification for a certain Rebate Tier on
the percentage of total national
customer volume in multiply-listed
options which are transacted monthly
on Phlx as follows:
Category
B
Category
C
Category
D
1 ................................................
0.00%–0.75% ....................................
$0.00
$0.00
$0.00
$0.00
2 ................................................
Above 0.75%–1.60% .........................
0.11
0.12
0.13
0.08
3 ................................................
4 ................................................
Above 1.60%–2.60% .........................
Above 2.60% .....................................
0.13
0.15
0.13
0.15
0.14
0.15
0.08
0.09
Today, the Exchange totals Customer
volume in Multiply Listed Options
(including Select Symbols) that are
electronically-delivered and executed,
except volume associated with
electronic QCC Orders, as defined in
Exchange Rule 1080(o).7 Members and
member organizations under common
TKELLEY on DSK3SPTVN1PROD with NOTICES
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.
Percentage thresholds of national
customer volume in multiply-listed
equity and ETF options classes
(monthly)
Customer rebate tiers
Tier
.
Tier
.
Tier
Tier
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Exchange’s Pricing Schedule to: (i)
Amend the Customer Rebate Program;
(ii) adopt new pricing specific to
options overlying Standard and Poor’s
Depositary Receipts/SPDRs (‘‘SPY’’); 3
(iii) amend the Complex Order 4 Fee for
Removing Liquidity applicable to
Specialists and Market Makers in
receipt of certain directed orders; and
(iv) amend PIXL 5 Pricing.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://
nasdaqomxphlx.cchwallstreet.com/, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 SPY options are based on the SPDR exchangetraded fund (‘‘ETF’’), which is designed to track the
performance of the S&P 500 Index.
4 A Complex Order is any order involving the
simultaneous purchase and/or sale of two or more
different options series in the same underlying
security, priced at a net debit or credit based on the
2 17
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17:01 Jun 19, 2013
Jkt 229001
ownership 8 may aggregate their
Customer volume for purposes of
calculating the Customer Rebate Tiers
and receiving rebates.
Category A rebates are paid to
members executing electronicallydelivered Customer Simple Orders in
Penny Pilot Options and Customer
Simple Orders in Non-Penny Pilot
Options in Section II. Rebates are paid
on Customer PIXL Orders in Section II
symbols that execute against nonInitiating Order interest, except in the
case of Customer PIXL Orders that are
greater than 999 contracts. All Customer
PIXL Orders that are greater than 999
contracts are paid a rebate regardless of
relative prices of the individual components, for the
same account, for the purpose of executing a
particular investment strategy. Furthermore, a
Complex Order can also be a stock-option order,
which is an order to buy or sell a stated number
of units of an underlying stock or exchange-traded
fund (‘‘ETF’’) coupled with the purchase or sale of
options contract(s). See Exchange Rule 1080,
Commentary .08(a)(i).
5 PIXL is the Exchange’s price improvement
mechanism known as Price Improvement XL or
(PIXLSM). See Rule 1080(n).
6 The Select Symbols are listed in Section I.
7 The Exchange calculates volume and pay
rebates based on a member organization’s Phlx
house account numbers.
8 Common ownership means 75% common
ownership or control.
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]]>Agencies
[Federal Register Volume 78, Number 119 (Thursday, June 20, 2013)]
[Notices]
[Pages 37248-37250]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-14685]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69767; File No. SR-OCC-2013-802]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of No Objection to Advance Notice Filing To Change the
Expiration Date For Most Option Contracts to the Third Friday of the
Expiration Month Instead of the Saturday Following the Third Friday
June 14, 2013.
I. Introduction
On April 17, 2013, The Options Clearing Corporation (``OCC'') \1\
filed with the Securities and Exchange Commission (``Commission'')
advance notice SR-OCC-2013-802 pursuant to Section 806(e) of Title VIII
of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act''),\2\ entitled the Payment, Clearing, and Settlement
Supervision Act of 2010 (``Title VIII'' or ``Clearing Supervision
Act'').\3\ The advance notice was published in the Federal Register on
May 23, 2013.\4\ The Commission received one comment letter to the
Advance Notice, in which the commenter expressed support for the
change.\5\ This publication serves as a notice of no objection to the
advance notice.
---------------------------------------------------------------------------
\1\ OCC was designated as a systemically important financial
market utility (``FMU'') by the Financial Stability Oversight
Council (``FSOC'') on July 18, 2012. See FSOC 2012 Annual Report,
Appendix A, https://www.treasury.gov/initiatives/fsoc/Documents/2012%20Annual%20Report.pdf. Therefore, OCC is required to comply
with Title VIII of the Dodd-Frank Wall Street Reform and Consumer
Protection Act.
\2\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Pub. L. 111-203, 124 Stat. 1376 (2010).
\3\ OCC also filed the proposals contained in this advance
notice as a proposed rule change, under Section 19(b)(1) of the
Exchange Act and Rule 19b-4 thereunder, seeking Commission approval
to permit OCC to change its rules to reflect the proposed changes in
this advance notice. 15 U.S.C. 78s(b)(1); 17 CFR 240.19b-4; See
Exchange Act Release No. 69480 (April 30, 2013) (SR-OCC-2013-04).
\4\ Securities Exchange Act Release No. 34-69603 (May 17, 2013),
78 FR 30944 (May 23, 2013) (``Notice of Filing of Advance Notice'').
\5\ See Comment from John V. Bruzzese dated May 3, 2013 (stating
that the change would be ``beneficial for [the] option expiration
process'') (https://sec.gov/comments/sr-occ-2013-04/occ201304-1.htm).
---------------------------------------------------------------------------
II. Description of Proposed Rule Change
Proposal
OCC filed this advance notice to change the expiration date for
most option contracts (``Standard Expiration Contracts'') to the third
Friday of the specified expiration month (``Expiration Date'').
Standard Expiration Contracts currently expire at the ``expiration
time'' (11:59 p.m. Eastern Time) on the Saturday following the third
Friday of the specified expiration month (``Expiration Date'').\6\
---------------------------------------------------------------------------
\6\ See the definition of ``expiration time'' in Article I of
OCC's By-Laws.
---------------------------------------------------------------------------
The proposed change applies only to series of option contracts
opened for trading after the effective date of this proposed rule
change and having Expiration Dates later than February 1, 2015. Option
contracts having non-standard expiration dates (``Non-standard
Expiration Contracts'') are unaffected by this proposed rule change.\7\
---------------------------------------------------------------------------
\7\ Examples of options with Non-standard Expiration Contracts
include flex options and quarterly, monthly, and weekly options
where the expiration exercise processing for such options presently
occurs on a weekday.
---------------------------------------------------------------------------
In order to provide a smooth transition to the Friday expiration,
OCC intends to, beginning June 21, 2013, move the expiration exercise
procedures to Friday for all Standard Expiration Contracts even though
the contracts would continue to expire on Saturday.\8\ After February
1, 2015, virtually all Standard Expiration Contracts will expire on
Friday. According to OCC, the only Standard Expiration Contracts that
will expire on a Saturday after February 1, 2015 are certain options
that were listed prior to the effectiveness of this rule change,\9\ and
a limited number of options that may be listed prior to necessary
systems changes of the options exchanges, which are expected to be
completed in August 2013.\10\ After the transition period and the
expiration of all existing Saturday-expiring options, expiration
processing should be a single operational process and should run on
Friday night for all Standard Expiration Contracts.
---------------------------------------------------------------------------
\8\ For contracts having a Saturday expiration date, exercise
requests received after Friday expiration processing is complete but
before the Saturday contract expiration time will continue to be
processed so long as they are submitted in accordance with OCC's
procedures governing such requests.
\9\ According to OCC, certain option contracts have already been
listed on exchanges with expiration dates as distant as December
2016. Such options have Saturday expiration dates and OCC cannot
change the terms of existing option contracts. In addition, clearing
members have expressed a clear preference not to have open interest
in any particular month with different expiration dates. Therefore,
OCC will designate certain expiration dates as ``grandfathered,''
and any option contract that is listed, or may be listed in the
future, that expires on a grandfathered date will have a Saturday
expiration date even if such expiration date is after February 1,
2015. After OCC designates an expiration date as grandfathered, the
exchanges have agreed not to permit the listing of, and OCC will not
accept for clearance, any newly listed standard expiration option
contract with a Friday expiration in the applicable month.
\10\ The exchanges have agreed that once these systems changes
are made they will not open for trading any new series of option
contracts with Saturday expiration dates falling after February 1,
2015.
---------------------------------------------------------------------------
In connection with moving from Saturday to Friday night processing
and expiration, OCC reviewed other aspects of its business to confirm
that there would be no unintended consequences, and concluded that
there would be none. For example, OCC believes the proposed changes do
not affect OCC's liquidity forecasting procedures, nor do they impact
OCC's liquidity needs, since OCC's liquidity forecasts and liquidity
needs are driven by settlement obligations, which occur on the same day
(T+3) irrespective of the move to Friday night processing and
expiration dates. According to OCC, industry groups, clearing members,
and options exchanges have been active participants in planning for the
transition to the Friday expiration. OCC has obtained
[[Page 37249]]
assurances from all options industry participants that they will be
ready to move to Friday night expiration processing by June 2013.
Rule Changes
In order to implement the change to Friday expiration processing
and eventual transition to Friday expiration for all Standard
Expiration Contracts, OCC is amending the definition of ``expiration
date'' in Article I and certain other articles of the By-Laws. As
amended, the applicability of the definition is no longer limited to
stock options, and the definition of ``expiration date'' in certain
articles of the By-Laws therefore is deleted in reliance on the Article
I definition. OCC is also amending Rule 805, and all rules
supplementing or replacing Rule 805, to allow for Friday expiration
processing during the transition to Friday expiration. OCC is also
amending section 18 of Article VI of the By-Laws to align procedures
for delays in producing Expiration Exercise Reports and submission of
exercise instructions with the amended expiration exercise procedures
in Rule 805. OCC is amending Rule 801 to modify the prohibition against
exercising an American-style option contract on the business day prior
to its expiration date, because this prohibition is necessary only for
options expiring on a Saturday, and to remove clearing members' ability
to revoke or modify exercise notices in order to accommodate the
compressed Friday expiration processing expiration schedule.
Finally, OCC is amending Rules 801 and 805 to allow certain
determinations to be made by high-level officers of OCC, rather than
the Board of Directors, in order to provide OCC with greater
operational flexibility in processing exercise requests received after
Friday expiration processing is complete but before the Saturday
contract expiration time, and to replace various references to the
expiration date of options with reference to the procedures of Rule
805.
Under the proposed change, OCC is preserving the ability of the
options exchanges to designate (or, in the case of flexibly structured
options, permit clearing members to designate) non-standard expiration
dates for options, or classes or series of options, so long as the
designated expiration date is not a date OCC has specified as
ineligible to be an expiration date.
III. Analysis of Advance Notice
Although Title VIII does not specify a standard of review for an
Advance Notice, the Commission believes that the stated purpose of
Title VIII is instructive.\11\ The stated purpose of Title VIII is to
mitigate systemic risk in the financial system and promote financial
stability by, among other things, promoting uniform risk management
standards for systemically-important financial market utilities
(``FMU'') and providing an enhanced role for the Federal Reserve Board
in the supervision of risk management standards for systemically-
important FMUs.\12\
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\11\ 12 U.S.C. 5461(b).
\12\ Id.
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Section 805(a)(2) of the Clearing Supervision Act \13\ authorizes
the Commission to prescribe risk management standards for the payment,
clearing, and settlement activities of designated clearing entities and
financial institutions engaged in designated activities for which it is
the supervisory agency or the appropriate financial regulator. Section
805(b) of the Clearing Supervision Act \14\ states that the objectives
and principles for the risk management standards prescribed under
Section 805(a) shall be to:
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\13\ 12 U.S.C. 5464(a)(2).
\14\ 12 U.S.C. 5464(b).
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Promote robust risk management;
Promote safety and soundness;
Reduce systemic risks; and
Support the stability of the broader financial system.
The Commission adopted risk management standards under Section
805(a)(2) of the Clearing Supervision Act on October 22, 2012
(``Clearing Agency Standards'').\15\ The Clearing Agency Standards
became effective on January 2, 2013 and require clearing agencies that
perform central counterparty services to establish, implement,
maintain, and enforce written policies and procedures that are
reasonably designed to meet certain minimum requirements for their
operations and risk management practices on an ongoing basis.\16\ As
such, the Commission believes it is appropriate to review Advance
Notices against these risk management standards that the Commission
promulgated under Section 805(a) and the objectives and principles of
these risk management standards as described in Section 805(b).
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\15\ Clearing Agency Standards, Securities Exchange Act Release
No. 34-68080 (October 22, 2012), 77 FR 66219 (November 2, 2012).
\16\ The Clearing Agency Standards are substantially similar to
the risk management standards established by the Federal Reserve
Board governing the operations of designated FMUs that are not
clearing entities and financial institutions engaged in designated
activities for which the Commission or the Commodity Futures Trading
Commission is the Supervisory Agency. See Financial Market
Utilities, 77 FR 45907 (Aug. 2, 2012).
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OCC's proposal to move the expiration date of Standard Expiration
Contracts to the third Friday of the month, as described above, is
designed to help mitigate operational risk that Saturday expiration
imposes on OCC and its members. Consistent with Section 805(b) of the
Clearing Supervision Act,\17\ the Commission believes the proposed
changes should promote safety and soundness of OCC's operations and
reduce systemic risks by allowing OCC to streamline the expiration
process among Standard Expiration Contracts and Non-Standard Expiration
Contracts and quarterly options and weekly options. It should also
allow OCC to align the expiration process for Standard Expiration
Contracts with expiration processing schedules for European markets and
should allow clearing members to run a single operational process for
all US equity/index options regardless of where such options are
exercised.
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\17\ See 12 U.S.C. 5464(b).
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Furthermore, Rule 17Ad-22(d)(4), adopted as part of the Clearing
Agency Standards, requires clearing agencies to ``establish, implement,
maintain, and enforce written policies and procedures reasonably
designed to identify sources of operational risk and minimize them
through the development of appropriate systems, controls, and
procedures . . . .'' \18\ The Commission believes the proposed rule
changes minimize operational risk through the development of a system
to move the expiration date of Standard Expiration Contracts to the
third Friday of the month so that exercise processing across Standard
Expiration Contracts, Non-standard Expiration Contracts, quarterly
options, and weekly options occur on the same day in a single
operational process.
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\18\ 17 CFR 240.17Ad-22(d)(4).
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IV. Conclusion
It is therefore noticed, pursuant to Section 806(e)(1)(I) of the
Clearing Supervision Act,\19\ that, the Commission does not object to
the advance notice (File No. SR-OCC-2013-802) and that OCC be and
hereby is authorized to implement proposed rule change (File No. AN-
OCC-2013-802) as of the date of this notice or the date of an ``Order
Approving Proposed Rule Change to Change the Expiration Date for Most
Option Contracts to the Third Friday of the Expiration Month Instead of
the Saturday Following the Third Friday''
[[Page 37250]]
(File No. SR-OCC-2013-04), whichever is later.
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\19\ 12 U.S.C. 5465(e)(1)(I).
By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-14685 Filed 6-19-13; 8:45 am]
BILLING CODE 8011-01-P
