Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Definition of Flexibly Structured Options, 37875-37878 [2018-16532]

Download as PDF Federal Register / Vol. 83, No. 149 / Thursday, August 2, 2018 / Notices rulebook will benefit Members by increasing transparency around the operation of the Exchange. Furthermore, the proposed definitions being included in the rulebook will more clearly and accurately reflect the information included on the protocols, and will be harmonized with language to be included in the rules of its affiliated exchanges to the extent that the protocols operate in the same manner. The protocols described in this filing provide a range of important features to Members, including the ability to submit quotes and orders, and perform other functions necessary to manage trading on the Exchange. The Exchange believes codifying the quote and order entry protocols will increase transparency to the Members that use these protocols to connect to the Exchange. B. Self-Regulatory Organization’s Statement on Burden on Competition In accordance with Section 6(b)(8) of the Act,9 the Exchange does not believe that the proposed rule change will impose any burden on intermarket or intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. As explained above, the Exchange is codifying the quote and order entry protocols that Members use to connect to the Exchange’s trading system. The Exchange does not believe that codifying these protocols in the rulebook will have any competitive impact. FIX, OTTO, and SQF were established in SR–MRX–2017–13, and are already available to Members, who use these protocols to connect and manage their trading activity on the Exchange. Adding rule language that describes these Exchange offerings will increase transparency around the operation of the Exchange without having any impact on intermarket or intramarket competition. daltland on DSKBBV9HB2PROD with NOTICES C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on 9 15 U.S.C. 78f(b)(8). VerDate Sep<11>2014 17:06 Aug 01, 2018 Jkt 244001 which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 10 and subparagraph (f)(6) of Rule 19b–4 thereunder.11 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or 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: Electronic Comments Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–MRX–2018–25. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than 10 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. In this case, the Commission waives the five-day pre-filing requirement. 11 17 Frm 00093 Fmt 4703 those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–MRX–2018–25 and should be submitted on or before August 23, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Robert W. Errett, Deputy Secretary. [FR Doc. 2018–16526 Filed 8–1–18; 8:45 am] • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– MRX–2018–25 on the subject line. PO 00000 37875 Sfmt 4703 BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–83724; File No. SR–OCC– 2018–010] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Definition of Flexibly Structured Options July 27, 2018. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on July 16, 2018, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by OCC. OCC filed the proposed rule change pursuant to Section 19(b)(3)(A) 3 of the Act and Rule 19b–4(f)(4)(ii) 4 thereunder so that the proposal was effective upon filing with the Commission. The Commission is publishing this notice to solicit 12 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(4)(ii). 1 15 E:\FR\FM\02AUN1.SGM 02AUN1 37876 Federal Register / Vol. 83, No. 149 / Thursday, August 2, 2018 / Notices comments on the proposed rule change from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change OCC proposes to amend the definition of the term ‘‘flexibly structured option’’ as provided in Article I, Section 1.F.(8) of OCC’s By-Laws to conform the definition to a recent rule change by Cboe Exchange, Inc. (‘‘Cboe Options’’ or ‘‘CBOE’’). The proposed changes to OCC’s By-Laws can be found in Exhibit 5 to the filing. All terms with initial capitalization that are not otherwise defined herein have the same meaning as set forth in the By-Laws and Rules.5 II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, OCC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. OCC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of these statements. (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change daltland on DSKBBV9HB2PROD with NOTICES (1) Purpose Flexibly structured options are options that give investors the ability to customize basic option features including size, expiration date, exercise style, and certain exercise prices. OCC currently defines a ‘‘flexibly structured option’’ as an option having variable terms that are negotiated between the parties to a confirmed trade pursuant to Exchange Rules and that do not correspond to the variable terms 6 of any series of non-flexibly structured options previously opened for trading on the Exchange (other than a series of quarterly options or short term options).7 In addition, OCC’s By-Laws 5 OCC’s By-Laws and Rules can be found on OCC’s public website: https://optionsclearing.com/ about/publications/bylaws.jsp. 6 OCC By-Laws, Article I., Section 1.V.(1), which defines ‘‘variable terms’’ in respect of a series of option contracts other than OTC options to mean ‘‘the name of the underlying interest, the exercise price (or, in respect of a series of delayed start options that does not yet have a set exercise price, the exercise price setting formula and exercise price setting date), the index value determinant and the index multiplier (in the case of a flexibly structured index option), the cap interval (in the case of a capped option) and the expiration date of such option contract.’’ 7 OCC By-Laws, Article I. Non-flexibly structured weekly options are called ‘‘short term options’’ in VerDate Sep<11>2014 17:06 Aug 01, 2018 Jkt 244001 currently provide that once a series of non-flexibly structured options (other than a series of quarterly options or short term options) is opened for trading on an options exchange, any existing flexibly structured option contracts that have identical variable terms shall be fully fungible with options in such series, and shall cease to be flexibly structured options.8 In other words, with the exception of quarterly options and short term options series, once an exchange opens a non-flexibly structured option series having identical terms to a flexibly structured option, the flexibly structured option would become fungible with the non-flexibly structured option series. Pursuant to a recent rule change, Cboe Options has made all flexibly structured options fungible with subsequentlyintroduced non-flexibly structured options series having identical variable terms.9 This includes non-flexibly structured quarterly options and short term options series.10 As a result, for instance, under Cboe Options’ rules, a flexibly structured option that has the same terms as a subsequentlyintroduced quarterly or short term option series would now be fungible with that non-flexibly structured quarterly or short term option series. Cboe Options has requested that OCC amend its By-Laws to allow Cboe Options’ rule change to become effective. Cboe Options noted in its rule change that the change ‘‘will have the effect of more FLEX Options becoming fungible with Non-Flex Options, which will potentially increase the liquidity available to traders of FLEX Options.’’ 11 To clear and settle flexibly structured options traded on Cboe Options in a OCC’s By-Laws and Rules. Under Article I of OCC By-Laws, the term ‘‘quarterly option’’ means ‘‘an option of a series of stock options or index options that expires on the last business day of a calendar quarter,’’ and the term ‘‘short term option’’ means ‘‘an option of a series of options that expires one week after it is opened for trading.’’ 8 OCC By-Laws, Article I., Section 1.F.(8). 9 See Securities Exchange Act Release No. 83205 (May 9, 2018), 83 FR 22550 (May 15, 2018) (SR– CBOE–2018–008) (Order Approving a Proposed Rule Change Relating to Flexibly Structured Options) (‘‘Cboe Options has proposed to amend the rule to make all FLEX Options fungible with Non-FLEX Options that have identical terms.’’) 10 This also includes weekly expirations and End of Month (‘‘EOM’’) expirations. Cboe Options stated in its proposal that flexibly structured options with these expirations were not originally intended to be fungible. See Securities Exchange Release Act No. 82622 (February 2, 2018), 83 FR 5668 (February 8, 2018) (SR–CBOE–2018–008) (Notice of Filing of a Proposed Rule Change Relating to Flexibly Structured Options). 11 See Securities Exchange Act Release No. 82622 (February 2, 2018), 83 FR 5668 (February 8, 2018) (SR–CBOE–2018–008) (Notice of Filing of a Proposed Rule Change Relating to Flexibly Structured Options). PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 manner that is consistent with Cboe Options’ rules, OCC proposes to amend its definition of ‘‘flexibly structured option’’ in Article I of its By-Laws by deleting ‘‘(other than a series of quarterly options or short term options)’’ in the two instances in which it appears in the definition.12 OCC added this text to its definition of a flexibly structured option in 2009 to ensure consistency with Cboe Options rules, which were amended at that time to, among other things, allow for flexibly structured options to become fungible with subsequently introduced non-flexibly structured options series that have the same terms (other than a series of quarterly options or short term options).13 Consistent with Cboe Options’ rule change at that time, OCC amended its definition of flexibly structured options in 2009 to provide that a flexibly structured option cannot have the same terms as any series of non-flexibly structured options previously opened for trading on the exchange other than a series of quarterly options or short term options.14 OCC intended the 2009 amended definition to clarify that a flexibly structured option could share the same terms as a non-flexibly structured quarterly or short term option series and still be considered a flexibly structured option. Consistent with Cboe Options’ most recent rule change, OCC proposes to eliminate from the language of its definition of a flexibly structured option the first instance of ‘‘(other than a series of quarterly options or short term options)’’ to provide that a flexibly structured option cannot share the same terms as a non-flexibly structured option series that has been previously opened for trading on the exchange, including a currently-trading quarterly options or short term options series. Consistent with Cboe Options’ rules, OCC believes that this change would amend the definition in a manner to make it clear that flexibly structured options cannot share the same terms as non-flexibly structured option series 12 OCC By-Laws, Article I., Section 1.F.(8). Securities Exchange Act Release No. 59675 (April 1, 2009), 74 FR 15794 (April 7, 2009) (SR– OCC–2009–05); Securities Exchange Act Release No. 59417 (February 18, 2009), 74 FR 8591 (February 25, 2009) (order approving SR–CBOE– 2008–115). 14 See Securities Exchange Act Release No. 59060 (December 5, 2008), 73 FR 76075 (December 15, 2008) (SR–CBOE–2008–115) (‘‘subject to certain aggregation requirements for cash settled options, the current FLEX Rules do permit the expiration of FLEX Options on the same day that Non-FLEX quarterly index options (‘‘QIX’’) and Non-FLEX Weeklys Options expire.’’). 13 See E:\FR\FM\02AUN1.SGM 02AUN1 Federal Register / Vol. 83, No. 149 / Thursday, August 2, 2018 / Notices daltland on DSKBBV9HB2PROD with NOTICES that have been previously opened for trading on the exchange. The second instance of ‘‘(other than a series of quarterly options or short term options)’’ in the flexibly structured option definition was adopted in 2009 to provide, consistent with Cboe Options rules then in effect and as an exception to general fungibility, that a quarterly options or short term options series with the same terms as a flexibly structured option would not become fungible with that flexibly structured option. As noted above, Cboe Options has recently adopted a rule change to eliminate this restriction and allow all flexibly structured options to become fungible with non-flexibly structured options series having identical variable terms that are later opened for trading on the exchange.15 Accordingly, OCC proposes to eliminate the second instance of this text from the language of the definition of a flexibly structured option in OCC’s By-Laws to make it consistent with Cboe Options’ rules. As amended, OCC’s definition of a flexibly structured option would provide that once a series of non-flexibly structured options is opened for trading on an exchange, any existing flexibly structured option contracts that have identical variable terms shall be fully fungible with options in such series, and shall cease to be flexibly structured options. OCC believes that this change would allow OCC clear and settle flexibly structured options traded on Cboe Options in a manner that is consistent with Cboe Options’ rules and would have the effect of making more flexibly structured options fungible with identical non-flexibly structured options series. (2) Statutory Basis Section 17A(b)(3)(F) of the Securities Exchange Act of 1934, as amended (‘‘Act’’) 16 requires, among other things, that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities and derivatives transactions, to foster cooperation and coordination with persons engaged in clearance and settlement, and, in general, to protect investors and the public interest. OCC believes that the proposed rule change is consistent with Section 17A(b)(3)(F) of Act 17 because it is designed to promote the prompt and accurate clearance and settlement of securities transactions in flexibly structured options. The proposed rule change accomplishes this by maintaining 15 See supra note 9. U.S.C. 78q–1(b)(3)(F). 17 15 U.S.C. 78q–1(b)(3)(F). 16 15 VerDate Sep<11>2014 17:06 Aug 01, 2018 Jkt 244001 consistency between OCC’s By-Laws and Rules and Cboe Options’ rules as applied to the clearance and settlement of flexibly structured options. OCC further believes that the proposed rule change accomplishes this by providing that all flexibly structured options are subject to the same requirements. The proposed rule change would make all flexibly structured options fungible with subsequently introduced non-flexibly structured options with identical terms, thereby increasing operational efficiency by eliminating the need for OCC to monitor and treat a certain group of flexibly structured options (i.e., ones with the same terms as quarterly options and short term options series) differently than other flexibly structured options. In addition, Cboe Options has noted that its rule change will potentially increase the liquidity available to traders of flexibly structured options.18 Moreover, the Commission has previously noted that it would be concerned if flexibly structured options were to act as a surrogate for trading in standardized options (i.e., non-flexibly structured exchange-traded options) and that allowing for flexibly structured options to become fungible with standardized options would help alleviate this concern.19 In this respect, the Commission noted the following when it initially approved Cboe Options’ rules to provide for fungibility between flexibly structured options and standardized options series with the same terms: However, the rules, as proposed by the CBOE, help to ensure that FLEX market participants cannot avoid the protections provided to retail investors in the standardized options market simply by trading FLEX Options. In this regard, once a series is open for trading, new FLEX Options are not permitted in that series. In addition, once a Non-FLEX Options series is open, all outstanding FLEX Options in the same series become fungible with the standardized market, are traded pursuant to standardized market trading rules, and are aggregated for position and exercise limit purposes. These rules help to alleviate these surrogate concerns and should help to ensure that FLEX Options market continues to operate as intended.20 The proposed rule change would help to further address this concern by allowing all flexibly structured options to become fungible with non-flexibly structured options series with the same 18 See supra note 10. Securities Exchange Act Release No. 59417 (February 18, 2009), 74 FR 8591 (February 25, 2009) (order approving SR–CBOE–2008–115). See also supra note 9. 20 See Securities Exchange Act Release No. 59417 (February 18, 2009), 74 FR 8591 (February 25, 2009) (order approving SR–CBOE–2008–115). 19 See PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 37877 terms that are later opened for trading on the exchange. In addition, the proposed rule change is not inconsistent with the existing ByLaws and Rules of OCC, including any rules proposed to be amended. (B) Clearing Agency’s Statement on Burden on Competition Section 17A(b)(3)(I) of the Act 21 requires that the rules of a clearing agency not impose any burden on competition not necessary or appropriate in furtherance of the Act. OCC does not believe that the proposed rule change would impact or impose any burden on competition.22 The proposed rule change would not affect the competitive dynamics between clearing members, but rather would solely affect the treatment of flexibly structured options with the same terms as quarterly options and short term options series. In this respect, it would facilitate consistent treatment of such flexibly structured options with all other flexibly structured options, providing that all flexibly structured options will become fungible with subsequently-introduced standardized options with the same terms. The proposed rule change also would not inhibit access to OCC’s services or disadvantage or favor any particular user in relationship to another. The proposed rule change would treat equally all holders of flexibly structured options with the same terms as subsequently introduced quarterly options and short term options series, providing that such flexibly structured options held by them would become fungible with such standardized options series. For the foregoing reasons, OCC believes the proposed rule change is in the public interest, would be consistent with the requirements of the Act applicable to clearing agencies, and would not impact or impose a burden on competition. (C) Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments on the proposed rule change were not and are not intended to be solicited with respect to the proposed rule change and none have been received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) 21 15 22 15 E:\FR\FM\02AUN1.SGM U.S.C. 78q–1(b)(3)(I). U.S.C. 78q–1(b)(3)(I). 02AUN1 37878 Federal Register / Vol. 83, No. 149 / Thursday, August 2, 2018 / Notices of the Act 23 and Rule 19b–4(f)(4)(ii) 24 thereunder because it effects a change in an existing service that (i) does not adversely affect the safeguarding of securities or funds in the custody or control of the clearing agency or for which it is responsible and (ii) does not significantly affect the respective rights or obligations of the clearing agency or persons using the service. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.25 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: daltland on DSKBBV9HB2PROD with NOTICES Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– OCC–2018–010 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–OCC–2018–010. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be 23 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(4)(ii). 25 Notwithstanding the foregoing, implementation of this rule change will be delayed until this rule change is deemed certified under CFTC Regulation § 40.6. 24 17 VerDate Sep<11>2014 17:06 Aug 01, 2018 Jkt 244001 available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of OCC and on OCC’s website at https://www.theocc.com/components/ docs/legal/rules_and_bylaws/sr_occ_18_ 010.pdf. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–OCC–2018–010 and should be submitted on or before August 23, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 Robert W. Errett, Deputy Secretary. [FR Doc. 2018–16532 Filed 8–1–18; 8:45 am] BILLING CODE 8011–01–P SMALL BUSINESS ADMINISTRATION Data Collection Available for Public Comments 60-Day notice and request for comments. ACTION: The Small Business Administration (SBA) intends to request approval, from the Office of Management and Budget (OMB) for the collection of information described below. The Paperwork Reduction Act (PRA) of 1995, requires federal agencies to publish a notice in the Federal Register concerning each proposed collection of information before submission to OMB, and to allow 60 days for public comment in response to the notice. This notice complies with that requirement. DATES: Submit comments on or before October 1, 2018. ADDRESSES: Send all comments to Susan Suckfiel, Supervisory Financial Analyst, Office of Capital Access, Small Business Administration, 409 3rd Street, 8th Floor, Washington, DC 20416. FOR FURTHER INFORMATION CONTACT: Susan Suckfiel, Supervisory Financial Analyst, 202–205–6443, susan.suckfiel@ sba.gov or Curtis B. Rich, Management SUMMARY: 26 17 PO 00000 CFR 200.30–3(a)(12). Frm 00096 Fmt 4703 Sfmt 4703 Analyst, 202–205–7030, curtis.rich@ sba.gov; SBA Form 1050, Settlement Sheet is used in SBA’s 7(a) Loan Program to collect information from lenders and borrowers regarding the disbursement of loan proceeds. SBA relies on this information during the guaranty purchase review process as a component in determining whether to honor a loan guaranty. The currently approved form primarily requires the lender and borrower to certify to whether they complied with a series of loan requirements. The current form also requires submission of documentation (e.g., joint payee or cancelled checks, invoices or paid receipts, and wire transfer records) in support of the certification. SBA has determined that this current information collection lacks enough specificity to yield the information regarding use of proceeds that would enable the agency to effectively monitor compliance with loan disbursement procedures. As a result, SBA is proposing to change both the content and format of the Form 1050. The form will be divided into several sections to clearly identify the information to be submitted. The revised form will continue to collect the same basic identifying information such as loan amount, loan number and lender’s name. In addition, the form will continue to require certifications from both the lender and borrower regarding compliance with the disbursement requirements and accuracy of information submitted. However, generally the enumerated statements will be reduced or combined and replaced with requests for specific information. the revised form will include a listing of all of the uses of loan proceeds. For each applicable use, information regarding the names of the payees, the amount disbursed, and the authorized amount remaining will be collected. The revised form will also include a section to document the borrower’s equity injection of cash, assets, and any seller contribution (on full standby for the life of the loan). These changes will allow the lender to more clearly document all of the sources and uses of funds at the time of loan closing. This additional information will better allow both lenders and SBA staff to ensure that the necessary information is collected at the time of loan origination SUPPLEMENTARY INFORMATION: (a) Solicitation of Public Comments SBA is requesting comments on (i) Whether the collection of information is necessary for the agency to properly E:\FR\FM\02AUN1.SGM 02AUN1

Agencies

[Federal Register Volume 83, Number 149 (Thursday, August 2, 2018)]
[Notices]
[Pages 37875-37878]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-16532]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83724; File No. SR-OCC-2018-010]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Definition of Flexibly Structured Options

July 27, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 16, 2018, The Options Clearing Corporation (``OCC'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by OCC. OCC filed the proposed rule change pursuant 
to Section 19(b)(3)(A) \3\ of the Act and Rule 19b-4(f)(4)(ii) \4\ 
thereunder so that the proposal was effective upon filing with the 
Commission. The Commission is publishing this notice to solicit

[[Page 37876]]

comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(4)(ii).
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    OCC proposes to amend the definition of the term ``flexibly 
structured option'' as provided in Article I, Section 1.F.(8) of OCC's 
By-Laws to conform the definition to a recent rule change by Cboe 
Exchange, Inc. (``Cboe Options'' or ``CBOE''). The proposed changes to 
OCC's By-Laws can be found in Exhibit 5 to the filing. All terms with 
initial capitalization that are not otherwise defined herein have the 
same meaning as set forth in the By-Laws and Rules.\5\
---------------------------------------------------------------------------

    \5\ OCC's By-Laws and Rules can be found on OCC's public 
website: https://optionsclearing.com/about/publications/bylaws.jsp.
---------------------------------------------------------------------------

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, OCC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. OCC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of these 
statements.

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

(1) Purpose
    Flexibly structured options are options that give investors the 
ability to customize basic option features including size, expiration 
date, exercise style, and certain exercise prices. OCC currently 
defines a ``flexibly structured option'' as an option having variable 
terms that are negotiated between the parties to a confirmed trade 
pursuant to Exchange Rules and that do not correspond to the variable 
terms \6\ of any series of non-flexibly structured options previously 
opened for trading on the Exchange (other than a series of quarterly 
options or short term options).\7\ In addition, OCC's By-Laws currently 
provide that once a series of non-flexibly structured options (other 
than a series of quarterly options or short term options) is opened for 
trading on an options exchange, any existing flexibly structured option 
contracts that have identical variable terms shall be fully fungible 
with options in such series, and shall cease to be flexibly structured 
options.\8\ In other words, with the exception of quarterly options and 
short term options series, once an exchange opens a non-flexibly 
structured option series having identical terms to a flexibly 
structured option, the flexibly structured option would become fungible 
with the non-flexibly structured option series.
---------------------------------------------------------------------------

    \6\ OCC By-Laws, Article I., Section 1.V.(1), which defines 
``variable terms'' in respect of a series of option contracts other 
than OTC options to mean ``the name of the underlying interest, the 
exercise price (or, in respect of a series of delayed start options 
that does not yet have a set exercise price, the exercise price 
setting formula and exercise price setting date), the index value 
determinant and the index multiplier (in the case of a flexibly 
structured index option), the cap interval (in the case of a capped 
option) and the expiration date of such option contract.''
    \7\ OCC By-Laws, Article I. Non-flexibly structured weekly 
options are called ``short term options'' in OCC's By-Laws and 
Rules. Under Article I of OCC By-Laws, the term ``quarterly option'' 
means ``an option of a series of stock options or index options that 
expires on the last business day of a calendar quarter,'' and the 
term ``short term option'' means ``an option of a series of options 
that expires one week after it is opened for trading.''
    \8\ OCC By-Laws, Article I., Section 1.F.(8).
---------------------------------------------------------------------------

    Pursuant to a recent rule change, Cboe Options has made all 
flexibly structured options fungible with subsequently-introduced non-
flexibly structured options series having identical variable terms.\9\ 
This includes non-flexibly structured quarterly options and short term 
options series.\10\ As a result, for instance, under Cboe Options' 
rules, a flexibly structured option that has the same terms as a 
subsequently-introduced quarterly or short term option series would now 
be fungible with that non-flexibly structured quarterly or short term 
option series.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 83205 (May 9, 2018), 
83 FR 22550 (May 15, 2018) (SR-CBOE-2018-008) (Order Approving a 
Proposed Rule Change Relating to Flexibly Structured Options) 
(``Cboe Options has proposed to amend the rule to make all FLEX 
Options fungible with Non-FLEX Options that have identical terms.'')
    \10\ This also includes weekly expirations and End of Month 
(``EOM'') expirations. Cboe Options stated in its proposal that 
flexibly structured options with these expirations were not 
originally intended to be fungible. See Securities Exchange Release 
Act No. 82622 (February 2, 2018), 83 FR 5668 (February 8, 2018) (SR-
CBOE-2018-008) (Notice of Filing of a Proposed Rule Change Relating 
to Flexibly Structured Options).
---------------------------------------------------------------------------

    Cboe Options has requested that OCC amend its By-Laws to allow Cboe 
Options' rule change to become effective. Cboe Options noted in its 
rule change that the change ``will have the effect of more FLEX Options 
becoming fungible with Non-Flex Options, which will potentially 
increase the liquidity available to traders of FLEX Options.'' \11\
---------------------------------------------------------------------------

    \11\ See Securities Exchange Act Release No. 82622 (February 2, 
2018), 83 FR 5668 (February 8, 2018) (SR-CBOE-2018-008) (Notice of 
Filing of a Proposed Rule Change Relating to Flexibly Structured 
Options).
---------------------------------------------------------------------------

    To clear and settle flexibly structured options traded on Cboe 
Options in a manner that is consistent with Cboe Options' rules, OCC 
proposes to amend its definition of ``flexibly structured option'' in 
Article I of its By-Laws by deleting ``(other than a series of 
quarterly options or short term options)'' in the two instances in 
which it appears in the definition.\12\ OCC added this text to its 
definition of a flexibly structured option in 2009 to ensure 
consistency with Cboe Options rules, which were amended at that time 
to, among other things, allow for flexibly structured options to become 
fungible with subsequently introduced non-flexibly structured options 
series that have the same terms (other than a series of quarterly 
options or short term options).\13\ Consistent with Cboe Options' rule 
change at that time, OCC amended its definition of flexibly structured 
options in 2009 to provide that a flexibly structured option cannot 
have the same terms as any series of non-flexibly structured options 
previously opened for trading on the exchange other than a series of 
quarterly options or short term options.\14\ OCC intended the 2009 
amended definition to clarify that a flexibly structured option could 
share the same terms as a non-flexibly structured quarterly or short 
term option series and still be considered a flexibly structured 
option. Consistent with Cboe Options' most recent rule change, OCC 
proposes to eliminate from the language of its definition of a flexibly 
structured option the first instance of ``(other than a series of 
quarterly options or short term options)'' to provide that a flexibly 
structured option cannot share the same terms as a non-flexibly 
structured option series that has been previously opened for trading on 
the exchange, including a currently-trading quarterly options or short 
term options series. Consistent with Cboe Options' rules, OCC believes 
that this change would amend the definition in a manner to make it 
clear that flexibly structured options cannot share the same terms as 
non-flexibly structured option series

[[Page 37877]]

that have been previously opened for trading on the exchange.
---------------------------------------------------------------------------

    \12\ OCC By-Laws, Article I., Section 1.F.(8).
    \13\ See Securities Exchange Act Release No. 59675 (April 1, 
2009), 74 FR 15794 (April 7, 2009) (SR-OCC-2009-05); Securities 
Exchange Act Release No. 59417 (February 18, 2009), 74 FR 8591 
(February 25, 2009) (order approving SR-CBOE-2008-115).
    \14\ See Securities Exchange Act Release No. 59060 (December 5, 
2008), 73 FR 76075 (December 15, 2008) (SR-CBOE-2008-115) (``subject 
to certain aggregation requirements for cash settled options, the 
current FLEX Rules do permit the expiration of FLEX Options on the 
same day that Non-FLEX quarterly index options (``QIX'') and Non-
FLEX Weeklys Options expire.'').
---------------------------------------------------------------------------

    The second instance of ``(other than a series of quarterly options 
or short term options)'' in the flexibly structured option definition 
was adopted in 2009 to provide, consistent with Cboe Options rules then 
in effect and as an exception to general fungibility, that a quarterly 
options or short term options series with the same terms as a flexibly 
structured option would not become fungible with that flexibly 
structured option. As noted above, Cboe Options has recently adopted a 
rule change to eliminate this restriction and allow all flexibly 
structured options to become fungible with non-flexibly structured 
options series having identical variable terms that are later opened 
for trading on the exchange.\15\ Accordingly, OCC proposes to eliminate 
the second instance of this text from the language of the definition of 
a flexibly structured option in OCC's By-Laws to make it consistent 
with Cboe Options' rules. As amended, OCC's definition of a flexibly 
structured option would provide that once a series of non-flexibly 
structured options is opened for trading on an exchange, any existing 
flexibly structured option contracts that have identical variable terms 
shall be fully fungible with options in such series, and shall cease to 
be flexibly structured options. OCC believes that this change would 
allow OCC clear and settle flexibly structured options traded on Cboe 
Options in a manner that is consistent with Cboe Options' rules and 
would have the effect of making more flexibly structured options 
fungible with identical non-flexibly structured options series.
---------------------------------------------------------------------------

    \15\ See supra note 9.
---------------------------------------------------------------------------

(2) Statutory Basis
    Section 17A(b)(3)(F) of the Securities Exchange Act of 1934, as 
amended (``Act'') \16\ requires, among other things, that the rules of 
a clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities and derivatives transactions, to 
foster cooperation and coordination with persons engaged in clearance 
and settlement, and, in general, to protect investors and the public 
interest. OCC believes that the proposed rule change is consistent with 
Section 17A(b)(3)(F) of Act \17\ because it is designed to promote the 
prompt and accurate clearance and settlement of securities transactions 
in flexibly structured options. The proposed rule change accomplishes 
this by maintaining consistency between OCC's By-Laws and Rules and 
Cboe Options' rules as applied to the clearance and settlement of 
flexibly structured options. OCC further believes that the proposed 
rule change accomplishes this by providing that all flexibly structured 
options are subject to the same requirements. The proposed rule change 
would make all flexibly structured options fungible with subsequently 
introduced non-flexibly structured options with identical terms, 
thereby increasing operational efficiency by eliminating the need for 
OCC to monitor and treat a certain group of flexibly structured options 
(i.e., ones with the same terms as quarterly options and short term 
options series) differently than other flexibly structured options. In 
addition, Cboe Options has noted that its rule change will potentially 
increase the liquidity available to traders of flexibly structured 
options.\18\ Moreover, the Commission has previously noted that it 
would be concerned if flexibly structured options were to act as a 
surrogate for trading in standardized options (i.e., non-flexibly 
structured exchange-traded options) and that allowing for flexibly 
structured options to become fungible with standardized options would 
help alleviate this concern.\19\ In this respect, the Commission noted 
the following when it initially approved Cboe Options' rules to provide 
for fungibility between flexibly structured options and standardized 
options series with the same terms:
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78q-1(b)(3)(F).
    \17\ 15 U.S.C. 78q-1(b)(3)(F).
    \18\ See supra note 10.
    \19\ See Securities Exchange Act Release No. 59417 (February 18, 
2009), 74 FR 8591 (February 25, 2009) (order approving SR-CBOE-2008-
115). See also supra note 9.

    However, the rules, as proposed by the CBOE, help to ensure that 
FLEX market participants cannot avoid the protections provided to 
retail investors in the standardized options market simply by 
trading FLEX Options. In this regard, once a series is open for 
trading, new FLEX Options are not permitted in that series. In 
addition, once a Non-FLEX Options series is open, all outstanding 
FLEX Options in the same series become fungible with the 
standardized market, are traded pursuant to standardized market 
trading rules, and are aggregated for position and exercise limit 
purposes. These rules help to alleviate these surrogate concerns and 
should help to ensure that FLEX Options market continues to operate 
as intended.\20\
---------------------------------------------------------------------------

    \20\ See Securities Exchange Act Release No. 59417 (February 18, 
2009), 74 FR 8591 (February 25, 2009) (order approving SR-CBOE-2008-
115).

    The proposed rule change would help to further address this concern 
by allowing all flexibly structured options to become fungible with 
non-flexibly structured options series with the same terms that are 
later opened for trading on the exchange.
    In addition, the proposed rule change is not inconsistent with the 
existing By-Laws and Rules of OCC, including any rules proposed to be 
amended.

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

    Section 17A(b)(3)(I) of the Act \21\ requires that the rules of a 
clearing agency not impose any burden on competition not necessary or 
appropriate in furtherance of the Act. OCC does not believe that the 
proposed rule change would impact or impose any burden on 
competition.\22\ The proposed rule change would not affect the 
competitive dynamics between clearing members, but rather would solely 
affect the treatment of flexibly structured options with the same terms 
as quarterly options and short term options series. In this respect, it 
would facilitate consistent treatment of such flexibly structured 
options with all other flexibly structured options, providing that all 
flexibly structured options will become fungible with subsequently-
introduced standardized options with the same terms. The proposed rule 
change also would not inhibit access to OCC's services or disadvantage 
or favor any particular user in relationship to another. The proposed 
rule change would treat equally all holders of flexibly structured 
options with the same terms as subsequently introduced quarterly 
options and short term options series, providing that such flexibly 
structured options held by them would become fungible with such 
standardized options series. For the foregoing reasons, OCC believes 
the proposed rule change is in the public interest, would be consistent 
with the requirements of the Act applicable to clearing agencies, and 
would not impact or impose a burden on competition.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78q-1(b)(3)(I).
    \22\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

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

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)

[[Page 37878]]

of the Act \23\ and Rule 19b-4(f)(4)(ii) \24\ thereunder because it 
effects a change in an existing service that (i) does not adversely 
affect the safeguarding of securities or funds in the custody or 
control of the clearing agency or for which it is responsible and (ii) 
does not significantly affect the respective rights or obligations of 
the clearing agency or persons using the service.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 17 CFR 240.19b-4(f)(4)(ii).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.\25\
---------------------------------------------------------------------------

    \25\ Notwithstanding the foregoing, implementation of this rule 
change will be delayed until this rule change is deemed certified 
under CFTC Regulation Sec.  40.6.
---------------------------------------------------------------------------

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 email to [email protected]. Please include 
File Number SR-OCC-2018-010 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-OCC-2018-010. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of OCC and on OCC's website at 
https://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_18_010.pdf.
    All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly.
    All submissions should refer to File Number SR-OCC-2018-010 and 
should be submitted on or before August 23, 2018.
---------------------------------------------------------------------------

    \26\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-16532 Filed 8-1-18; 8:45 am]
 BILLING CODE 8011-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.